Hyperinflation and Trust in Ancient Rome

https://notesonliberty.com/2019/09/16/hyperinflation-and-trust-in-ancient-rome/

by bookofjoe • 7 years ago

55 36 7 years ago

ncmncm3• 7 years ago

In "Debt" by John Graeber, I was astonished to learn that currency was invented more than 2000 years after money. It was a military logistics invention: soldiers were issued coins, and taxes collected in coins, so that to be able to pay taxes, the governed had to meet the material needs or other wants of soldiers.

The metal value of the coins only mattered for trade with foreigners.

ryacko2• 7 years ago

According to Wikipedia, Gresham’s Law was noticed since the 5th Century BC. The metal value of coins mattered for everyone, partly because reducing the purity of coins would result in the mint being able to effect an increase in the money supply.

knocte2• 7 years ago

But still, the way to inflate these coins (i.e. devalue them) was to include less and less precious metals in the material used to produce them. (There is a mention about this in the great TNW talk by Stefan Molyneux: https://www.youtube.com/watch?v=r9cAXh1QAW0 )

dredmorbius7• 7 years ago

Molyneux is at best an idiot, and at worst, a white nationalist neofascist.

A libertarian internet commentator and alleged cult leader who amplifies "scientific racism," eugenics and white supremacism to a massive new audience, Stefan Molyneux operates within the racist so-called “alt-right” and pro-Trump ranks.

https://www.splcenter.org/fighting-hate/extremist-files/indi...

That aside, his economic doctrines are at best a random splatter pattern. There are vastly better uses of your time and attention.

ralfd• 7 years ago

What is the difference between money and currency?

Someone• 7 years ago

“Money” is the abstract concept that allows one to do accounting “X owns me M money”, rather than “X owns me 3 cows and 4 sheep, but I own him 2 days of work”.

“Currency” is where one has (small, most of the time) tokens that represent money. The material used in such tokens can be worth the money it represents, as historically in gold and silver coins, but it need not, as in banknotes.

dredmorbius7• 7 years ago

Arguably, the distinction made in the parent comment is a poor one. It's more accurate to say that debt predates money in the form of either coin or other forms of currency such as banknotes, checks, or (somewhat understandably) computerised transfers.

Money is seen as having four principle functions:[1]

1. A medium of exchange.

2. A unit of account.

3. A store of value.

4. Sometimes, a standard of deferred payment.

Function 1 is currency. Function 2 is value. Function 3 is as an asset. Function 4 is debt.

Note that debt also needs to have some sense of value, and that effective debt-management systems tend to rely on a stable metric of value.

William Stanley Jevons writing in Money and the Mechanism of Exchange (1875)[2] gives seven qualities of the material of money: utility/value, portability, indestructibility, homogeneity, divisibility, stability, and cognizability.

By utility, he holds that money must have an intrinsic value of itself. Given the existence of nominal coinage and fiat currencies, this is clearly false.

By portability, that money is easily transported and exchanged, unlike other assets, say, land.

By homogeneity, that any given unit of money is equally exchangeable for another. It doesn't matter what dollar, euro, yen, or mark you have, only how many.

By indestructibility, somewhat relaxed, that money not be easily or spontaneously degraded. Volatile or uncontainable forms of assets are not suitable for money.

By divisibility, that the units of money be either subject to division or multiplication. Unlike, say, a Great Masters artwork, which has value, is portable, and is reasonably durable, but whose value does not survive its being cut into pieces. Contrast a dollar which can be subdivided into pennies, or aggregated to a $100 banknote.

By stability, that the value is reasonably uniform over time. As with utility, this seems not strictly true.

By cognizability, that money is immediately and universally recognisable as money. Note that this argues against certain suggested money alternatives, such as bitcoin, which literally requires a planet-wide network of extraordinarily expensive computations to be computed to "cognize" any given transaction.

The history of debt and money shows numerous forms, including "gift cultures" (generally for small tribes), grain accounts (early cities), numerous commodities (metals, stones, beads, glass, beaver pelts, oyster shells, cattle, cattle hides, and more. (Many of these origins show up in slang terms for money.) Virtually all currencies have or had names suggesting either weight, divisibility, quality, domain of relevance (typically country), or some indicator of quality, of coinage: pound, shekel, dinar, dollar, mark, royal, florin, ruble, afghani, and many more.[3]

Examples of currencies not representing government-issued coin (or other demarcations) are commonplace, and range from other governments' currency (as in US dollar trade or black markets outside the US, or use of Spanish Reals in colonial America and the early US) to former governments' currency (Roman coinage being used long after the fall of the Roman Empire), to commodity currencies based on raw materials (such as beaver pelts and oyster shells) to manufactured products such as cigarettes. A classic example of the last is given in "The Economic Organisation of a P.O.W. Camp", by Richard Radford, describing the cigarette-based economy of a German WWII camp.

My own view is that money (or debt) is information, specifically socially recognised recognition of obligations, and in its manifestations, tokenised money represents some credible expression of that obligation. In form, then, money is whatever commodity forms the most universally acceptable and available medium of exchange within a given exchange network. This might be a government-issued coinage, but can be something else. The classic functions and Jevons' list of qualities are not absolutes, and there can be considerable trade-offs amongst these.

An element explicitly mentioned in either the four functions or Jevons lists is trust evidenced in money. In tightly-knit tribal structures, the trust is manifest and tokenisation is not required. Credits and debits are known, disputes are readily settled, and explicit tokenisation is not required, so money does not exist. In early cities, grain and other commodities served as both principle exchanged goods, and principle units of value, and an accounting system with an annual cycle functioned relatively well. As trade and exchange expanded in both goods, distance, and numbers of participants, an explicit tokenisation was required, and uniform assets with concentrated stable value and assayable quality (mostly precious metals) emerged. The notion of seigniorage, a premium paid for coinage based on its minting, above the specie metal contained within it, is a measure of trust in the mint. Paper, fiat, and non-work-factor digital currencies have effectively infinite seigniorage -- there is no intrinsic value, instead the value is in the trust of institutions and systems of account.

NB: This may be a minority view of one.

________________________________

Notes:

1. https://en.wikipedia.org/wiki/Money#functions

2. https://archive.org/stream/moneyexchange00jevorich#page/n7/m...

3. For a list of currencies, see https://en.wikipedia.org/wiki/List_of_currencies Etymologies may be traced via the online etymological dictionary, https://www.etymonline.com/

4. See https://news.nationalpost.com/full-comment/frances-woolley-t... Original paper: http://www.simon-davies.org.uk/Radford_1945_POWCamp.pdf

WizardAustralis• 7 years ago

Just a quick correction. The book is 'Debt : the First 5,000 years' by DAVID Graeber.

ncmncm3• 7 years ago

I always get that wrong. You'd think I could learn, but the book is so much more interesting.

earthboundkid2• 7 years ago

_David_ Graeber. Great book. I recommend it to everyone.

It makes sense that in a village you'd have standing relationships so you wouldn't need to actually pass currency back and forth.

Even in 19th c. Russian novels you'd have the butcher and the baker coming a few times a year to ask for the debts to be settled, but for most of the time you'd just buy things on credit and have it marked on your tab for later payment. The big change in the mid-20th c. was that now there was one system of credit cards that are accepted everywhere instead of many small systems of credit with each particular merchant.

ryacko2• 7 years ago

It would make sense in a society where taxes can be paid in kind that currency wouldn’t need to be passed back and forth.

gamblor956• 7 years ago

In previous threads when this book has been mentioned, it's always followed by numerous comments about the many things the book gets wrong, largely because the book tried to force history into the framework of the author's political ideology.

dredmorbius7• 7 years ago

Specifics would be useful. Either criticisms, or links to same.

H8crilA4• 7 years ago

Detailed descriptions of ~50 debt crises that had happened in the past century, both deflationary like the 2008 subprime crisis in the US and much of the world, and inflationary like the 1930s Weimar Republic hyperinflation can be found in Ray Dalio's book "Principles for Navigating Big Debt Crises". The main determinant of whether a debt crisis becomes deflationary vs inflationary is whether the debt is denominated in local currency (and can therefore be managed/socialized via money printing, like QE after 2008, or the Roosevelt's Executive Order 6102 in 1933 with the follow-ups) or in a foreign currency (when the debtor country cannot do so). Only borrow in a currency in which you earn! This applies to governments too.

There's also a good 30 minute video on the topic:

How The Economic Machine Works: https://www.youtube.com/watch?v=PHe0bXAIuk0

littlestymaar• 7 years ago

How The Economic Machine Works: https://www.youtube.com/watch?v=PHe0bXAIuk0

First sentence “The economy works like a simple machine, but many people don't understand it − or they don't agree on how it works − and this has led to a lot of needless economic suffering”.

Seriously?

qubex2• 7 years ago

As an economist, any suggestion that the economy is simple, mechanistic, or easy to understand horrifies me... and those who perpetrate such views tend to be the ones who cause the most harm by simplifying things down to the point that they are meaningless and drawing vast, general conclusions from basically anecdotes.

Amezarak• 7 years ago

Weimar Germany experienced hyperinflation in the early 20s. The 1930s are when severe deflation and massive unemployment hit, leading to political crisis.

H8crilA4• 7 years ago

Right! Sorry.

golergka• 7 years ago

Given that the silver content of coins decreased by over 95% (gold content decreased slower, at an exchange-adjusted rate shown in Figure 1) from 160-274 AD but inflation over this period was only slightly over 100% (see Figure 2, which shows the prices of wine, wheat, and donkeys in Roman Egypt over that period as attested by papyri). If inflation had followed the commodity value of the coins, it would have been roughly 2,000%, as the coins in 274 had 1/20th of the commodity value of coins in 160 AD.

This assumes that customers would have been able to accurately determine the percetange of gold in coins. Was it the case? Or could Emperors have silently defrauded the population without it knowing that the coins don't actually contain as much gold as they used to?

Also, it implies that a person that hypothetically did that analysis could have and would have communicated it to others. But communication channels most likely were under heavy imperial control, and a person that would discover that would much more likely use this information to his advantage rather than telling it to everyeone around.

Nasrudith• 7 years ago

There would be some signs with things like density and hardness of the coin even if the apocryphal legendary streaking of Archimedes didn't happen yet.

Also the thing about inflation is that it doesn't matter if it was real or not (although signs of debasement would show with foreign trade) - even if they could pull new pure silver out of their togas it would still affect monetary supply - although it would retain strength relative to trading partners until their own supplies stabilized.

I am reminded of Japan and how it was attractive to Portuguese traders - they would load ships full of silver to exchange with gold because the two were essentially equivalue in Japan at the time but gold was worth far more in Europe.

dredmorbius7• 7 years ago

This is what assaying is. And a certain Mr. Archemedies had a specific eureka moment on this very question.

jonnycomputer• 7 years ago

The author points to trust in the currency as the culprit, and I agree, at least partially. But the emperor's ceasing to accept coin to pay taxes would have decreased demand for currency substantially, and thus its value.

If the emperor demands his coin to pay taxes, you either obtain his coin or answer to the emperor.

KevinKallmes2• 7 years ago

Hey all! OP here, loving the discussion of hyperinflation theory.

If you are interested in this sort of history, please feel free to see my other work here, and if you have other topics you would like to see, post below! History of inventions: https://notesonliberty.com/2017/08/22/inventions-that-didnt-... https://notesonliberty.com/2017/06/16/paradoxical-geniuses-l... https://notesonliberty.com/tag/auftragstaktik/ https://notesonliberty.com/2017/02/23/rules-of-warfare-in-pr... https://notesonliberty.com/2017/04/10/how-to-take-over-syria...

kunkelast• 7 years ago

So, digital unregulated and decentralized payment solutions, like Bitcoin, are the solution? What about those people who can't make their own financial plans, because they are just too stupid for that? They need government to help them. And those people are in majority.

Hyperinflation and Trust in Ancient Rome

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