Tuesday, July 4, 2023

The Fed vs The Roman Empire's Debasement of the Denarius

Click here to read the original Cautious Optimism Facebook post with comments

3 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff dedicates the CO chart of the day to Cautious Optimism regular Keith Shapiro who follows silver and the silver market.

Inflation and devaluation of money weren’t invented only when governments first bestowed central banks with legal monopolies over printing currency—the first such western monopoly granted in 1844 Great Britain.

The Roman Empire and even some provinces of ancient Greece played a similar game, only they did it with precious metal coins instead of paper bills.

At one time the Roman denarius coin was widely admired for its fineness and around the year 100 A.D. was composed of nearly 99% silver. Over time successive Roman emperors melted down and reminted the denarius, using lesser and lesser amounts of silver to facilitate additional production of coins (i.e. inflation) and service their growing government debts, incurred to finance wars of territorial expansion and the growing Roman welfare state.

Over time the denarius’ steadily falling silver content caused its luster to fade and the public began to discount the coin. So in 215 the emperor Caracalla added 50% more silver back but restamped one denarius coins with the new denomination of two denarii—the so-called “double denarius.” Hence the denarius regained its visual luster, but the silver content per unit of currency had been further eroded by 25%.

By 268 A.D. just 2% of the denarius’ silver content remained, applied exclusively upon the coin’s surface to conceal its bronze base. However as the coins circulated the thin silver sheen quickly wore off revealing the denarius’ unremarkable base metal composition. 

Shortly afterwards the empire switched exclusively to bronze coinage inaugurating the famous Roman hyperinflation that defined the Crisis of the Third Century. In 301 the emperor Diocletian enacted some of history’s first price control laws to halt the inflation but they failed, leading only to widespread shortages of goods.

If the Roman Empire debasing coins from 99% to 2% over 168 years sounds terrible, it was. But consider comparing the denarius’ rate of debasement to that of modern-day currencies.

According to the Minneapolis Federal Reserve’s online inflation calculator the Fed has devalued the U.S. dollar by 96.9% since opening its doors in 1914, an annualized inflation rate of 3.2277%.

At that continued rate the dollar’s debasement will equal the denarius’, but after just 123 years compared to the Roman Empire’s 168.

Incidentally 123 years from the Fed’s establishment will be the year 2037. Which means the Fed will have pulled off a denarius-like devaluation of the U.S. dollar fourteen years from now, and done it 45 years faster than a succession of corrupt Roman emperors.

If the same average rate of devaluation continues for a total of 168 years, as it did in Rome, the U.S. dollar’s final purchasing power will settle at 0.48 cents (lower than the denarius’ roughly 2 cents) in the year 2082—right before the Fed resumes devaluing it even further.

ps. Under America’s bimetallic (1792-1879) and then classical gold standards (1879-1914) the U.S. dollar’s purchasing power fell from $1 in 1792 to…. 

…well, actually it rose slightly to $1.04 by 1914. But a currency whose purchasing power rises from $1 to $1.04 over 122 years is for all practical purposes unchanged, although mathematically that’s an annual inflation rate of negative 0.033%

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