The Quantitative Easing (and Fall) of the Roman Empire

A monetary policy theory of the fall of Rome

Money, in a word, is the most universal incitement; iron the

most powerful instrument, of human industry; and it is very
difficult to conceive by what means a people neither actuated
by the one nor seconded by the other could emerge from the
grossest barbarism.
EDWARD GIBBON1

Joseph Malchow
P. Thiel
Sovereignty, Technology,
and Global Change
Winter 2011
4/11/11

I.

The Inflation Suicide

In A.D. 33, Rome, whose still winsome bellicosity gave her trammel over the

accumulated metals of most of the known world, suffered an economic recession. M.

Cocceius Nerva, a keen but unambitious lawyer, was in that year in the capital city, the seat
of his friend the emperor Tiberius. The two enjoyed the society of one another, as it tended
to produce counsel on the affairs of state which was unmolested by either jealousy or
ambition. Now Nerva had chosen to starve himself to death; there was no one to witness
but the emperor. During the slow suicide, Tiberius let soften the veil of the purple,
confessing to Nerva that although as a general matter he did not care who died and who
lived, his conscience would be gravely disturbed if Nerva pressed through his campaign all
the way to death. Tiberious demanded a reason; he received none; there was none that
would satisfy. It was in fact a close acquaintance with the ills of the state that had fixed
Nerva to take his own life while his honor was still uncompromised and his welfare still
unthreatened from without.2 It was economic ills which motivated the suicide.
Nerva was early; it was four hundred years before the Visigoths penetrated the pocked
walls and actuated with force the fall of the Roman Empire; yet the awful seed of fragility
had been glimpsed by Nerva, and his mental bravery was unequal to his sense of personal
legacy. Nerva could no longer bear to associate with Tiberius, chiefly because [Tiberius] had
revived the laws on loan-contracts which Caesar had enacted, [and] this was bound to
damage credit and be very upsetting [for the inability of many respected citizens to comply
with a sudden request for repayment of what they had borrowed would be exposed.] So he
starved himself to death.3

What precisely had Tiberius

done, and why should Nerva have
destroyed himself over it? Faced
with a credit bubble in the Roman
Empire and in its denariusthe
great silvern coin which with the
rise of the empire came to
dominate

hundreds

of

lesser

Fig. 1 Rome A.D. 305, with mints demarcated

economies, and all of global tradeTiberious consummated a regime of intensely

inflationary policy, deploying a collection of monetary and fiscal sleights in an effort to
rescue Rome from recession. What Tiberious and his successors didalthough they knew
neither the science nor indeed the name of economicstightly resembles what is currently
in fashion among politicians of the great liberal western powers, with little to suggest of the
policies that either their form or their final, desperate coda will differ appreciably from what
Nerva foresaw.
Two histories, then, run in a grim parallel; one is complete, ours is in train; and they
suggest, when set side by side, that the tempestuous cycle of boom and bust is, so long as
men are organized into governments, potentially inevitable. By comparing known data about
the Roman currency, we can reconstruct the wild inflation experienced by the Empire (Fig.
3). By observing the rising salaries of the imperial soldiers, we can confirm it (Fig. 4). And by
taking anecdotal evidence from the histories coupled with empirical evidence of shipping
activity, we can observe the decline of commerce numerically (Fig. 5). To understand why all
of this occurred, we piece together a monetary history of Rome.

This essay will use what data are availableprincipally numismatic evidence and the
limited economic data contained in the contemporaneous historiesto show that Rome
progressed from a free and prosperous economy into one whose military fragility, the
immediate cause of its fall, was authored by deliberate policy decisions. These policy
decisions resemble a number of modern economic policies now in ascendance. From this
cross-centurial observation, the essay concludes that of the possible scenarios for the ending
of the boom and bust cycles of great sprawling economies, the most likely is catastrophic
failure. The essay finally draws out two distinctions in circumstance between the United
States and the Roman Empire; the one, the amity of its neighbors, is dismissed as
insignificant; the other, the deep and intergenerational investment in the nation made
possible by robust and accessible equity and debt markets, is a potential life-saving difference
between the United States and its forerunner in antiquity.

II.

Rome Under Octavian: Free to Choose, Free to Invest

When Gibbon talks of iron and money, and of the Roman people as needing to have

been actuated by the one and seconded by the other, it is striking that he isnt clear
which is which. Was the evolution of the Roman republic actuated by money and backed up
by iron and coke? Or was the development of Rome actuated by industry itself and only
stabilized by a money system? Gibbon is ultimately convincing that the Romans, who
comprehended the fairest part of the earth, and the most civilized portion of mankind,
lived fundamentally in a money society. That the gears of Roman industry turned
overwhelmingly toward war is a bellicosity that resulted only from a failure to grow through
organic means, and a politics that made it easy for the elect to coopt industry to their own
ends.
4

It was not always thus. Rome grew from republic to empire in large part by preying upon
other nations in the Hellenistic world and across the arc of the Mediterranean. Egypt is the
most common exampleits Cleopatras and Ptlomies, the two lines of pharaohs who ruled
before Rome conquered Egypt, built governments that shuttled people into vast
collectives where they were treated as cogs; taxes became oppressive; and personal profit
was skimmed into government coffers until the great goal of a life became nothing more
than survival.4 From citizenries thus dispirited an expansionary Rome won easy victories.
Under Octavian, the Roman Empire was a place of wide economic freedom. Indeed
Octavian himself, who ascended to the throne in B.C. 27 and remained until A.D. 14, was
seen to represent a Roman ideal of personal freedom which was elsewhere falling out of
fashion in the rest of the world. When Octavians fleet destroyed that of Mark Antony on
the Ionian Sea, it was more than a military victory. Antony was vying for control of Rome,
yet he had gone outside the borders of the Roman Republic to marry Cleopatra VII, the final
pharaoh of ancient Egypt. A constrained and quite foreign statism was therefore represented
in the person of Mark Antony; he stood in counterpoise to Octavian, who embodied Romes
traditional values. In this sense, Octavians ascension over Antony was a victory for a
liberalized economy and a rejection of the popular statism then seducing much of the
Hellinistic world.
Beside the principle of laissez faire there was the belief in the old doctrine of private
enterprise. The victory of [Octavian, after his accession called] Augustus and of the West
meant, then, a repulse of the tendencies towards State capitalism and State socialism
which might have come to fruition earlier, had Antony and Cleopatra been victorious,
then was thus the case. Apart fromthe special circumstances prevailing in thefoodsupply, the principle of private enterprise remained supreme.5
It was not merely that Octavian preferred capitalist principles in the abstract; he lived by
them. [H]e himself in the course of the Civil Wars had accumulated, by more or less honest
means, an immense private fortune.6
5

The rule of Octavian and his immediate successors was a time of almost complete
freedom for trade and of splendid opportunities for private initiative.7 Through this, the
life of the community as a whole blossomed into a greater activity. There was a constant
passing to and fro of merchandise and travellers. Throughout the world there was an
interpenetration, and a smoothing-out of differences, to an extent undreamed of before.8
Although Rome was dedicated to growth by plunder, it nevertheless traded honestly with
nations it did not seek to conquer. The government used its bullion to purchase textiles in
great bulk from India, for example. The first fifty years after the unification under Octavian
represents one of the great free trade periods in the history of man.
And the private sector successes within the Empire came from all walks of Roman life:
some of them were of senatorial rank, some of equestrian, but a large number were former
slaves, freedmen.9 (It was, one historian notes, to the Emperors advantage to encourage
this preoccupation with professional and business matters, since it induced political
apathy.10) Passport regulations were slackened as were import restrictions. And [a] man of
sufficient initiative living in a large town might find even the position of miller and baker,
tanner or brick-maker a useful start towards the building-up of an intensive wholesale
business.11
Undergirding the stable and productive early years of the Empire was a sound money
system. One of the curiosities of the literature of the ancient world is its thoroughgoing
silence on economics. The style and characteristics of the money system did not seem to
have been a hotly debated subjector a subject at all. A fractional reserve banking system
with a precious metal reserve-backed state-minted currency seems, by all accounts, to have
been the presumption from the very start.

II.

The Denarius
The denarius was just such a currency. With it, it was possible for a bourgeoisie to

come into being whose chief interests were economic, which maintained a form of economy
resting on the old city culture and characterized by individualism and private enterprise, and
which reaped all the benefits inherent in such a system.12 The denarius was a silver coin
minted first in Rome and ultimately, by the time of Diocletian, who reigned from A.D. 284
to 305, in twenty other mints from London to Hermopolis (near what is today Luxor,
Egypt).13 During the early empire, the supply of denarii increased roughly in line with the
expansion in trade, keeping inflation (which was never directly tracked) low. As trade
increased, the royal seat in Rome implemented only nominal taxationseach province paid
a 1 percent wealth tax and a flat tax on each adult within its confines. As the state plied these
minimal demands upon citizens cash accounts, the transfers increased the money supply in a
non-inflationary fashion.14
The Roman Empire had unwittingly created a large free trade zone, and was enjoying its
abundant fruits. As the private sector sought advances in agriculture and machining, massive
capital investment was embarked upon by the government. All of the roads within the
bounds of Italy were repaired, new temples went up, and the famed aqueducts and baths
were constructed.
One story is instructive: Trimalchio was a freedman escaped out of servitude in the
heady early days of the reign of Octavian. Trimalchio moved to one of the South Italian
cities with a bounty of money from his former master. He invested the money in wholesale
wine makers. By the time he dieda historian called Petronius sketched these details of his
lifehe live in a large Campanian house on interest spun off from his investments and from
other private loans which he placed himself.15 Trimalchio is typical of the sort of Roman
7

who prospered before government policy worked to destroy the engines of wealth: he began
in industry (indeed, in technology) and later used his stored capital to invest in swaths of
land, real estate, and in private loanmaking. The first investment, though, was in
manufacture. Writing in 1956, the economist and historian M. Rostovtzeff notes that he
feel[s] confident that the pulse of economic life beat very briskly in the Augustan [Octavian]
age both in Italy and in the provinces. The bourgeoisie of this period were not idle, and the
ideal of a rentier-life was no more widespread among its members than it is among men of
the same class in our own days.
There is no evidence from the Republic or early Empire indicating explicitly the
purposes for which coins were struck or the ways in which, once struck, they were put into
circulation.16 Yet demand for the denarius, premised politically upon the stock of silver
beneath the stone piles of the emperor, soared. There are three reasons: first, the sheer area
and people under Roman rule expanded along with the empire, and so needed the supply of
denarii to expand. Second, Romans both in Rome and in the farthest areas of the empire
shifted toward town-based civilizations where more liquidity and a faster pace of trade was
required. (One exception to this development was the vast domain of Egypt which, once
conquered by Rome, was unnaturally prevented by Octavian and all his successors from
joining in the free market of the Romans; instead, Rome kept Egypt for the singular
molesting purpose of extracting as much grain from it as possible, which was given for free
to Romans within Italy.)
Finally, the Roman government itself had a greater need for money. Octavian had won
Rome in a civil war fought against Marc Antony; the emperors warriors, the authors of his
reign, were now compensated far more richly than they were before the civil war. The
government also embarked upon more public works and paid more and larger donatives to

its citizens. This brand of welfare was hardly known before Octavian, and it might have
caused the society no harm if the donative had not been harnessed desperately, many years
later, as an economic stimulus in the face of recession.

DONATIVES DISBURSED TO PLEBS

500,000
400,000
300,000
200,000
100,000
-

14 37
A.D.

54

68

79

96 117 138 161 180 192 211 217 222 235

Fig. 2
SOURCE: Dincan-Jones 1994 at 79

Yet even with expanded government spending, history records no conscious monetary
policy at this point. The money supply grew in tight correlation with the expansion in
economic activity, which existed largely in the channels of private commerce. Octavian
understood that governments could not afford to run surpluses. What Rome gained in
plunder it needed to disgorge into the economy.17
By bringing royal treasures to Rome in histriumph [Octavian] made ready money so
abundant, that the rate of interest fell, and the value of real estate rose greatly; and after
thathe loaned it without interest for fixed period to any who could give security for
double the amount.He often gave largess to the people, but usually of different sums:
now four hundred, now three hundredand he did not even exclude young boys.18
What is known is that consumer prices, at least, were not yet rising, and all was hale. But
[t]he city of Rome, in the particular, produced very little, materially speaking, in return for
what it consumed.19 Administrative classes cannot persist forever, and they did not. The

vast sums which came into the hands of senators and equiteswere partly spent on luxury
goods and slaves, and as these were mostly imported from abroad, much of the money
returned to the provinces and other foreign countries.20 There was in Rome no attempt to
measurelet alone to correcttrade imbalances; and indeed there may not have been need
of such an effort. The trade imbalance here noted is really a second order effect of the
growth in the size of government.

10

I mean it is time to finally get tough on China. Right now,

Chinas products come here and our jobs go there. We play
by the rules, they manipulate their currency. We get tainted
fish, lead-laced toys, contaminated pet food and polluted
pharmaceuticals. I think that's a raw dealand the United
States government should say no more, no how, we're going
to have new rules, they're going to play by the same rules and
we're going to stand up for our consumers and our workers.

HILLARY CLINTON, A.D. 200821

What am I to tackle first, if I set about imposing restrictions

and cutting things back to old-fashioned standards? The
boundless sprawl of our country houses? Our swarming
tribes of servants? The masses of silver and gold on our
tables? Our marvelous displays of sculpture and paintings?
The garments [on] menand the jewelry of our womenfolk,
for which we make over our money to peoples outside our
domains, or even to our enemiesto pay for stones?
TIBERIUS, A.D. 2222

11

III.

The Recession of A.D. 33 and the Advent of Monetary Policy

Octavian died, and was deified. His adoptive son Tiberius in A.D. 14 succeeded him in

the royal purple. The year of A.D. 33 saw a recession in the young Roman Empire. Tiberius
appears to have been the first emperor to engage a conscious monetary policy of taking
money out of circulation and securing it in the coffers of government. This deflationary
policy and other policies motivated the gears of the government along a path that would lead
ultimately to a worthless denarius, macerated legions, and barbarian invasion.
We are fortunate, write Thornton and Thornton of the recession, to have so well
documented a crisis. Perhaps the reason lies in the fact that the recession of A.D. 33 was
not one of speculation, like the Dutch tulip mania of the 1630s, but instead of conspicuous
policy decisions which bore upon individual homes and businesses. Indeed Thornton and
Thornton write that the recession under Tiberius was possibly a Keynesian recession.23
Unlike the South Sea bubble, there was no undertaking of great advantage, but nobody to
know what it is. Everyone knew what it was.
Tiberiuss disposition was toward frugality. He suspended much of Octavians public
works projects and ensured that the money thus removed from the economy would not
circulate. 24 Additionally, a stream of long-expired usury laws were rediscovered by the
government and applied against citizen lenders. Finally, the money shortage was
accompanied by a credit contraction that threatened to bankrupt some of Romes most
respected houses. Liquidity dried up. The government decided artificially to reduce interest
rates.25 It then put into effect a policy requiring that all existing notes be renegotiated down
to the new legal maximum rate. To prevent a massive diminution in cash flow, creditors
moved their money elsewhere.26

12

It turned out that Tiberius was hoarding new government receipts. He assumed the
emperorship in A.D. 14 with 25 million denarii in the imperial coffers. In A.D. 37 he left to
Caligula at least 675 million denarii.27 (Caligula built two aqueducts immediately upon gaining
power.) Tiberius also promulgated a policy that set a low ceiling on interest rates across the
empire, and directed that all existing mortgages be refinanced. Tacitus records:
Hence followed a scarcity of money, a great shock being given to all credit, the current
coin too, in consequence of the conviction of so many persons and the sale of their
property, being locked up in the imperial treasury or the public exchequer. To meet this,
the Senate had directed that every creditor should have two-thirds his capital secured on
estates in Italy. Creditors however were suing for payment in full, and it was not
respectable for persons when sued to break faith. So, at first, there were clamorous
meetings and importunate entreaties; then noisy applications to the praetor's court. And
the very device intended as a remedy, the sale and purchase of estates, proved the
contrary, as the usurers had hoarded up all their money for buying land. The facilities
for selling were followed by a fall of prices, and the deeper a man was in debt, the more
reluctantly did he part with his property, and many were utterly ruined.28
The sudden requirements of additional cash collateral to secure all extant mortgages depleted
ready money. The natural reaction was to inject cash into the economy. Tiberius then
flipped, personally disgorging some of his fortune, on the order of 25 million, and chartering
all senators to make interest-free loans to all comers. Tiberius might have lowered the tax
burden on the citizenry, but taxes were already extremely lowmost receipts from taxation
came from special sumptuary tariffs. The injection of cash appears by the record to have set
Rome briefly on the mend.
But the recession that began in A.D. 33 and lasted through Tiberiuss assassination in
37 reveals deep rifts within the Roman political class which, when exercised over the
subsequent two hundred years, led to the fall of Rome. Thornton and Thornton limn the
essential controversy in 33 as being between reactionaries who favored strict state fiscal
restraint and a nouveau riche who had made their money during the [Octavian] building
boom. The A.D. 33 recession destroyed the conservatives position, they write.29 But a
13

redefinition might be in order. To be sure, capturing foreign treasure in government

accounts and then altering laws in ways that would put a heavy and quite sudden burden on
the money supply is not a kind economic policy. But to describe it as reactionary or
conservative is perhaps to miss the point. It was neither the withdrawal of Keynesian
stimulus as we think of it today that caused the recession, nor the reapplication of it under
Caligula that reignited the economy.30
The Roman Empire was geared not for maximal production, but for cash (and
commodity) distributions from plunder. Because the governments money came essentially
from without, and the tax burden within was nill, it does not surprise that Tiberiuss policies
fomented a recessionyet it ought not to be viewed as conservative in the modern sense
of the word. By the time he was assassinated, Tiberiuss loose money policy along with his
anti-creditor policies and mandatory refinancing regulations resemble more trimly the
modern liberal slate of policies; and, as we will observe, the intense inflationary effect of the
foregoing might ultimately prove Tiberiuss early conservative policies to have been, though
ham-handed, right.

14

So we are at a time where people can really take advantage of

this. And what we want to do is to send a message that if you
are having problems with your mortgage, and even if you're
not and you just want to save some money, you can go to
MakingHomeAffordable.gov and the way the web site is
designed, you can plug in your information and immediately
find out whether or not you are potentially eligible for one of
these one of these mortgage refinancings.

BARACK OBAMA, A.D. 200931

[C]reditors were demanding repayment in full, and it would

have been humiliating for those to whom the demands were
addressed to diminish their credit by failing to make full
payment. So at first people dashed about, begging for
assistanceThe glut of property on offer caused a collapse in
prices; the more heavily people were in debt, the more
difficulty they found in sellingFinancial ruin brought with it
an abrupt decline in status and reputation, until [Tiberius]
Caesar came to the rescue: a hundred million sesterces were
made available through banks, and loans were offered for
three years free of interest.
TACITUS, A.D. 3332

15

IV.

Empire Interrupted
The Roman economy was yoked inexorably to continuing conquests on the outer

borders of her thrall. In this lay the imperative that government money be distributed to the
citizenry; the productive requirements in the private precincts of Italy, where the Empires
most voracious consumers and important supporters lived, were artificially low. As the
empire came to abut the outer limits of the territory it could conquer and then manage,
inflows of cash began to be outweighed by expenditures, and even the Romans in Italy came
to feel pressure to support the state with more than nominal industry and bacchanalians.
Not long ago a certain man who had been appointed a collector of taxes in our country,
when some of those who appeared to owe such tribute fled out of poverty, from a fear
of intolerable punishment if they remained without paying, carried off their wives, and
their children, and their parents, and their whole families by force, beating and insulting
them, and heaping every kind of contumely and ill treatment upon them, to make them
either give information as to where the fugitives had concealed themselves, or pay the
money instead of them, though they could not do either the one thing or the other; in
the first place, because they did not know where they were, and secondly, because they
were in still greater poverty than the men who had fled. But this tax- collector did not
let them go till he had tortured their bodies with racks and wheels, so as to kill them
with newly invented kinds of death33
Claudius was the next major emperor, and in 43 A.D. Rome added its last significant
territory with the capture of Britain. That country provided Rome with significant material
wealth in the form of established mines and slaves.
Nero ruled from 54 to 68 A.D., and in his reign the countdown to destruction began.
As Bernardi writes, contrasting the fall of Rome with every other massive state failure in
history, [t]he great drama of the fall of the Roman Empirelies in the fact, and in the fact
alone, that it disintegrated not because of other organized rival powersbut by an internal
process.It was like an organism whose strength suddenly failed.34 What failed was the
money economy.

16

Because the notion of individually administered income taxes was unknown to Rome,
Nero located a more insidious and widespread form of tax. Observing the strength and
ubiquity of the denarius, Nero used it to the governments advantage; he began gradually
reducing the amount of actual silver in the denarius; new denari, put into circulation from
the mints, which with this loose money policy began to proliferate across the geographic
reach of the empire, would contain less precious metal. Yet the government would claim that
it was worth the same, pay its bills in new denarii, hoard metal, and mint many an old
denarius into a new one. Nero was effectively levying a considerable tax on all cash balance
accounts across the empire. By slowly edging the silver out of new denarii, the government
was able to take advantage of the delay between the delustring of the coin and the markets
realization of its diminished value. The government, which operates the mints, could pay
current accounts in diminished denarii, which was accepted for a brief time as equivalent in
value to the denarii minted before them. In this way, the central government raised current
revenues at the expense of the savings of thousands of families and businesses.

%Ag IN THE ROMAN DENARIUS

100
80
60
40
20
0

0 A.D.

68

117

180

211

250

268

Fig. 3
SOURCE: Bartlett 1994 at 5; Michell 1947 at 2

17

LEGIONAIRE ANNUAL SALARY (DENARII)

2000
1500
1000
500
0

46 B.C.

96 A.D.

211

217

238

Fig. 4
SOURCE: Williams at 54

For the following two hundred years, the emperor gradually and uninterruptedly debased the
currency, such that by the time of Aurelian (270 275), the denarius contained 0.02% silver.
For a while the government made money from the corruption of the currency. But
ultimately these continual debasements did not improve the Empires fiscal position;
instead, people hoarded old denarii and rendered to the government their newest, flimsiest
denarii.35 Eventually consumer prices began to rise. Although history preserves extremely
few records of salaries or prices, it may be worth observing that the decline in the silver
content of the denarius tracks in an inverse correlation with the salaries paid to the Roman
legionaires, the common middle class type of solider. Because the support of the army was
a necessary expedient to any successful reign, maintaining their standard of living was
paramount, and we might consequently infer that the real purchasing power of the denarius
declined, as shown, geometrically with its debasement.
To pay the soldiers, Caracalla [198 217] needed enormous sums. The stock of
money accumulated by [his father with whom he was briefly co-emperor] Septimus [193
211] was soon depleted. To fill his treasury, he was therefore obliged to resort to
extraordinary measures.It was mostly derived from a systematic draining of the
wealth of the propertied classes. The land-tax and the poll-taxthe chief taxes paid by
the working classeswere not increased, but the crown-tax, an extraordinary
18

supplementary income-tax, which mainly affected the richer classes, was repeatedly
demanded. The contributions in kind were a heavy burden. Though everybody had to
make such contributions, which were used for the maintenance of the soldiers, the chief
payers were the large landowners who always had great quantities of foodstuffs in store,
while the peasants had practically no surplus.Finally, an abundant source of income
was the compulsory gifts extorted both from rich individuals and from the cities, a
heavy and arbitrary capital levy very like pure robbery. The only regular taxes which
were increased (by being doubled) were the tax on inheritances and the tax on
manumissions, which were always closely connected.36
Growth, naturally, withered on the vine. Because these heavy exactions bore principally
upon the upper classes, whose enterprises gave livelihood to the lower. The burden, when
the rich could no longer pay the states bills, fell to the ordinary man. Thus did all of Roman
subjects come to suffer. By the third century, the money economy broke down. The army
continued to receive payments, since by now it was understood by all that the emperor
served at the pleasure of the Praetorian Guard. Instead of levying taxes, which could scant
be paid, the government directly requisitioned food and eventually labor from citizens. The
money economy foundered so badly that most workers became organs of government, and
it became forbidden for a tiller to leave his home on other business, or for a soldier to leave
camp, or for a municipal aristocrat to leave his town; a captain lost his ship as soon as he was
too frail to sail it; all needed to be on-hand, in a state of frozen occupation. Rostovtzeff says,
There was nothing new in the system as such. But under the conditions of a permanent
revolution it assumed unparalleled proportions and, being used not as a subsidiary, but
as the main, resource of the government, it became a real plague which undermined and
destroyed both the prosperity of the Empire and the spirit of its inhabitants.37
The debasement of the currency and the heavy tax burden led to increasing
feudalization and a breakdown in the specialization of labor. A retreat to the countryside
offered a more attractive, and less abusive, life of subsistence farming. The estates of the
wealthy operated as much as possible as closed systems.38 Trade, naturally, ground to a
halt. We can construct a snapshot of the robustness of the Roman economy by analyzing

19

shipwrecks in the Mediterranean Sea, which have been largely accounted for and atomically
dated.
ROMAN SHIPS WRECKED IN MEDITERRANEAN
70
60
50
40
30
20
10
0

50 B.C.

50 A.D.

100

150

200

250

300

350

400

Fig. 5
SOURCE: Parker 1992

Because Rome neither captured nor preserved significant macro-level economic data, it
is difficult to measure commerce as a broad concept. The imperial government was, at least
in the early days of the empire, concerned only with balancing accounts, and in later years
not even with that. There did not exist an appreciation that the general growth of the
economy was supported from within by productivity gains, specialization, and technology.
Because of this, nothing like the modern GNP was captured. The shipwreck data, though,
provide a rare glimpse at overall levels of trade. Trade tracks closely with the strength of the
denarius, suggesting that commerce at large suffered along with the currency.
Shipwreck data represent the best proxy for overall commerce, since any potentially
intervening variables run strongly against the existence of the correlation that is in fact seen.
Parker tracks, logs, and dates every shipwreck in the Mediterranean Sea along with the
nationality of the ship. Charted here are all Roman ships wrecked on the Mediterranean and
known to explorers (Fig. 5). To be wrecked was a relatively common occurrence in
antiquity, as is evidenced from the literary references to the fear of such a fate. The 1,200
20

sites collected in this Catalogue areony a sample of the many thousands of ships which
must have put to sea in ancient times, but nonetheless it is a sample whichcontains a good
deal of information about ancient trade and technology.39
From Octavian to A.D. 230, the Roman armys maritime operations ruled the seas.40
Between 230 and 280, a rash of pirate attacks occurred, although if these did have an impact
on the data, it would simply be that they increased the number of shipwrecks dated from
around this time, which, if this were the case, would bolster the correlation between the
denarius and commerce. Because the frequency of pirate attacks only increased toward the
end of the empire, more and more Roman ships might expect to have been wrecked.
Probably they were; and so the relatively small number of wrecks from this period reflects
deep foundering in the overall shipping levels.
Finally, there is little evidence that maritime technology improved radically during the
period in focus. If it had, the progressively lower number of shipwrecks would have an
alternative explanation. But throughout the whole period, ships were of wood, with multiple
tranches of rowers. And throughout the period, ramming was the preferred method of
attack. Any technological differences between one fleet and another were in simple precision
of manufacture, not in advanced materials, new locomotive methods, or finer seafaring
designs.41

21

Mismanagement and greed became the operating standard

while regulators were asleep at the switch. The primary
regulator of Wall Street, the Securities and Exchange
Commission kept in place trading rules that let speculators
and hedge funds turn our markets into a casino. They allowed
naked short sellingThey eliminated last year the uptick rule
that has protected investors for 70 years. Speculators
pounded the shares of even good companies into the ground.

JOHN MCCAIN, A.D. 200842

For who is so hard and so devoid of human feeling that

hehas not perceived, that in the commerce carried on in
the markets or involved in the daily life of cities immoderate
prices are so widespread that the unbridled passion for gain is
lessened neither by abundant supplies nor by fruitful years; so
that without a doubt men who are busied in these affairs
constantly plan to control the very winds and weather from
the movements of the stars, and, evil that they are, they
cannot endure the watering of the fertile fields by the rains
from above which bring the hope of future harvests, since
they reckon it their own loss if abundance comes through the
moderation of the weather.

DIOCLETIAN, A.D. 30143

22

V.

The Fall
In these later years of the Empire, the debasement of the currency provoked rampant

and painful inflation. One source calculates an inflation rate of 15,000% between A.D. 200
and 300.44 Diocletian, who ruled from 284 to 305, instituted a series of policies in an attempt
to forestall disaster. Yet his ideas did not extend well past price controls. As the above
excerpts from his edict to Rome reveal, his basic understanding of rising prices was that
speculation and hoarding was the cause, rather than a systematic growth in the size of
government, confiscation of wealth, diminution of private industry, and debasement of the
currency for the short-term salving of the ruinous effects of all of the foregoing. Not
surprisingly, Diocletians price controls failed.

DIOCLETIAN STATUTORY PRICE MAXIMA, A.D. 301

1 army modius (about a bushel) of wheat

100 denarii

1 Italian sextarius (one-half liter) of wine

8 denarii

1 Italian sextarius of Falernian wine

30 denarii

1 Italian pound (325g) of beef

8 denarii

1 Roman pound (325g) of gold

72,000 denarii

1 Roman pound of silver

6,000 denarii

1 days wages for a farm laborer

25 denarii

1 days wages for a baker

50 denarii
SOURCE: Williams 1997 at 59
Fig. 6

As with most Roman laws, transgression of the price controls meant death; but most
Roman laws did not run so baldly against nature, and so solicitously invite violation. After
the enactment of the price controls, Lactantius records scarcity in small and cheap items
over which mens heads were taken by government forces; but yet the rise in price got
much worse[and] sheer necessity led to the repeal of the law.45 With the growth engine
retired, and enterprise impossible, Diocletian resolved upon a final comprehensive remedy.

23

The government would no longer tax its citizens in money, since Roman money was no
longer taken seriously, but would instead simply issue a bill to each citizen for a bundle of
goods and labors. Diocletian conducted a census to arrive at two numbers: the caput was the
annual productive ability of a single man, his family, and his real estate. The annona was a unit
of government requirement. One annona meant room, board, and salary for one soldier for
one year.
This brutal, bare calculation was conducted during the latter years of Diocletians reign,
and the government simply extracted enough to keep the military from starving. There
existed no advantage to this scheme, which impliedly consigned all of Rome to a rentier
existence, other than that it made misery regular and predictable, instead of merely frequent.
Finally, to ensure that he could collect, Diocletians government moved businesses into
collegia and laborers into guilds; movement became impossible; invention discouraged.
Diocletian also implemented what appears to be direct Keynesian economic stimulus.
Lactantius records that Diocletian had a limitless passion for building, which led to an
equally limitless scouring of the provinces to raise workers, craftsmen, wagons, and whatever
is necessary for building operations.46 The Roman government was virtually indiscriminate
as to what was built, so long as building persisted unabated. Here be built basilicas, there a
circus, a mint, an arms-factory, here he built a house for his wife, there one for his
daughter. 47 And in an example of the purest of make-work policies, Diocletian would
sometimes have freshly constructed buildings torn down, and built again.48 Three hundred
years after Octavian fought collectivist Egypt for the reins of the Roman Empire, the
Empire herself established the most hidebound form of collectivism yet seen.
Ultimately, by the end of the reign of Diocletian, [t]he number of recipients began to
exceed the number of contributors by so much that, with farmers resources exhausted by

24

the enormous size of the requisitions, fields became deserted and cultivated land was turned
into forest. 49 Many governors and even more officials were imposed on individual
regions,and to these were added numerous accountants, controllers, and prefects
deputies. The governments new policy of exacting resources directly in lieu of continuing
to prop up a failed currency required these bureaucrats. And [t]he activities of all these
people were very rarely civil.50 Lactantius in his De Mortibus Persecutorum records how they
engaged only in repeated condemnations and confiscations, and in exacting endless
resources.51 The rapaciousness with which any remaining private wealth was treated was
indeed horrifying:
[B]ut the outstanding feature of Diocletians behaviour here was that, whenever he saw
a field rather better cultivated than most or a house rather more finely adorned, a false
accusation and capital punishment were immediately at hand for use against the owner,
as if he [Diocletian] could not seize other peoples property without shedding their
blood.52
Notably, Romes taxation remained, as compared with modern rates, low throughout the life
of the empire. In A.D. 444 Valentinian III increased the sales tax from one percent to 4.5
percent in a last-ditch effort to raise revenues for the government. But the low tax rates
more reflect the imperial nature of Rome: since growth could be had at low cost, by
conquering, the society was by design not self-sustaining. It created neither its own supply
nor its own demand. Nor did the increase in tax rates play anywhere so near as significant a
role in the fall as did the debasement of the currency, the installation of a massive
bureaucracy, the co-optation of private enterprise, and the confiscation of natural resources.
As Rostovtzeff observes:
[C]ity-capitalismgradually degenerated. The prevailing outlook of the municipal
bourgeoisie was that of the rentier: the chief object of economic activity was to secure
for the individual or for the family a placid and inactive life on a safe, if moderate,
income. The creative forces which in the early Imperial period produced a rapid growth
of industrial activity in every quarter of the Empire, and promoted a high standard of
25

technical improvement alike in commerce, in industry, and in agriculture, suffered a

gradual atrophy, which resulted in an increasing stagnation of economic life.53
It does not surprise, then, that it was during this time that birth rates appear to have
begun to decline. No direct data on birth rates or population survive, and probably never
were taken. But the weight of the histories does reveal an increase in the quotient of
farmland left bare during this time.54
VI.

A Return to Thralldom
The historical record supports the proposition that, with economic weakness tightly

circumscribing Rome and phalanxes of barbarous tribes poised without, warm centers of any
meaningful wealth then retreated from society. The middle class began to sell itself into
slavery, because its money was worthless and the monopsony enforced by the government
meant that, when the government fell, the middle class would have no one to whom to sell
its wares and its crops. The emperor Valens, in A.D. 368, went so far as to outlaw slavery
till then an unquestioned mode of employ in the Empirebecause the slaves were now
former middle class taxpayers making the optimal economic choice for their families.
Typical portraits of the diminution of the Roman armywhich itself represented a
large portion fo the middle classfails to come to grips with the economic forces at play. A
representative example is M. I. Finley, in Manpower and the Fall of Rome:
One reason for the astonishment [at the fall] was that Roman armies still fought well
most of the time. In any straight fight they could, and they usually did, defeat superior
numbers of Germans, because they were better trained, better equipped, better led.
What they could not do was cope indefinitely with this kind of enemy.More men
seemed the obvious answeror a technological revolution, and that raises the critical
point. It was in a sense misleading when I noted that we [in modern Britain] throw a far
greater proportion of our manpower into battle in an emergency. When we do that, our
whole civilian life is at once readjusted, not merely by austerity programmes and general
belt-tightening, but also by increasing the per capita production of those (including
women) who remain on the farms in the factories. And that no ancient people could do
because they technology was too primitive, resting almost entirely on the muscles of
26

men and beasts; and because most of the populationhad nothing to sacrifice to an
austerity programme to begin with.55
But the barbarian forces from north of the empire also lacked technology. Indeed their
weapons technology was inferior to that of the Roman. It is not enough to say that Romans,
being poor, could not be tapped for contributions to the military. One must confess that it
was not always thusthat private Romans once invented new weapons and became wealthy
by doing it. A capitalistic spirit of enterprise was not wanting.the rich Romans, whose
wealth was derived from their landed property, from war-contracts and the profits of
bootywanted the merchandise which the world had to offer.56 But there were no more
rich Romans. In the halcyon days of the Empire, from Octavian to Marcus Aurelius (161
169), the army consisted of 300,000.57 (Gibbon observed that Louis XIV, whose kingdom
was the size of a single Roman province, had an army of equal size.) Rome at its height had
something like 60 million people within it, so this represents a 0.5% defense ratioand it
was successful for a time.
Diocletian, as part of his Keynesian economic plan, doubled the size of the army. It was
this bolstered force that finally began to give under the weight of Huns and Goths. By now
patriotism may have been lukewarm at best: the ordinary man, regardless of class, felt no
personal obligation to fight to defend it.58 Finley, who writes in 1970, believes that, if the
boundaries of statist Rome had been at the ends of the earthand if the court and the
aristocracy had been content to keep its numbers and its level of consumption unchanged,
then there was no obvious reason why the Roman Empire should not have gone on
indefinitely.59 Of course, soon after Finley writes the idea that an enforced equilibrium
could sustain for a long time was put to rest with the implosion of Soviet Russia. But even

27

Finley admits that [t]he parasitic classeskept growing larger[and] there came a time
when [the military] could no longer respond.60
It was this weakened Rome which was invaded by round after round of militaristic
peoples versed in destructionas Rome had beenyet with no virtuous philosophies, and
nothing resembling an advanced economy, to justify their protuberant growth.
The Visigoths, led by their king Alaric, captured Rome in the summer of 410. St.
Jerome, a Catholic writer and apologist, was writing his preface to the Commentaries on Ezekiel
in that year. To it he added: the brightest light of the whole world was extinguished,
when the Roman Empire was deprived of its head and when, to speak more correctly, the
whole world perished in one city.61
VII.

Analogies to the United States

There have been many spectacular inflations in the 1,600 years since the fall of Rome.

The United States has not seen such a drastically inflationary period, but it has undoubtedly
been subject to the same policy temptations as the post-Octavian emperors, as the
quotations from contemporary political leaders demonstrate.62 Yet whereas in Rome private
investment inhered mostly in land purchases, the robust equity capital markets of the United
States may create strong systemic incentives that decrease the relative power of the state in
such a way that it might be prevented from enacting the anti-growth policies of Nero,
Carcalla, Aurelius, Diocletian, and others.
The four likely end modes for boom and bust cycles might be described as 1) a
neverending continuance; 2) forced redistribution of wealth through government policy or
an edict that leaving the confines of the state is illegal; 3) global depression as in the 1930s,
which could give rise to global political contagion such as imperial Communism; or 4) new

28

frontiers. The experience of imperial Rome suggests that numbers two and three are roughly
the same outcome. In the one instance, there were the dark ages and in the other there was
the age of Soviet Russia. Also suggested by the Roman story is the impossibility of the
neverending continuance of booms and busts. During a bust, national weakness necessarily
invites invasion, either physical or political. The great busts of the United States occurred
before the nuclear age and before the internet age, so there is little reason to think it so
isolated as to be able to suffer a long series of severe busts.
Most likely, if the story of Rome is an indication, is a deep-seated societal closure,
wherein the government begins to enact confiscatory policy, prompting the productive
classes to remove themselves from society at large, constructing small fiefdoms. It is not
difficult to imagine that this is really a single cell of a never ending series of societal building
and breaking-down, whereby these fiefdoms eventually re-coalesce back into organized
polities, only to have the boom and bust happen all over again. The first 13 colonies of
America could be viewed as an example of this process.
One set of data suggest a different path for the United States. Although the tax burden
in the United States is high and rising, and the amassment of capital becoming progressively
more difficult, it is nevertheless the case that citizens continue to ally their own fortunes,
whether large or small, more and more with those of private enterprise through the deep,
liquid, and open equity and debt capital markets in the United States. In even the last decade,
Americans have voluntarily tied their personal and family security to the overall successes of
private enterprise. The degree to which this aligns the incentives of voters with policies that
encourage growth and stability is questionable, thoughand likely a function more of the
oratory of politicians, as seen throughout this essay, than of genuine inquiry, on the part of
busy people, into the effects of their votes.

29

UNITED STATES MUTUAL FUND INVESTORS

1958

2009

Median age

55

50

Median household income

$6,500

$80,000

Median household financial

$15,700

$150,000

Median assets invested in

mutual funds

$4,200

$80,000

Share of household wealth

invested in mutual funds

26.8%

53.3%

Retirement

35%

76%

Education

7%

assets

Stated goal for investing

6%
SOURCE: Investment Company Institute 2010 Factbook
Fig. 7

SHARE OF HOUSEHOLD FINANCIAL ASSETS HELD IN INVESTMENT COMPANIES

SOURCE: Investment Company Institute, Federal Reserve

Fig. 8

VII.

Summary
The Roman Empire, which comprehended the fairest part of the earth and the most

civilized portion of mankind, (Fig. 7) fell proximately as a result of military impotence. The
frontiers had been guarded by ancient renown and disciplined valor.63 But poverty and
want broke the back of valor, and showed the fragility of renown. Poverty came essentially

30

from uncontrolled inflation in the money economy, which began initially as governmental
greed and eventually spiraled out of control. Rigorous taxes were instituted, and failed;
confiscation was the resort; and the retreat from society of the productive class was the final
blow. Empirical evidence in the form of dated shipwrecks, numismatic evidence of the silver
content of the denarius, and records of the salaries of soldiers support this monetary theory
of the decline of Rome. Although one is tempted to presume a similar result for the United
States, it is worth considering how open markets could work in such a way that the
disastrous policies enacted by the imperial purple could be made distasteful to politicians.

Fig. 8 Rome near its height

31


REFERENCES
1

Gibbon, The Decline and Fall of the Roman Empire, at 174. Strahan & Cadell: 1776.
Seager, Tiberius, at 197. Blackwell Publishing: 2005.
3
Rodewald, C., Money in the Age of Tiberius, at 2. Manchester University Press: 1976.
4
Bartlett, B., How Excessive Government Killed Ancient Rome, at 1. In The Cato Journal,
Vol. 14, Num. 2.: 1994.
5
Oertel, F., The Economic Unification of the Mediterranean Region: Industry, Trade, and
Commerce, at 386. In The Cambridge Ancient History, Vol. X., Litt, Adcock, Charlesworth,
eds. Cambridge at the University Press: 1934.
6
Id. at 387.
7
Rostovtzeff, M., The Social and Economic History of the Roman Empire, at 54. Oxford at
the Clarendon Press: 1957.
8
Oertel 1934 at 424.
9
Id.
10
Id. at 388.
11
Id. at 391.
12
Id. at 232.
13
Williams, J., Money: A History, at 60. British Museum Press: 1997.
14
Bartlett 1994 at 4.
15
Rostovzteff 1957 at 57.
16
Rodewald 1976 at 22.
17
In this important respect the story of Rome departs from that the United States. Rome
could raise capital by conquering other states and transporting their metallic wealth down
rivers and across dessert to Italy. Rome did this, again and again. Because the Roman
economy lacked the pure ingenuity of the American; and because efficiency gains were not
as prized in a state where most mens daily bread, at least, was guaranteed, what additional
wealth the government acquired came not from taxation. Reinjection capital back into the
economy was a purer stimulus than simply reducing the income tax burden in the United
States. For purposes of comparison, it might be instructive to imagine that the portion of
government revenues from foreign plunder be analogized simply to the additional
incremental tax base in the United States, from its larger and more muscular industry.
18
Suetonis, Augustus, vol. I., Rolfe, J. C., trans., at 189. The Macmillan Co.: 1914.
19
Rodewald 1976 at 26.
20
Jones, A.H.M. Jones, Troisieme Conference Internationale dHistoire Economique, 1969
at 88.
21
Clinton, H., remarks at the Montana Democratic Party Mansfield-Metcalf Dinner in Butte,
April 5, 2008. Available at
[http://www.presidency.ucsb.edu/ws/index.php?pid=77101#axzz1JBk3J5bK]
22
Rodewald 1976 at 29.
23
Thornton, M. K. and Thornton, R. L., The Financial Crisis of A.D. 33: A Keynesian
Depression? In The Journal of Economic History, vol. 50, no. 3., at 656. Cambridge
University Press: 1990.
24
This sometimes took macabre form. See Tacitus, Annals 6.19: Sextus Marius, the richest
man in Spain, was next accused of incest with his daughter, and thrown headlong from the
2

32


Tarpeian rock. To remove any doubt that the vastness of his wealth had proved the man's
ruin, Tiberius kept his gold-mines for himself, though they were forfeited to the State.
25
The Roman government was able to affect interest rates across the kingdom only by
legislation. Naturally, legislation in an imperial dictatorship, where the senate was rapidly
dwindling in influence and capital punishments were frequent and lacking entirely in
spectacle, legislation proved more effective than it might in modern circumstances. There
was no central bank in Rome, although the government reserved the right to make ad hoc
loans to private parties at will.
26
Rome may have erred in its monetary policy, but from the core principle of free
movement of capital it scarcely strayed; moving cash outside the borders of the empire was
never banned entirely, right through the fall of the empire.
27
Thornton and Thornton 1990 at 658.
28
Tacitus Annals 6.17. [http://www.sacred-texts.com/cla/tac/a06010.htm] Accessed on
4/9/11.
29
Thornton and Thornton 1990 at 660.
30
This paper will proceed to analyze just how short-lived a reignition this was.
31
Obama, B., Remarks Following a Roundtable Discussion on the Home Mortgage Industry.
Available at [http://www.gpoaccess.gov/presdocs/2009/DCPD-200900246.htm]
32
Rodewald 1976 at 3.
33
Philo, 342 (Trans. Yonge 1855).
34
Bernardi, A. (1970) The Economic Problems of the Roman Empire at the Times of Its
Decline, at 17. In Cipolla, C. (ed.) The Economic Decline of Empires.
35
Thornton and Thornton 1990 at 7.
36
Rostovtzeff 1957 at 417.
37
Id. at 450.
38
Thornton and Thornton 1990 at 7.
39
Parker, A.J., Ancient Shipwrecks of the Mediterranean & the Roman Provinces, at 3. BAR
International Series: 1992.
40
Lewis, A. R. and Runyan, T. European naval and maritime history, 300-1500, at 1. 1985.
41
Saddington, The Evolution of the Roman Imperial Fleets at 200. In A Companion to
the Roman Army, Erdkamp, ed. 2011.
42
McCain, J., Remarks quoted in The Wall Street Journal. Available at
[http://online.wsj.com/article/SB122178318884054675.html]
43
Jones, A. H. M., A History of Rome Through the Fifth Century, vol. 2, at 310. Harper &
Row: 1970.
44
Rostovtzeff 1957 at 471.
45
De mortibus persecutorum / edited and translated by J.L. Creed., 1984 at 11.
46
Id. at 13.
47
Id.
48
Id.
49
Id.
50
Id.
51
Id.
52
Id.
53
Rostovtzeff 1957 at xi.

33


54
Finley, M. I. (1970) Manpower and the Fall of Rome. In Cipolla, C. (ed.) The Economic
Decline of Empires, 89.
55
Id. at 88.
56
Oertel 1934 at 382.
57
Finley at 86.
58
Id. at 87.
59
Id. at 89.
60
Id.
61
Mommsen, T., St. Augustine and the Christian Idea of Progress: The Background of the
City of God, in Journal of the History of Ideas, at 346. 1951.
62
The Great Inflation of 1965 to 1984, the climactic monetary event of the last part of the
20th century according to Allan Meltzer, saw at its height an annualized inflation rate of
13.7%. Cf. Meltzer, A. H., Origins of the Great Inflation.
[http://research.stlouisfed.org/publications/review/05/03/part2/Meltzer.pdf]
63
Gibbon 1776 at 30.

34