The rise and fall of the Roman Empire is arguably one the most studied, written about and theorized over subjects in academia, with fiery debates raging for hundreds of years among historians, sociologists and political scientists. The explanations that have been put forward to identify the causes and the circumstances that led the end of this era of human history mostly tend to focus on geopolitical factors, on social shifts within the Empire and on consequential political changes that altered the very nature of its governing system. While all those developments were certainly important and contributed to the decline of Rome, there was another momentous shift that arguably triggered, facilitated and encouraged them all, one that often goes under-discussed and its influence is widely underestimated by modern academics.
If one really looks at the bigger picture and studies the history of the Empire objectively, it becomes clear that the first domino to fall was money itself. The manipulation and debasement of the currency was the root of all evil, of the fiscal suicide it enabled, the economic devastation expedited and the sociopolitical oppression it cleared the way for. And when we look at the sequence of events from this perspective, the fall of the Roman Empire has a lot more lessons and dire warnings to offer us today that many might have thought.
Unsound money and unsound society
The origins of this historic shift can be traced back to the end of the 2nd century AD and well into the 3rd century AD, a period referred to by Roman historians as the “Crisis of the 3rd Century.” During that time, social and political upheaval shook the Empire to its core, resulting in the need for higher military and public spending, that changed its fundamental structures, values and institutions forever.
As Professor Joseph Peden highlighted in his lecture “Inflation and the Fall of the Roman Empire”: “The basic coinage of the Roman Empire to this time — we’re speaking now about 211 AD — was the silver denarius introduced by Augustus at about 95 percent silver at the end of the 1st century BC. The denarius continued for the better part of two centuries as the basic medium of exchange in the empire.By the time of Trajan in 117 AD, the denarius was only about 85 percent silver, down from Augustus’s 95 percent. By the age of Marcus Aurelius, in 180, it was down to about 75 percent silver. In Septimius’s time it had dropped to 60 percent, and Caracalla evened it off at 50/50….Caracalla had also debased the gold coinage. Under Augustus this circulated at 45 coins to a pound of gold. Caracalla made it 50 to a pound of gold. Within 20 years after him it was circulating at 72 to a pound of gold, reduced to 60 at the end of the century by Diocletian, only to be raised again to 72 by Constantine. So even the gold coinage was in fact inflated — debased. But the real crisis came after Caracalla, between 258 and 275, in a period of intense civil war and foreign invasions. The emperors simply abandoned, for all practical purposes, a silver coinage. By 268, there was only 0.5 percent silver in the denarius.”
It doesn’t take an economist to predict what happened next: An inflationary wave took over the empire’s economy, with prices surging nearly 1000%. Commerce and agricultural production were heavily hit by the run away prices and this crisis soon translated into a real threat of widespread public tensions. The central planners of that time, much like their peers today, believed they could control and twist basic economic laws by edict and brute force. They introduced price controls, which, also quite predictably, only resulted in a vast black market or, even worse, in drastic and disastrous ripple effects in fundamental market dynamics. Just like we see today, instead of rescuing the sectors they already ravaged through their policies, the central planners further exacerbated the crisis though “more of the same”.
Price fixing led to perverse incentives and practices like hoarding and stock piling, and the longer the State insisted on using coercion and force to “tame” natural market dynamics, the larger the gap became between supply and demand, resulting in more shortages, even higher prices and eventually an even sharper threat of social unrest. The desperation of the State also manifested in tax hikes, which eventually became so onerous that they amounted to expropriation. Property owners were effectively forced off their land, and the management of their estates was handed over to political cronies. Reckless spending, especially on the military, and even more aggressive market interventions were quick to follow, a sharp historical turn in an empire that was until then relatively laissez-faire when it came to voluntary transactions.
The nature of the State soon began to resemble more and more our modern political institutions, as power and direct control over the citizen’s life became ever more concentrated at the top of the pyramid and as the number of taxpayer-funded jobs started to skyrocket. Bureaucracy, waste, corruption, all emerged as the new normal we still recognize today at the core of Western politics. And yet, it is safe to assume that most citizens at the time, much like today, failed to identify the link between all that ailed their society and their economy and the corruption of their currency. Just like most of us in any advanced economy today, they focused on the wrong thing: On political enemies, foreign and domestic, real or imagined, and on short-term policy shifts or myopic disagreements, instead of trying to identify the real cause-and-effect relationship that lay at the heart of their socioeconomic decline.
In the upcoming second part, we look at the stages and causes of the devolution of a healthy and vibrant society into welfarism and stagnation and we examine the parallels and the lessons that the Fall of Rome can teach us today