Sunday, June 12, 2011

Inflation and the Fall of the Roman Empire

The myth that the Roman empire fell because of economic problems caused by inflation dies hard, and you can find it used by Austrians and free market libertarians:
Peden, Joseph R. 2009. “Inflation and the Fall of the Roman Empire,” Mises Daily, September 7.

Bartlett, B. 1994. “How Excessive Government Killed Ancient Rome,” Cato Journal 14.2 (Fall): 287–303.
There are a number of points to make in response to these attempts to blame government intervention and inflation for Rome’s fall:
(1) What do we mean by the “fall of the Roman empire”? In fact, the Roman empire split into two by the fourth century AD, with one emperor in the West and one in the East. The expression the “fall of the Roman empire” actually refers to the collapse of the western Roman empire: the Eastern Roman empire (or the “Byzantine” empire) continued, with its fortunes waxing and waning, until 1453 AD. The “fall of the Roman empire” describes the loss of territory the Western empire experienced from about 400 AD onwards.

(2) While the Roman empire was hit by severe monetary inflation from the late third century to the early fourth century AD, the economic crisis largely abated by the mid-fourth century (Whittaker 1980). The Eastern Roman empire had been hit by the same inflationary crisis, but it never fell. Moreover, while the inflation had bad social effects, the full effects are not clear to us. The majority of the population of the Roman empire were peasants, but they were largely self-sufficient:
“modern scholars seem agreed that inflation only hurt a small section of the population; maybe ‘craftmen’, or possibly only ‘the small creditor class and urban professional (a teacher for instance)’, but neither the peasant nor the magnate suffered. Whatever stratum of society suffered, it did not do so across the whole empire. The Roman empire was never a unified economy; each province followed its own trajectory” (Sidebottom 1998: 2800–2801).
Since the vast majority of the population was rural and engaged in farming (the most important productive activity in the empire), the inflationary crisis of the late empire probably had no great effect on them.

(3) The Western empire persisted for nearly 50 years after the end of the inflation before it began to gradually lose its territory, and as late as 357 the Roman Caesar Julian the Apostate (emperor from 355 to 363) was able to inflict a crushing defeat on the Germans (the Alamanni and Franks) at the Battle of Argentoratum, when they were attempting to invade the empire. The devastating defeat the Romans later experienced at the battle of Adrianople (378 AD) when the eastern Roman Emperor Valens fought a Gothic army was clearly caused by strategic and tactical errors, and not because of the empire’s fiscal problems or inability to field an army.

(4) The West lost most of its empire owing to barbarian invasions from 400–450, and there is an obvious explanation for this: military and strategic errors by generals and emperors. The Western empire ended in 476 AD because of a simple internal rebellion when the last Roman emperor (Romulus Augustulus) was deposed by Odoacer, the barbarian leader of mercenaries in Italy who had been proclaimed king of Italy.

(5) The economic problems that the Roman empire faced after the third century AD were of course real, but not the result of the simple morality tale about inflation spun by apologists for free market economics:
“According to the monetarist view, what buried Rome was inflation stemming from government spending and adulteration of the coinage, coupled with what Mikhail Rostovtzoff deemed to be over-taxation of the middle class. But what actually led to fiscal and monetary breakdown in the every major society from Babylonia through the Roman and Byzantine empires to more modern times was the ability of large property owners to break free of taxes. The Roman treasury was bankrupted by wealthy landowners using their control of the senate to shift the fiscal burden onto classes below them. Lacking the means to pay, these classes were driven below the break-even point. As debt deflation drained the economy of money, barter arrangements ensued. Trade collapsed and the economy shrunk into local self-sufficient manor units” (Hudson 2003: 53).
In other words, it was the super rich and propertied classes who evaded taxation and forced a highly regressive tax system on the middle classes and poor. The economic problems can be related to the structure and unfair burden of taxation, not taxation per se.

(6) The effects of deflation and debt deflation are ignored by Austrian economists and others. The Roman Republic (which existed before the empire) in fact faced excessive debt and deflationary periods in the first century BC, especially in the 90s and 80s BC, which caused serious social and economic problems (for deflation in the Republic, see Barlow 1980; Nicolet 1971; cf. Verboven 1997). Thus it was not just inflation that had undesirable effects, but also deflation (see my post “Debt Deflationary Crisis in the Late Roman Republic,” June 16, 2011).
BIBLIOGRAPHY

Barlow, C. T. 1980. “The Roman Government and the Roman Economy, 92–80 B.C.,” American Journal of Philology 101.2: 202–219.

Hudson, M. 2003. “The Creditary/Monetarist Debate in Historical Perspective,” in S. A. Bell and E. J. Nell (eds), The State, the Market, and the Euro: Chartalism versus Metallism in the Theory of Money, Edward Elgar, Cheltenham. 39–76.

Nicolet, C. 1971. “Les variations des prix et la ‘théorie quantitative de la monnaie’ à Rome, de Cicéron à Pline l’Ancien,” Annales, Économies, Sociétés, Civilisations 26: 1208-1227.

Sidebottom, H. 1998. “Herodian’s Historical Methods and Understanding of History,” ANRW II.34.4: 2775–2836.

Verboven, K. 1997. “Caritas Nummorum. Deflation in the Late Roman Republic?,” Munstersche Beitrage zur Antiken Handelsgeschichte 16.2: 40–78.

Whittaker, C. R. 1980. “Inflation and the Economy in the Fourth Century A.D.,” in C. E. King (ed.), Imperial Revenue, Expenditure, and Monetary Policy in the Fourth Century A.D., B.A.R., Oxford, 1–22.


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5 comments:

  1. Anybody trying to understand economic crises in times of antiquity is really taking on ambitious task.

    We lack detailed economic data and statistics even for the 19th century and before, and any GDP, price inflation, or interest rate statistics of those times would be hard enough to compile.

    How much harder does it get for more than 2000 years ago? Prices change from day to day and place to place, and I wonder who would ever compile the information on prices from 2000 years ago, checking the price of pepper in Agrigento and Londinium in March 52 AD and May 54 AD.

    ReplyDelete
  2. The data is patchy. One attempt is here:

    “Prices and Other Monetary Valuations in Roman History: Ancient Literary Evidence and Modern Scholarship,”
    http://www.stanford.edu/~scheidel/NumIntro.htm

    ReplyDelete
  3. Michael Rostovtzeff has a much more detailed account which is where Mises actually got it from.

    ReplyDelete
  4. Thank you Lord Keynes!An impressive work i must say!And you once again shows that Austrian schoolars do a poorly work,this time on Roman Economy.It´s seem they try all sorts attempts to
    justice their "Religion",and now even have to go back to Roman Empire!They have problems to handle facts for sure!Real good!Keep up the good work"

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  5. Oh yes, Keynesian economics is doing just wonderfully around the western world having caused huge debt & crisis by interfering in the economy, & surprise surprise creating more debt to try to get out of debt. Brilliant!

    Like trying to stop someone drowning by pouring more water into the tank in the hope he'll float out of it.. one day...

    ReplyDelete