Friday, February 12, 2010

How inflation led to totalitarianism in Rome

The episodes of extreme inflation took a standard form. ... The government ...resorted to debasing the coins of the realm. This took the form of replacing the gold and silver in coins with copper and other cheaper metals. Over the period 218 to 268 A.D. the silver content of Roman coins dropped to one five thousandth of its original level. Sometimes the size and weight of coins were reduced. It also meant vastly increasing the amount of coins in circulation. There was a corresponding increase in prices. The emperors usually blamed the price increases on the greed of merchants. ... In 301 AD Diocletian issued an edict declaring fixed prices; i.e., price controls. His edict provided for the death penalty for anyone selling above the control prices. There was also penalties (less severe) for anyone paying more than the control price. Irate consumers sometimes destroyed the businesses of those who sold higher than the control prices. In the short-run these draconian measures may have curbed inflation but in the long-run the results were disaster. Merchants stopped selling goods but this led to penalties against hoarding. People went out of business but Diocletian countered with laws saying that every man had to pursue the occupation of their father. The penalty for not doing so was death. This was justified on the basis that leaving the occupation of ones father was like a soldier deserting in time of war. The effect of this was to turn free men into serfs.   EPISODES OF HYPERINFLATION, Thayer Watkins, ECONOMICS DEPARTMENT, SAN JOSE STATE UNIVERSITY

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