Izabella Kaminska: Rome fell due a collateral and political bust, not Hyperinflation

One of the things that’s been on the back burner was a monetary investigation of the Roman empire and the subsequent dark ages. It seemed like the reason the Roman empire was successful could hae been the imposition of a unit of account through trust in the government and the presence of fractional reserve banking allowed for economic expansion.

Fortunately, Izabella Kaminsky does the work for me with a post on the Romans. She documents the how the period of debasement of the currency and the period of hyperinflation do not overlap.

But this series of paragraphs is quite astonishing in insight:

“One could surmise therefore that the stealth debasement of coinage in the Roman Empire seemingly had no impact for as long as the Empire was growing and expanding, and for as long as the primary means for large value transactions was credit. That the currency was debased mattered little, since real wealth was stored in credit instruments, property and land — all of which was ultimately protected by the power and stability of the Emperor. And as long as that lasted so did confidence in the multi-tiered currency system.

With falling output, income, a banking breakdown and political instability, however, those claims could no longer be protected. Such circumstances, then, encouraged a flight to gold and coinage as a more secure and alternative store of value. And under those circumstances it’s understandable why the quality of the coinage suddenly began to matter.

Not to say there were not gold hoards before this time because there certainly were. But the economic motivations for them — at least on a collective large-scale basis — were potentially different during the hyperinflation period.

As for Diocletian, while his maximum price edict solution for hyperinflation was a clear and obvious failure, the same cannot be said for the taxation system he ultimately brought in. Indeed, it was by standardising the tax unit in relative terms — linking taxes to the needs of maintaining one soldier for a year, as set against the productive capacity of a single man, his family and his land — which helped to stabilise redemption rights against available Roman output, thus curbing inflation in the process.”

I’d put some sentences in italics, but…every sentence deserves italics. Nice.




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1 Comment on "Izabella Kaminska: Rome fell due a collateral and political bust, not Hyperinflation"

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4 years 6 months ago

Reminds me of a related (incomplete) pet project: historical chart of ($value of above ground gold)/($ global GDP) (but, only starting in 1900!).