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“The coins’ excellent condition indicated that the owner systematically
stashed them away shortly after they were made, the archaeologists said. For
some reason that person had buried them shortly after 294 and never retrieved
them. Some of the coins, made mainly of bronze but with a 5% silver content
were buried in small leather pouches. The archaeologists said it was
impossible to determine the original value of the money due to rampant
inflation at the time, but said they would have been worth at least a year or
two of wages.” – The
Guardian/11-19-2015
by Michael J. Kosares
I was initially at a loss to explain why anyone would go to so much
trouble to hoard so many coins with such a low silver content – about
5%. The only rational explanation is that the hoarder had decided that
even worse debasement was on its way. And, a quick review of Roman
history tells us that this indeed was the case.
In the next generation of the denarius, issued by Emperor
Diocletian, bronze coins were simply dipped in silver and passed into
circulation. By 294AD, the latest date in the hoard, Diocletian
abandoned silver coinage entirely and began issuing bronze coins instead.
Prior to that, prices had risen over a roughly twenty year period by
1000%. Value-conscious barbarian troops hired by the emperors demanded
to be paid in gold aureus and for good reason as you will discover below. By
the end of the third century, the currency was crumbling and along with it
the empire.
For a fascinating short course on the connection between the fall of the
Empire and inflation, I would recommend this lecture
by professor Joseph Peden in 2009, titled “Inflation and the Fall of the
Roman Empire” and published at the Mises Institute. Peden quotes a 5th
century account of the Roman inflation by a Christian priest named Salvian.
Says Peden,
“Salvian tells us, and I don’t think he’s exaggerating, that one of
the reasons why the Roman state collapsed in the 5th century was that the
Roman people, the mass of the population, had but one wish after being
captured by the barbarians: to never again fall under the rule of the Roman
bureaucracy. In other words, the Roman state was the enemy; the barbarians
were the liberators. And this undoubtedly was due to the inflation of the 3rd
century.”
It is instructive to note that for Rome, as has been the case in a myriad
of episodes through history, inflation was not an event but a process.
The ancient Roman version unfolded over a more than a 200 year period. “By
the time of Trajan in 117 AD,” says Peden, “the denarius was only about 85
percent silver, down from Augustus’s 95 percent. By the age of Marcus
Aurelius, in 180, it was down to about 75 percent silver. In Septimius’ time
it had dropped to 60 percent, and Caracalla evened it off at 50/50.”
 
By the end of the third century, as demonstrated by the Swiss find, the
denarius had gone to 5% silver, then, as mentioned above, a thin coating of
silver, then no silver at all, only bronze. In short, a chart could
have been constructed at the time showing an ounce of silver in a steady
upward progression in terms of denarii from 117 AD through 300 AD. One
wonders if the pundits at the time would have deemed it to have been in a
bubble.
About 1200 years later, Thomas Gresham would draft “Gresham’s Law” stated
simply as ‘bad money drives out good.’ Had Gresham the opportunity to visit
the British Museum and study ancient Roman coinage, he would have found a
ready example of his law in action. One expert told The Guardian
newspaper that the original owners hoarded the Roman coins found in
Switzerland because “the silver contained in them guaranteed a certain value
retention in a time of economic uncertainty.”
In ‘The Story of Money for Understanding Economics”
researcher Vincent Lannoye tells us that during the Roman inflation, “The
less debased gold coins had been stashed under the mattress for decades,
maybe centuries. These precious and valuable coins hardly circulated,
as it can be deduced from their high concentrations in hoards discovered by
archaeologists.” Peden puts a finer point on the role of gold during the
Roman inflationary period:
“Now one interesting thing with all this
inflation should be a great comfort to us: historians of prices in the Roman
Empire have come to the conclusion that despite all of this inflation — or
perhaps we should say, because of all of this inflation — the price of
gold, in terms of its purchasing power, remained stable from the first
through the fourth century. In other words, gold remained, in terms of
its purchasing power, a stable value whereas all this other coinage just
became increasingly worthless.”
In 1700 years, as you can see in the chart above, not much has
changed. Since 1971, when the United States detached the dollar from
gold and ushered in the era of fiat money, the dollar has lost 83% of its
purchasing power. The 1971 dollar is now worth 17¢. Gold in
the meanwhile has risen from $35/oz. then to roughly the $1100 level today
(with a stop at $1900/oz in 2011.) Over the long run, gold in the modern era
has maintained its purchasing power as it did in Roman times, while the
dollar, like the denarius, has been steadily debased. So it is by the
circuitous route just taken, you now know why 4000 Roman coins recently found
buried in a Swiss orchard reinforce gold ownership today.
Final Note 1: We should not become desensitized to the prospects of future
inflation as a result of the lull we have encountered in recent years.
Even though price inflation is relatively subdued of late, monetary inflation
continues unabated with consequences yet to be determined. In the
inflationary process, it should be remembered that the line between cause and
effect is not always a straight one. History teaches us that when inflation
does arrive, it comes suddenly without notice and with a vengeance.
Final note 2: I should add that at any point along the way in
the Roman inflationary period, the hoarder who had stashed away earlier
silver coinage would have effectively hedged the event, as this article
illustrates. In the modern era, though more volatile than gold, silver
has functioned effectively as a safe-haven asset in the portfolio. A chart like
the one above could be drawn with silver as the overlay instead of gold.
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