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Debasement and Inflation

Topics [ gold market silver silver coins gold ]


Currency in Rome was composed of four key denominations:

Aureus = 8g of gold
Denarius = 4.5g of silver
Sestertius = 1.2g of silver
Assarius = Copper

An Aureus was equal to 25 Denarii, which equates to a gold/silver ratio of 11.6. This is significantly different to today’s ratio, which averages around 60, reflecting the fact that silver is less rare today relative to gold than it was in Roman times. Some argue that with continued industrial use silver’s rarity will increase, resulting in a more rapid increase in silver’s price relative to gold and thus a drop in the gold/silver ratio back towards that of ancient times.

The silver Denarius was the key Roman coin from 211 BC until around 350 AD. In fact, across the world money was primarily defined in terms of silver, not gold – the world operated on a “Silver Standard”. The “Gold Standard” is a relatively recent phenomenon, only coming into existence across the world during the 1800s.

Rome mostly obtained gold and silver via wars and tributes and taxes on the newly acquired territory. However, when Rome ceased to expand it had to rely on newly mined silver, which was not enough to pay for wars to defend its territory and indulgences (eg Colosseum).

Instead of reducing its spending and balancing its budget, it was easier to debase (reduce in value) the coinage. This was done by decreasing the amount of silver in each coin, as demonstrated in the chart below (source). By doing this, Rome could produce more coins and "stretch" their budget, allowing them to spend more than it had.

The public were not fooled, however, and demanded more coins for their wages and goods they produced so they would get the same amount of silver. Asking for “more coins” is another way of saying prices increased, which is now commonly called inflation (although inflation is strictly defined as an increase in the amount of money, a symptom of which is increasing prices).

For example, the pay of a Roman soldier increased from 225 denarii a year during the time of Jesus to 500 denarii a year 200 years later. Over the same time the price of grain more than tripled.

So the story of Rome is one of politicians wanting to spend more than they collect in taxes which leads to debasement of the currency (today this is done by just printing money) which leads to inflation. Has much has changed over the last 2000 years?

Information for this article came from Ancient Coins and of course Wikipedia. If you’re interested in ancient prices, Marion Butler has a good article on the topic.


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