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Carmine Villani: More on debasing currency

Carmine Villani
Silverthorne

Editor’s note: This follows from Villani’s last letter, where he discusses the debasing of currency in ancient Greece.

Rome is the next power. They used gold and silver coins. They too had wars to fight. They too did not learn from the past. They debased their money, i.e., made the coins smaller or mixing in lesser metals. They even clipped off corners of the coin as a tax for entering a government building, melting the clippings down and making new money. Two things occurred: The Romans invented revaluation – using the same size coin but increasing the face value of the coin, and inflation skyrocketed. By 284 AD the Roman currency was only tin plated copper or bronze. Cost of living soared. In 301 AD the government froze the prices of everything, including wages, yet prices continued to rise. Many people simply gave up and went on welfare. Yes, you can argue that the Romans created welfare by feeding the population, at one point they had 20 percent of their population – 200,000 – on welfare. To save themselves, the government started putting people to work on government projects and expanded the military. This doubled the size of government in a short time.

To pay for this expansion the Romans started minting money made of only copper, further debasing the money. Deficit spending exploded. Sound familiar? All this created hyperinflation. In 301 AD, a pound of gold was worth 50,000 denari, the Roman currency; and by mid-350 AD a pound of gold was worth 2.12 billion denari. As a comparison, the new car in 1950 that cost about $2,000 today would cost $85 million. Currency based trading came to a halt and the barter system resumed. Good-bye Rome. Twice in history the greatest powers debased their money to pay for war or government projects. The results were devastating. Yet, the problem is not always government.

Next posting, tulips.


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