Roman inflation and the Roman poverty gap
In session two we took a closer look at the progress of inflation in the Third Century. This seems to be the first time this particular economic problem spiralled out of control, and it seems that in certain parts of the Roman Empire money played a daily role very similar to money in the modern world. That is, people relied totally on it as a means of exchange that had symbolic worth, and were happy to accept money instead of commodities.
We don't know for sure that this was the case in all parts of the Empire.
The thing about money is it depends on people believing in its power. Sometimes modern governments forget that - take the Weimar Republic, for example, where a basketload of cash couldn't buy bread.
The Romans learned the hard way that you can't mess around too much with people's belief in money. The repeated 'dilution' of the bullion content of money in circulation resulted in coins that looked and felt...cheap. People didn't want to use them or to accept them in change. Some 'silver coins' were as little as 3% silver, 97% copper.
Two useful snippets: 'Gresham's Law', named for a 16th century thinker, is that bad money drives out good. The more devalued cash there is, the more people will hang onto their assets to avoid exchanging them for bad money. Trade declines and the whole thing stops working.
Snippet two: the waterfall effect. I came across this on Martin Armstrong's extensive website, basically describing the overnight catastrophic collapse of a complex system. Think Leeman Brothers. Think 1929. You get the idea. It seems to have hit Rome about the year 241.
Diocletian's reform of coinage worked - but only for a short while. He tried a follow-up: controlling prices - click here for more detail on this. Like rationing....like Soviet Russia. Marek in our class was able to describe how badly the Soviet attempts worked in reality. We've all heard the old tales of the black market in the 1940s. Price controls didn't work in the Roman Empire either.
Diocletian also tried wage limitations in tandem with price controls, but the law that really seemed to stick was the one forbidding peasants and manual workers from changing their workplace, ever, without the permission of the authorities. Medieval serfdom was born under Diocletian.
Analysis of earnings and prices suggests that wealth in Roman Empire under Diocletian was rather similar to some emerging (or collapsing) economies today - 75% of people seem to have lived at or below subsistence level, with 10-20% of the population being comfortably off. The analysis excluded the mega-rich elite.
It's food for thought in the present day.