On his deathbed in York, Roman Emperor Septimius Severus (193-211) gathered his two sons and co-heirs around him to give them some advice about running the vast empire when he was gone:

 "Be harmonious, enrich the soldiers, scorn all others"

A bit harsh but Severus had been a successful Roman soldier/emperor – leading the imperial armies to defeat multiple foes both internally and externally whilst expanding the Empire in Africa, Persia and Scotland (1). He’d enlarged the army during his reign and given them a substantial pay rise. But where did the money come from to pay for this?

Answer: He debased the currency by reducing the silver content in the Roman coinage – the denarii – from 78.5% to 54%. This enabled him to cheaply expand the money supply to meet his priorities (pay the troops). In the years that followed his death, the Roman Empire was, predictably, racked with inflation.

Let’s pause here and ask a question…

Is there anything instructive to be learnt now - in 2022 - from the example set by Septimius back in 211? Something that perhaps addresses the issue of governments thoughtlessly expanding the money supply to meet some perceived emergency need?

My contention is, whether you wear a toga or a smartly tailored suit, the lessons of economics apply equally and always. The same rules apply. There is nothing new under the sun. And yet in our arrogance and ignorance, we forget. “Things are different now,” we bleat pathetically as the waves - commanded to cease - roll remorselessly past our gilded thrones. (2)

To meet increased expenditure all governments - ancient or modern - have the same list of choices to finance that expenditure. The options are as follows:

• Don’t do it

• Cut expenditure elsewhere

• Raise taxes

• Borrow the money

• Debase the currency

The order I put these five options is - of course - often inverted by politicians. The first three are hard and have real time accountability. The latter two postpone the pain and push it into the future. Guess which options politicians increasingly favour? (3)

Back to the Third Century

Septimius unwittingly set in motion a series of disasters for the next seventy years as short-lived Roman emperors grappled with both inflation but also with invasions, plague, and endless civil wars. Whereas English historian Edward Gibbon might say the mid second century AD was the best time in history to be alive, the third century most certainly was not (4).

The 3rd century story is a depressingly familiar one.

Following Septimius’ death, his two sons didn’t live harmoniously together, quarrelled, and Caracalla killed Geta going on to become one of Rome’s worst emperors. His decision to expand citizenship to all peoples of the empire – sometimes painted as a noble and liberal move – was brought on by his excessive spending. More citizens equalled a larger tax base. (5)

And so, with wearying predictability, emperor followed emperor, crisis follow crisis, rebellions drew troops from frontier defences which, in turn, allowed multiple barbarians invasions through the gaps this created. At one point the empire even split into three. And all whilst inflation wrecked the economy.

The third century’s equivalent of a central bank was the Imperial Mint where the empire’s coins were created. Whereas modern day governments Quantitive Ease billions into existence at the touch of a button, their ancient predecessors debased the currency by adding increased amounts of base metals to the coinage. The consequence of this was the same as QE; lots of inflation caused by a prior expansion of the money supply. Same as now.

So how did the Romans deal with this issue? Badly, to be honest.

 Enter Diocletian (though hat tip to Aurelian)

Militarily, the Emperor Aurelian (270-75) put the empire back together with a series of lightening victories from East to West before he was tragically murdered (5). He started the process of dealing with inflation by producing higher value and higher worth coins not affected by debasement. However, it was his eventual successor Diocletian (284-305) who really tried to get to grips with inflation.

His most famous economic policy was the Edict on Maximum Prices of 301 where he laid down the maximum prices for over 1000 goods and services. However, like the Labour government’s Prices and Incomes policies of the 1970’s or the Tory government’s disastrous energy price cap from 2017 onwards, artificially holding down prices never works. As a wiser UK Prime Minster once said “you can’t buck the markets.”

Despite a harsh penalty for transgression (death), the price controls collapsed quickly into a heap of shut shops, food scarcity and rioting. How can businesses or agriculture survive if the input costs are higher than the costs of sale? There was also a strong element of misdirected blame in the Edicts’ preamble that labelled high prices immoral and unpatriotic and that people who sold at high prices were enemies of the Empire.

Obviously, Diocletian confused the causes of inflation with its results. The causes - debasement and a flooding of currency - were not addressed but the consequences - increased prices - were instead blamed. In the modern parlance, Diocletian claimed businesses were ‘gouging’ their customers. Yes, governments distancing themselves from the consequences of their own actions was alive and well back in ancient Rome.

But there was a second policy of Diocletian that is also relevant here; inherited jobs leading to forced labour immobility. The economic activity of the empire had reduced markedly over the dismal third century. If land was depopulated and unworked, not only did the food supplies decline but so did the tax yield. Tie people to the land and make them work in their father’s professions, then yields - both agriculturally and financially - would, in theory, go up. What was the loss of liberty for the individual if the greater good of the empire was served?

Practically speaking, the citizens of the Empire weren’t allowed to move and were compelled to follow in the footsteps of their parents for jobs. Thus if your father worked on the land, so you did too. If he was in the army, you also had to join. Ditto shopkeepers, tanners, blacksmiths, bankers etc. Arguably, this marked the beginnings of serfdom in Europe and the Middle Ages. (6) Michael Rostovtzeff, writing in 1926, put the tolerance of this loss of liberty down to a general weariness with the proceeding years of lawlessness and destruction, years where armies (internal & external) had taken crops forcefully and commerce had dried up as the Empire’s internal networks became dangerous to traverse.

So the liberty to move around and pursue one’s own course in life was severely curtailed. Life became smaller and meaner for the general population as Diocletian and his successors grappled with inflation & taxation using regressive and authoritarian means. Interestingly enough, as the population at large became less free, the fourth century emperors (though not Julian) became more remote, their courts more formal and the Emperor more unapproachable. This marked the moment when the empire switched from a Principate form of rule to what became known as The Dominate. The Emperor was no longer first among equals, he became a godlike figure. Naturally, the bureaucracy increased exponentially, as did the army. The wider elite solidified their position. Inflation didn’t affect them too much as they often managed to evade paying taxes. (7) Payment in kind - food for the army, services - was always an option in those inflated times.

So, what are the parallels - or warnings - from then to now, from the economic woes of the later Roman Empire to 2020’s style inflation?

The first point is an obvious one; don’t debase the currency. It doesn’t end well. Secondly, efforts to manipulate prices have a bad habit of failing and lead to supply issues. Thirdly, be aware of those who threaten to trade your liberty in order to meet some perceived emergency. Travel restrictions, a creeping control over freedoms and appeals to the collective over the individual are all potential signposts on the road to authoritarianism.

The Roman Crisis of the Third Century is traditionally dated 235-285. The Empire in the West lasted until 476. In the East 1453. But the Empire - of both East and West - was radically different following the crisis. It was still the Roman Empire but the compact between citizen and state had changed completely. Inflation hasten this change.

 References

1) After his death, all of these gains were later lost.

2) This of course references King Canute - proving to his courtiers in the 11th century that nature will not bend to the will of kings. "Let all the world know that the power of kings is empty and worthless, and there is no king worthy of the name save Him by whose will heaven, earth and the sea obey eternal laws." One might also add the eternal laws of economics. 

3) There is a sixth option which is plunder. To be fair, this was a more acceptable option back in Roman times. An equivalent today might be a special ‘one off’ tax on corporations (oil companies / pension funds / banks). Basically a fiscal raid.

4) Decline and Fall - Part One. I’m currently reading this epic tome.

4) More citizens also meant - in theory - more people to join the army, engage in civic activities sand share the responsibilities of the Empire. But taxes too. However, one of the perversities of universal citizenship was a decline in army recruitment. Previously citizenship was the reward for twenty years service in the auxiliaries. That inducement was now gone.

5) Aurelian’s achievements were legendary; all the more so due to the brief time period he achieved them. The Goths were repelled, Zenobia and the Palmyrian Empire were defeated and the East reabsorbed back into the Empire and the breakaway Gallic Empire was similarly demolished and reabsorbed. He also took the time to commission - yes you guessed it - the Aurelian walls in Rome.

6) These policies were reinforced and built on by Diocletian’s eventual successor Constantine.

7) Diocletian also reorganised the administration of the empire into more numerous but smaller districts. He split the control of taxes and administration from army command for the local governors. One consequence of this was that large local landowners were able to more easily evade taxes by bullying or ignoring these less important adminstrators.