Diocletian and Inflation

By Matthew Yglesias | Posted Tuesday, May 1, 2012, at 9:23 PM ET
Diocletian era coinage

Wikimedia Commons
A BLOG ABOUT BUSINESS AND ECONOMICS.
The Truth About Diocletian and Inflation
Since the subject of inflation under Emperor Diocletian won't seem to stop
dogging Paul Krugman, I thought I might try to bring a little information to the
table following Prdromos-Ioannis Prodromidis 2006 paper "Another View on an
Old Inflation: Environment and Policies in the Roman Empire up to Diocletians
Price Edict" which brings a valuable multidisciplinary perspective to the price
level changes experienced by the Roman Empire during the third century.
As Prodromidis explains it, the inflation in question was really three separate
trends that people sometimes run together.
In the first part of the century, the Roman Empire doesn't have a bond market
it can raise funds on so instead it finances budget deficits by coining money.
This leads to positive inflation, but of a fairly normal non-ruinous sort in the 3-4
percent range. That's about what America was doing during the Reagan
administration and it's perfectly consistent with prosperity.
Then comes the "Crisis of the Third Century" when for about fifty years starting
in 235 AD the Empire is wracked by invasion and civil war. This leads to a large
Matthew Yglesias is Slate's business
and economics correspondent.
Before joining the magazine he
worked for ThinkProgress, the
Atlantic, TPM Media, and the
American Prospect. His first book,
Heads in the Sand, was published by
Wiley in 2008. His second, The Rent
Is Too Damn High, was published by
Simon & Schuster in March 2012.
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increase in the price level primarily because of negative shocks to the real
economy. Political disruption sharply reduces the quantity of market
transactions conducted with money, leaving a higher ratio of coins to
transactions and higher prices. By the same token, if marauding barbarians
were to cut the Northeast Corridor off from the Farm Belt, the price of
agricultural goods would skyrocket for reasons that are basically non-monetary
in nature.
Then, just when the Emperor Diocletian has brought political stability back and
is in fact making progress on solving the underlying problem, he decides to do
something weird:
At any rate, the received wisdom is that, overall, the
overwhelming/unprecedented increase in the money supply (especially
silver/bronze issues) in the reign of Diocletian, eventually brought about
pronounced price increases (Schwartz, 1973; Duncan-Jones, 1982; Harl,
1996). But, this is not the full story; though the second part of it, is
perhaps not widely known or recognised for its inflationary impact: In
301, Diocletian apparently issued a Currency Edict, effective September
1st, doubling the face value of the silver and cop- per issues (Erim et al.,
1971; Whittaker, 1980; Bagnall, 1985; Lo Cascio, 1996; Rathebone,
1996; Harl, 1996; and the literature mentioned therein). Perhaps he
hoped to raise the purchasing capacity of his (military and
administrative) staff or make the possession of these coins more
attractive and influence the unfreezing of the out- standing precious
metal (gold) that was held in private stores.
Whatever it is he hoped to accomplish, the result was a final large one-time
increase in the price level that left the legacy of Diocletian the Inflator.
Currency reforms of the sort Diocletian undertook still happen sometimes in the
modern era, but they almost always go in the other direction. When a country
has in the recent past suffered a bout of serious inflation that's just come to an
end, sometimes the government will choose to put an asterix on the new
regime by basically striking a zero or two off the old currency. So in 1960,
France introduced a New Franc and announced that one New Franc was worth
100 Old Francs, and that 1 Franc Coin of the old vintage could stay in circulation
as one New Centime. You could describe the impact of that switch as a giant
one-off deflation, but that's a pretty misleading way to think about it.
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By Matthew Yglesias | Posted Tuesday, May 1, 2012, at 9:23 PM ET

Diocletian era coinage

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