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Money and Inflation in Ancient Rome
Debasing the coinage
The quantity theory of money is one of the oldest theories in economics. Versions of it date
back over 2000 years.
The Romans clearly recognised that an increase in the amount of coinage was directly
related to increases in prices. This was obvious from the fact that periods of time when the
amount of coins in circulation was relatively constant coincided with relatively stable prices,
whereas whenever there was a rapid increase in the coinage, prices increased rapidly too.
But why did the Romans from time to time increase the coinage?
As the Roman Empire grew, wars became more numerous and more costly. Also the need
for larger armies to protect the expanding borders led to more and more expenditure on
soldiers’ pay. Finally the ambitious public building programmes and the extravagant living
styles of the emperors added to the growing burden of public expenditure. So how was this
expenditure to be financed?
Taxation was unpopular at the best of times, but if taxes had to be suddenly and
dramatically raised to finance a new military campaign, there could have been considerable
political unrest. A simple alternative, therefore, was to mint more coins. But how could this
be done, given the limited supply of silver?
There were two answers. Either the proportion of silver in coins could be reduced, or
coins could be made smaller. Both these methods of debasing the coinage were common. The
following table shows the reduction in the proportion of silver per coin between 40BC and
272AD.
Year
% of Silver Coins in Use
40BC
98
110AD
84
213AD
48
263AD
6
272AD
1
By the end of the Third Century the coinage had been so debased that many traders were
refusing to accept it at its face value. Too much money had been chasing too few goods. It
was impossible to contain inflation at the same time as debasing the currency.
Question
If inflation simply eroded the value of the Roman coinage, how could the emperors gain by
minting more coins?