Back to Posts

Did inflation collapse the Roman Empire?

Ask most people what caused the fall of Rome, and they’ll probably think of barbarians marching along the Appian Way with flaming torches. It’s an evocative image, but it doesn’t tell the full story!

The decline of the Roman Empire can be better understood by examining the perfect storm of problems it faced, some of which had to do with basic economics.

Almost as destructive as the sharp weapons wielded by the Goths and the Vandals, hyperinflation was calamitous for the Empire.

The denarius – worth its weight in silver

Rome’s economic woes began with its coins. Unlike the modern era where the value of currency depends on being linked to gold reserves or consumer confidence, during the early days of the Empire the denarius was made of real silver.

Under fiscally responsible leadership and a thriving economy, this monetary system worked well for much of Roman history. Unfortunately, when growth began to slow around 200 AD, the state’s attempts to stimulate the market were disastrous.

End of the road

After the dust of the civil wars had settled, Rome enjoyed two centuries of economic prosperity with its advanced road network opening trade across the known world. But the boom couldn’t last forever.

The Romans slowly started running out of new territory, and hence of fresh revenue streams. A plague from 165 to 180 AD didn’t help – the population shrank, and prices soared. Other inflationary factors included the movement towards a cash-based society (elites had previously traded more with land) and rising public spending on infrastructure and the military.

Hyperinflation hits

Faced with mounting costs and a dearth of new sources of wealth, Rome responded by hiking up taxes on its citizens and devaluing the currency. One denarius previously held roughly 4.5 grams of real silver. Roman officials – who controlled the minting of coins – slowly began adding impurities to improve government liquidity. More and more coins entered circulation, each time becoming less pure.

To put this in perspective, under the reign of Augustus (27 BC – 14 AD) the denarius was about 95% silver, but by 265 AD this was down to 0.5%. Rome’s silver coinage had become almost worthless.

Price controls

Hyperinflation was crippling the economy. Emperor Diocletian came to power in 284 AD, and attempted to curb the freefall. He introduced price controls in 301 AD, but this only drove consumers to the black market. He also introduced a new silver coin called the argenteus, with one coin equal to 50 of the old denarii. But within a decade one argenteus would be worth 100 denarii. Despite Diocletian’s best efforts, Rome’s toxic inflationary cycle continued.

The fall

Diocletian’s successors were equally ineffective in tackling the Empire’s fiscal problems. Taxes and prices continued to increase, affecting the middle classes and poor the worst as wealth became increasingly concentrated in the coffers of an elite. Parallels with today are not difficult to draw! Mob riots followed, as did mutinies when the government couldn’t pay the troops.

The long-term decline of Rome cannot be pinned to any one cause. Political instability and military failures against invading Germanic tribes ultimately sealed the Empire’s fate, however these events took place against the backdrop of a long-term economic decline with inflation and inequality at its core.

Published: 3 September 2019

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

Share this post

Back to Posts