http://www.youtube.com/watch?v=S4KuDlCaWPA
I had just finished watching a YouTube commentary on inflation and the fall of the Roman Empire, and it started me thinking about how Rome managed to monopolize currency within it’s own borders in the first place, before the Roman State debased the coinage and destroyed 95% of the wealth of the known world.
Before Rome had a firm grip on the coinage of its territories, there were many different kinds of money from many different lands traded in the market places of the known world. In order to monopolize the coinage, with which Rome might more easily pay its armies and thus have a firmer grip on its growing territory, they first had to engage in some free market competition.
Julius Caesar and later Augustus did not, so far as I can find, issue any kind of legal tender laws, at least not outside of Italy. Even if they had, it would have done them no good, since Rome rarely if ever interfered with private business, except in times of grave national crisis. Also, Roman territory was too vast and too diverse to enforce such laws. So long as taxes were collected in great enough quantity as to pay for the needs of the Roman state, which amounted to approximately one day’s wages per year, there was never any need to. But to get Roman coinage accepted all over the known world, Roman money first had to be superior in both quality and quantity. Rome did not make it’s money the “world’s reserve currency” by issuing intrusive, largely unenforceable laws; it did it by making its money better.
The Roman ‘denarius’, first issued by Julius Caesar, contained about 95% silver. This amount was certified and consistent throughout his financial reign, and that of several emperors who came after him. This made Roman money preferable to other money as a medium of exchange, and the idea quickly took hold everywhere in Roman-controlled teritory. There was counterfeiting and “shaving” of the national coinage, but never on a grand scale, as these offenses always carried a death sentence (Ah, for the good old days!)
Always, though, there are exceptions. Rome’s stand on business was so laizze-faire (at least in the times discussed here), that it often overlooked instances where it should have stepped in for it’s own interests. Few men, and no bureaucrat anywhere, can diagnose a danger to the money supply itself. I have met those who believe that a knowledge of microeconomics can actually make one a better person, and these people have no idea how right they are. In Jerusalem, there were the infamous money changers, busily ripping off both God and Caesar. When Jews came to pay their Temple tax (a blasphemous idea in itself), they could only do so with a silver coin known as the “half-shekel of the Sanctuary”. This was the only coin that was a certified ½ ounce of pure silver, without the Emperor’s image upon it. The money changers had a Temple-sanctioned monopoly on the supply of these coins, and raised the exchange rate to whatever the faithful could pay. Thus (for example, since I have no ready figures) a single half-ounce of silver might command ten or more denarii. I have always thought that any event that would make Jesus Christ fly into a rage and start beating people’s heads in should merit more scholarship, but even clergy I have talked to have been baffled as to what the “money changers” (hint!) were actually doing. In short, because of greedy Temple priests and narrow-minded Roman bureaucrats, an innocent man gets crucified, Caesar loses some serious potential tax money, and nobody in future ages bothers to remember what the event was really all about. If you’ve ever wondered why a man’s life would be worth only 30 pieces of silver, keep in mind that Judas was almost certainly paid in Temple coins.
Getting back to happier events, Roman policies of sound money, free markets, and minimal taxation led to the much-discussed Pax Romana. It bears repeating that only one day’s wages from each resident of the Empire (all those that could be taxed) maintained the entire Roman state. Large building projects were usually paid for with state lotteries. Though there were a few bloody conflicts resulting from religious and cultural differences (read Josephus to see little times have changed!), the primary complaint from the best trained and equipped army in the world was that there were too few wars to fight.
Compare this to the later policies of continually debased currency, with more and more intrusive laws and taxes during the late 2nd to early 3rd centuries and beyond. Rome’s armies increased in number from about 250,000 to over 600,000, while the legendary quality of training, equipment, and recruiting standards quickly became a distant memory. Threat of foreign encroachment also increased, as small groups of previously inconsequential barbarians became bolder and more powerful, and it is not mere coincidence that they understood only a gold standard. Business was taxed more and more in raw goods because gold and silver became a commodity only for the very wealthy. Machiavelli, who I’ve normally found to be a very astute in the ways of economics, fails to make the connection between Rome’s long fall and it’s bad economic policies when describing the true legacy of Caesar. Even fewer scholars seem to notice that such a mighty superpower ended with a whimper instead of a bang. It would seem that just as sound economics can make a nation master of the world in near-perfect security, bad economics can turn that world into Hell on earth.