I am a people person, and always enjoy meeting new people, especially if we share the same passions. Sometimes fortuitous circumstances bring people with similar interests together, as what happened to me the other day. GEORGE MAHER reached out to me after reading a recent article of mine: What Causes Societies to Rise and Fall. George holds a PhD in the economy of the Roman Empire from King’s College London and a bunch of other fancy degrees. While I was writing the article, I thought to myself, I sure would like to know more about the Roman monetary and fiscal system. Then George called me, and lo and behold he had written a book,PUGNARE, on the exact subject I was anxious to read! I bought the book immediately.
My old Latin teacher gave all students a Roman last name that best fit their personality. Unfortunately, and perhaps not surprising, I did not get a noble moniker like Marcus Aurelius or Cincinnatus. My assigned name was “ Robbie Nero.” I was in the 6th grade, the year that Tyler Walker and I were smoking cigarettes in my family’s barn, and well, it, uh, mysteriously burned down. Having exhibited an enthusiasm for pyromania, as well as torturing my Sunday School teacher, I couldn’t really complain about my new Roman name.
Had I paid more attention to my Latin studies, I would be able to review ancient Roman “commercial paper” and legal documents recording the extensive and elaborate nature of Roman trade and commerce. Thankfully, my “fiddling” away of my youth by neglecting my assignments and burning down buildings has not prevented me from learning about the Roman economic system thanks to George’s book. Human nature never changes. We’ve all heard the many aphorisms about history repeating itself and learning the lessons of the past. We humans are wired a particular way and that will never change. This “history” rule applies equally to economics, also rooted in predictable human behavior. There is an extensive historical record of humans interacting with one another to better their lives through trade and commerce, and the monetary systems necessary to allow these activities to prosper. One element of human nature is rulers trying to “game the system” to achieve their personal political needs. When those who run the “state” interfere by devaluating fiat money, all hell breaks loose. Since my excessive spending almost bankrupted the Roman state, and people are still mad at me for impaling their ancestors on stakes and lighting them on fire, I likely don’t have the “street cred” to tell the rest of the story. However, George does and below he gives us his insight into these matters.
George Maher: Thank you Rob.
Lessons about the perils of monetary policy, devaluation, and a lack of investor confidence can come from peculiar places. Ancient Rome is one. Roman work in the field of financial innovation was nothing short of ground-breaking. They established the world’s first fiat currency, initially as a way of organising the pay of soldiers, before it spread and became common across the empire. Such was the stability of the currency, it can safely be said that no currency until the British Pound in the 18th Century was as well-organised. One could say that the Romans were 1700 years ahead of their time.
The Roman currency prided itself on its price stability. You could travel from Britannia in the far north-west to Judaea in the east and back to Africa Proconsularis in the south, and the prices of goods and the value of your coins would be the same. With the exception of some seasonal commodities such as grains, long-term prices were stable. After the reign of Emperor Septimius Severus (193 to 211AD), this price stability had been severely damaged, some feel irreparably so.
Severus doubled Roman soldiers’ wages both to buy the loyalty of existing soldiers and as an incentive to join the army, which needed bolstering for defensive operations in the east of the empire. In a singular move, this spending increase doubled the overall cost of the army. Lacking the silver and gold metal needed to manufacture the required coinage after centuries of extensive mining, the Roman mints began debasing the currency by introducing small deposits of base metal to each coin, gradually reducing the actual silver and gold content of the currency.
The fixed exchange rate, set by government decree, between the gold (Aureus), silver (Denarius), and copper or brass coins (Sestertius and Dupondius) that underpinned the trading economy and that relied on trust and faith in the currency was lost.
After a sustained period of debasement that continued throughout the third century AD, the Romans eventually abandoned their currency and took to bartering for their goods. Throughout the empire trade collapsed and political chaos ensued. It gradually began to break up, with the city of Rome itself eventually being sacked by barbarians in 410AD.
As Rome demonstrated, the key danger in monetary policy is when state action results in investors losing faith in money and its perceived value. If someone is worried that the $1,000 they have stashed away in an account for a rainy day will not be worth as much as in three months, they will go out and spend that money. Increased spending will drive prices up further making existing savings worth less. Just as in the Weimar Republic or Venezuela today - despite the latter’s efforts to improve the situation by introducing official cryptocurrencies - money will become worthless.
That is the situation we must avoid. Confidence in our currency is crucial - and whatever destroys that will destroy much of what we have.
