Hyperinflation and the end of the Roman Empire - Lessons to be learnt?

To understand where the world economy is heading it is important to know where we have been.

In September I was lucky enough to pay a visit to the town of Split in Croatia. One of its crowning glories is the Roman Emperor Diocletian's palace. The palace was built as part luxury seaside villa and part Roman military camp. In later years the ruins were reclaimed by medieval citizens. Diocletian's mausoleum was turned into a small cathedral and the Emperor's body disappeared. Now it is amongst the best preserved Roman architecture and a setting for many scenes in the TV show Game of Thrones. What many don't know is that the rule of Diocletian was to greatly accelerate the fall of the Roman Empire, and that the final crisis of 476 AD involved a crisis of hyperinflation.

Diocletian was born in what is now Croatia on 22 December 244 AD. These years have been called by historians the 'Military Anarchy'. A series of civil wars had wreaked havoc on the Empire as it faced mounting challenges from the ever rebellious Germanic tribes and the mighty Persian Empire. A man of low status (possibly his father had been a slave), Diocletian rose through the army ranks at a time when the Emperor Gallenius had stripped senators (and sons) of the right to control legions. This allowed a man like Diocletian to climb the ranks. By 270 he was in charge of a sizeable force sited on the Danube. Following a military coup in 282 Diocletian was elevated to command the Emperor's own elite force, known as the protectores domestici, or Praetorian Guard. He then became consul to Emperor Carus the next year.

The new Emperor had numerous military success stretching as far as what is now Afghanistan. The circumstances around his death are somewhat mysterious. Perhaps it was disease, as common on military campaigns. On the night of his death there was a major lightning storm and his tent was set afire. There is also the possibility it was an assassination. His son, Numerian, succeeded him until he too died. At this point Diocletian took power and had the supposed culprit executed for the crime of killing Numerian. A further battle at Belgrade in 285 saw Diocletian emerge as the sole ruler of Rome. This has been described by historians as marking the end of the Crisis of the Third Century.

However, Rome still faced threats on multiple fronts. To deal with this Diocletian appointed Maximilian as co-Emperor. As this approached worked he then went on to appoint two junior co-emperors with regard to succession. This became the rule of four or " tetrarchy". Diocletian then set about reforming the Roman empire. These reforms were aimed at stabilising the finances, social structure, and military power of Rome.

Diocletian styled himself an autocrat and imposed forms of court ceremonies and architecture. The palace being as shining example. He extended the bureaucracy and built up infrastructure (the original road builders!). Guild membership was cemented and traditional ways could be neither changed or improved. He had, one could argue, institutionalised the limits to growth. However, these changes along with constant military campaigns increased state expenditure enormously and necessitated a comprehensive tax reform.

Diocletian was a great fan of the balanced budget. To offset higher spending he increased taxes. Hard pressed farmers burdened by excessive taxes ended up becoming debt slaves (later called Serfs in Europe). Towns were held responsible for rural taxes leading to depopulation of towns. He tried to tax public officials, making it harder to attract public officials. However inflation was rampant . His authoritarian solution was to issue a price edict in 301 AD. This set the maximum price for commodities and wages. The Price Edict blamed the increases in the price of commodities on greed and avarice. However, we can see that this inflationary crisis came about from a combination of high state spending, continual devaluations of the Roman currency, increasing rates of taxation, and with falling productivity as both cause and effect.

The penalty for violation was death. Traders had a high expectation of rising prices and so goods were withheld from the market. Mobs were formed and blood was shed over cheap trifling items. Traders fears only escalated the situation. Black market racketeering became the norm and the price edict was essentially ignored. The Price Edict came to an end with Diocletian's abdication from rule in 305 AD. It had failed to keep a cap on rising prices as a hyperinflationary crisis was unleashed on the peoples of the Roman Empire. As we can see from examining the price of wheat.

In the ancient world wheat from Egypt was a most important commodity:
• In 301 AD the price of wheat was 330 denarii per artaba.
• In 335 AD it was 21,000 denarii per artaba.
• In 338 AD it reached 36,000 denarii.
• In 342 AD it was 75,000 denarii.
• In 350 AD it was 500,000 denarii.

By any standards this shows hyperinflation. In attempts to curb it the Emperor Constantine (306-337 AD) adopted Diocletian's pure gold coin called the Solidus. Weighing in at 4.5 grams it was used for government accounts and financing. On introduction it was worth 375,000 denarii, in 350 we find that a Solidus was worth 576,000 denarii, by 390 it was trading at 4.5 million denarii!

The Diocletian hyperinflation was a central factor in the breakdown crisis of the Roman civilisation based around the Mediterranean. Europe was then to enter the 'Dark Ages' for centuries to come. It should serve as a warning to world central bankers who seem to think they can print prosperity out of thin air. Since 2008 anemic economic growth has come at the cost of increasing global debt from $162 trillion to $233 trillion creating a gigantic mountain of debt that can never be paid back. When the next recession hits it will prick the various debt bubbles. Thus setting up the prospect of hyperinflation as central banks resort to QE to infinity in a desperate bid to save the financial system.

Maybe they should recall the words of : "Those who fail to learn the lessons of History are doomed to repeat them?''.

Sources
http://www.visitsplit.com/en/448/diocletian-palace
https://earlyworldhistory.blogspot.co.uk/2012/04/emperor-diocletian.html
https://en.wikipedia.org/wiki/Diocletian
https://en.wikipedia.org/wiki/Carus
https://en.wikipedia.org/wiki/Constantine_the_Great
https://en.wikipedia.org/wiki/Solidus_(coin)
https://conversableeconomist.blogspot.co.uk/2016/12/the-diocletian-edict-price-fixing-in.html
W.Tarpley, Surviving the Cataclysm, 3rd edition, Progressive press, ISBN 1-61577-600-1, 2011.
https://www.independent.co.uk/news/business/analysis-and-features/global-debt-crisis-explained-all-time-high-world-economy-causes-solutions-definition-a8143516.html
Pictures taken by myself