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Category: Gold - according to Dominic Frisby

Gold – according to Dominic Frisby: The rise and fall of sound money in ancient Rome

Ancient Rome is probably more famous for debasing its money than for its money itself. But for its debasement to have been so effective and so prolong...

18 March 2021

Dominic Frisby

Ancient Rome is probably more famous for debasing its money than for its money itself. But for its debasement to have been so effective and so prolonged, it needed an established and widely- recognised, credible money as a starting point. The geology of central Italy is not particularly abundant in gold and silver, and it was only really after Rome began expanding beyond central Italy in the third century BCE that it started using gold and silver. Commodity money tends to be determined by the resources available. Bronze (copper and tin) is abundant in the area, and bronze, in the form of weights – aes rude or ‘rugged bronze’ – often as heavy as 300 grams (11oz), was the early currency of choice.

But as the Republic expanded, so did access to gold and silver – either from loot, tributes or mine supply – and so these precious metals made their way into Roman money.

The first silver denarius was minted in 211BCE. Within 50 or 60 years Roman coinage was widespread across Italy. Much of the silver to mint the coins came from mines in Macedonia, which Rome now controlled. For the next 500 years this silver coin, containing about 4 grams (0.12oz) of silver – a little bit more than the weight of a 1p coin – would be the backbone currency of Rome. One denarius was exchangeable for ten pounds of bronze – hence its name, which means “containing ten”.

The purchasing power of a denarius would be more than the underlying metal value – ranging between 1.5 and 3 times the value. That’s seigniorage for you

The denarius lives on today, especially in many Latin languages. The Italian word for money is “denaro”, “dinero” is Spanish, “dinheiro” is Portugese, “denar” is Slovenian. In several Arab nations, the currency is the dinar.

When the denarius was introduced it was 95-98% pure silver. To give you some kind of benchmark, sterling silver is only 92.5% pure. The infamous debasement began shortly after the Republic became Empire, and control of money passed from the Senate to the Emperor. It lasted several hundred years. Heads of emperors began to appear on coins, and so, as a result, did their use as imperial propaganda. The more coins circulating around the ever-growing empire, spreading the message of Roman imperial might, the better.

By the first century AD, taxation and tribute only covered around 80% of the imperial budget, however. The shortfall was met by mining and the loot of newly conquered nations. But mining is a fickle business at the best of times, and the empire was no longer expanding at the same rate, so this was a risky strategy that could lead to shortfalls, especially under extravagant emperors. The solution to excess spending, as today, was not to rein it in, but to debase the currency. In AD 64, the Emperor Nero reduced both the amount of silver in a denarius (to 3.5grams) as well as the purity of the metal itself (to 93.5%).

A few decades later, the Roman Empire reached its greatest extent, under Trajan. From that point on, it receded. That meant the supply of loot from newly conquered territories also shrank.

By lowering the amount of silver in its coins, Rome could produce more coins and ‘stretch’ its budget. Successive emperors followed Nero’s strategy. As with boiling frogs and the debasement of currency today, the process was gradual. 100 years after Nero, around 150 AD, the purity of silver had been reduced to 83%. By 250 AD the silver purity was 50%. By 275 AD it was just 5%. As time progressed, the sleight of hand was exposed. By the time of Diocletian, who was emperor from 284 to 305 AD, there was so little precious metal in the money the emperor had to resort to price controls. It was under Diocletian that the last denarii were minted.

By the way, you can pick up genuine denarii on eBay for less than fifty quid, sometimes even under a tenner – surprisingly cheap given the underlying history, I’d say.

The most important gold coin of Ancient Rome was the aureus, similar in size to the denarius, but containing roughly twice the weight of precious metal – 8 grams, or ¼ ounce of gold (gold is denser than silver). It would be roughly the same weight as a 2p today. 25 denarii would get you an aureus, so the gold-silver ratio would have been about 1:12, the historical norm.

Nero then reduced the gold content to 7.3g, which perhaps coincidentally, was the same weight as the sovereign of the British Empire. By 210 AD the gold content had fallen to 6.3g. However, unlike the silver denarius, the aureus kept its near-100%, 24-carat purity.

By the fourth century, the idea of obtaining an aureus for 25 denarii was long gone. In 301, one gold aureus was worth 833 denarii; barely a decade later, that same aureus was worth 4,350 denarii.

In 337, Constantine replaced the aureus with the solidus – about 4.5 grams of 24-carat gold. Initially, one solidus was worth 275,000 denarii, but by 356, one solidus was worth 4,600,000 denarii. The good money had chased out the bad. Talk about inflation!

In a breath-taking blow of hypocrisy, that even leaders today would struggle to pull off, the Roman authorities, despite the declining quality of the metal content of their denarius, refused to accept anything other than gold and silver in payment of taxes.

By the way, you can’t pick up aureus in eBay for anything like as cheap as you can a denarius. Pure money keeps its purchasing power. In fact, the solidus outlasted the Roman Empire itself. I’ve got one minted by the Byzantine emperor Justinian. I got it for little more than the value of the underlying metal. Seigniorage doesn’t always last!

Of course, one key reason for the relentless debasement was a bloated Roman state that was incapable of living within its means. But another reason must be lack of raw material. As we have already noted, central Italy had little mine supply so the metal had to be obtained elsewhere. Much of it came in the form of war booty from newly defeated territories, and the subsequent tributes and taxes levied. The problem with this model is that it relied on constant expansion. When the expansion ceased, Rome had to rely on new mine supply alone to expand its money supply. So instead it turned to debasement.

No wonder Rome was constantly at war. That was its business model. But with the expense of continual wars, without the corresponding payback of loot from the newly conquered, the model was unsustainable. It’s not unlike the two world wars of the 20th century for the British Empire. The wars of previous centuries had more than paid for themselves, but for their efforts in the Second World War, as far as the loot of a newly conquered nation is concerned, the British got very little.

One final titbit. Consider the Roman aureus of Hadrian from 117AD, when he became emperor, and when the Roman empire was at its most extensive. On the reverse, Trajan, the previous emperor passes a globe – the empire – to Hadrian who accepts it. It seems the Romans knew then that the world was round.

* Dominic Frisby, author of Daylight Robbery – How Tax Shaped The Past And Will Change The Future, out now in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.

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