Money Back in the Day

This past spring I had the opportunity to visit the National Museum of Rome, which contains a massive vault full of ancient coins. That experience, combined with the recent rapid decline of the dollar, got me thinking about what the people of ancient Rome would have to say about our fiat currency system.

Most, if not all coins minted by the Romans had some intrinsic value. The vault at the museum was full of coins made from bronze, silver, and gold. In order to create money, the Roman government had to acquire these metals. This worked fine until new sources of bronze, silver, and gold became more and more difficult to find. The costs of defending Roman territory and subjugating those who had been conquered rose as the empire expanded. These military obligations, combined with Keynesian-like programs to stimulate the economy on the home front, led to a situation where the Roman government could not bring in enough precious metals to mint the money it wanted to spend. To "solve" this problem, they just began including less and less precious metal in each coin. The result of course was inflation, which was no doubt a contributing factor to the decline and fall of their empire.

When I started typing this, I thought I was going to be writing a piece on how ridiculous the Romans would have found our paper based monetary system, but now that I think about it, that's probably not true. The Roman emperors kept massive armies in the field across Europe and Asia. The citizens of Rome were just as eager for entitlements and bailouts as the citizens of America would be two millennia later. Their leaders, without understanding the full consequences on their actions, were quite happy to oblige them. Yes, I think the Roman government would have found a great deal of use for Ben Bernanke's printing press.