How Roman Central Planners Destroyed Their Economy

 | Wednesday, October 05, 2016 | www.fee.org

In 449 B.C., the Roman government passed the Law of the Twelve Tables, regulating much of commercial, social, and family life. Some of these laws were reasonable and consistent with an economy of contract and commerce; others prescribed gruesome punishments and assigned cruel powers and privileges given to some. Other regulations fixed a maximum rate of interest on loans of approximately 8 percent. The Roman government also had the habit of periodically forgiving all mosaique_echansons_bardothumbinterest owed in the society; that is, it legally freed private debtors from having to pay back interest due to private creditors.

In 45 B.C., Julius Caesar discovered that almost one-third of the Roman citizenry was receiving their grain supply for free from the State.

The Roman government also set price controls on wheat. In the fourth century, B.C., the Roman government would buy grain during periods of shortages and sell it at a price fixed far below the market price. In 58 B.C., this was improved upon; the government gave grain away to the citizens of Rome at a zero price, that is, for free.

The result was inevitable: farmers left the land and flocked to Rome; this, of course, only made the problem worse, since with fewer farmers on the land in the territories surrounding Rome, less grain than before was being grown and brought to the market. Also, masters were freeing their slaves and placing the financial burden for feeding them on the Roman government at that zero price.

In 45 B.C., Julius Caesar discovered that almost one-third of the Roman citizenry was receiving their grain supply for free from the State.

To deal with the financial cost of these supplies of wheat, the Roman government resorted to debasement of the currency, that is, inflation. Pricing-fixing of grain, shortages of supply, rising budgetary problems for the Roman government, monetary debasement and resulting worsening price inflation were a continual occurrence through long periods of Roman history.

Spending, Inflation and Economic Controls Under Diocletian

The most famous episode of price controls in Roman history was during the reign of Emperor Diocletian (A.D. 244-312). He assumed the throne in Rome in A.D. 284. Almost immediately, Diocletian began to undertake huge and financially expensive government spending projects.

There was a massive increase in the armed forces and military spending; a huge building project was started in the form of a planned new capital for the Roman Empire in Asia Minor (present-day Turkey) at the city of Nicomedia; he greatly expanded the Roman bureaucracy; and he instituted forced labor for completion of his public works projects.

The Roman government stopped accepting its own debased money as payment for taxes owed and required taxes to be paid in kind.

To finance all of these government activities, Diocletian dramatically raised taxes on all segments of the Roman population. These resulted in the expected disincentives against work, production, savings, and investment that have long been seen as the consequences of high levels and rates of taxation. It resulted in a decline in commerce and trade, as well.

When taxation no longer generated enough revenue to finance all of these activities, Emperor Diocletian resorted to debasement of the currency. Gold and silver coinage would have their metal content reduced and reissued by the government with the claim that their metallic value was the same as before. The government passed legal tender laws requiring Roman citizens and subjects throughout the Empire to accept these debased coins at the higher value stamped on each of the coin’s faces.

The result of this was inevitable, too. Since in terms of the actual gold and silver contained in them, these legal tender coins had a lower value, traders would only accept them at a discount. That is, they were soon devalued in the market place. People began to hoard all the gold and silver coins that still contained the higher gold and silver content and using the debased coins in market trading.

This, of course, meant that each of the debased coins would only buy a smaller quantity of goods on the market than before; or expressed the other way around, more of these debased coins now had to be given in exchange for the same amount of commodities as before. The price inflation became worse and worse as the Emperor issued more and more of these increasingly worthless forms of money.

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