Saturday, April 9, 2011

Who Did the Roman Government "Get This Money From"?

Above is a picture from the Frome Hoard, a large find of over 52,000 Roman coins from the late 3rd century AD that was unearthed last year in England. More pictures from this find here.

This past week we were treated to statements to the effect that a government running a fiat currency regime, "only exists because taxpayers support it". Let's examine this statement through the empirical lens of history; without the need to understand or envision the abstract operations of a contemporary fiat monetary system that uses computer based information systems to maintain the accounting.

Modern, computer based information systems can be difficult to fully contemplate. With thousands of simultaneous daily offsetting financial transactions between the government and the non-government sectors, I understand that it can become unclear which transaction logically must precede another transaction. In the archeological record, from 1,700 years ago, we can view a fiat currency regime without the need for a high degree of abstract thought.

Here is another picture of the big, fat pile of government liabilities that constituted this find:

There were no computers back then so the economic participants could keep track of or maintain accounts by simply depositing or withdrawing metal coins in jars buried in the ground. Whether these coins were in the custody of the government sector or the non-government sector at the moment when they were lost to posterity is actually immaterial to understanding their function in Britannia 1700 years ago.

For now, let's assume that this pot of coins was in the possession of the Roman finance minister or the Roman "Secretary of the Treasury". How did this official obtain these coins in the first place? Does it make sense that the Roman government in Britannia implemented a poll tax and somehow magically the populace was able to pay these taxes in actual Roman coins without the assistance of the Roman government mint? When a significant fraction of these coins were apparently not even minted in Britannia but rather over in the Gallic Empire? What did the Britans take truckloads of produce through the Channel Tunnel over to Gall and sell their goods in exchange for the Roman coins found here, then zip right back to Britannia and pay their taxes?....... C'mon!

If indeed, the government "only exists because the taxpayers support it", then where could the local peasantry of Britannia have obtained these coins prior to the provincial Roman government spending them into circulation in the first place?

Maybe Forbes magazine can do an in depth article into how this would be possible.

Another interesting detail about this find was the apparent disregard the custodian of these coins had for the so called "precious metal" content of the coins. Below is a picture of one of 5 silver denarii that were mixed in with the other 52,000 coins made of so called "debased" metals.

Here's a question for the "hard money" crowd: Why would the one in charge of this pot of coins carelessly deposit the 5 silver denarii in among the other coins if the metal content of the coins provided a greater "intrinsic" value to the coin? Wouldn't those coins be set aside if they were viewed as some how more valuable than all the others?

Slide show of the removal:


Joe said...

awesome post, Matt. Like you said, people dont cough up tax money ex nihilo. Logically tracing all transactions to the original point of money being spent into existence is something most people dont ever think about. Reaching this first step is critical for people to understand how the system works.

widmerpool said...

The funniest goldbug argument is that all these empires with fiat currency eventually collapsed.

That's like saying everyone in the 19th century who ate meat eventually died.

But, more to the point, people REALLY get uncomfortable with money being created ex nihilo.

Forget goldbugs, the average progressive Democrat thinks our debt is going to be a burden on our grandchildren.

Detroit Dan said...

I was just explaining to a longtime friend how money (e.g. U.S. dollar) was originally spent into existence. Good timing. Thank you..

Mike Norman said...

Yes, Matt, this is a terrific post, thanks. Send it to John Tamny, he'll be calling you a "fool" in no time at all and complaining that you are making him "perturbed."

Tom Hickey said...

"The funniest goldbug argument is that all these empires with fiat currency eventually collapsed."

Right, the currency collapsed because the empire collapsed. They have the causality backwards.

blueberry said...

Please guys, stick to economics...

"Right, the currency collapsed because the empire collapsed. They have the causality backwards."

For a quick counter example, just look at the collapse of the roman Denarius during Diocletian's rule. The Denarius had been debased for many generations (i.e. the percentage of precious metals in the coin was down to almost nothing). Diocletian eventually restored hard money to tame price inflation in the empire. On his way there he also experimented with price controls, unsuccessfully I might add...

Tom Hickey said...

Imperial profligacy was one of the causes of the decline of Rome. But few historians think currency debasement was the sole or even the primary cause of the fall of the Roman Empire. Many factors were involved.

An empire is costly to run, and if the rate of growth/productivity is not greater than the rate of inflation, the rate of money creation exceeds the rate of resource generation, and eventually the enterprise collapses due to lack of real resources to meet its needs. This was an economic factor involved in the decline of Rome.

But the problem with Rome was not simply debasing the currency. That was a symptom of the underlying problem. The elite was was living off the fat and not managing the empire economically or militarily. They paid for their lavish expenses and moral rot by heavy taxation and currency debasement, while ignoring the external threats that were building.

The overall cause of Rome's fall was bad management of the state. The key problem was institutional, the selection of leadership.

Rome was sacked in 480 CE, and the emperor deposed in 476, but the fall of the Roman Empire has really has no date upon which historians agree. It was a cumulative process that morphed into "Christendom" loosely organized as European feudalism and Byzantium.

To make out that Rome fell "because" it debased its currency is overly simplistic and misrepresents the complexity of factors involved.

Matt Franko said...

I'm having trouble finding contemporaneous records of Rome from back then. (at least I cannot find any) I've heard via a recent Nat Geo documentary on Rome that they recorded stuff on wax trays and they have all been destroyed. All that seems to be left is the archeology.

I take it that this is probably why people have to dig stuff up to be able to try to figure out what went on back then.

Blueberry: can you post some links to some images of some documents from back then? Maybe I've just not been successful in finding them.

Blueberry you say: "just look at the collapse of the roman Denarius during Diocletian's rule. The Denarius had been debased for many generations (i.e. the percentage of precious metals in the coin was down to almost nothing)."

How do you know this? What is the contemporaneous source document? If this is just some PhD's theory, a PhD in history who has no clue how macroeconomics works in a fiat regime no less, then I dont know if you can definitively say such a thing.

Why did a person throw solid silver coins into this jar just like the others in this Frome hoard? Also, they have found counterfeit coins (denarius) MADE OUT OF SOLID SILVER. There is evidence of countermarks being struck in the previously issued silver coins. Why would someone do these things if the "precious" metal content drove currency 'value'? The whole "debasement" theory seems to have NO EMPIRICAL BASIS IN THE ARCHEOLOGY.

I believe Tom is correct that Roman govt simply morphed into Christendom that we in the west are still basically living under to this day. That is why it was called the Roman Catholic Church. And btw we have always used 'fiat' money.

Anyway, if anyone has some links to some contemporaneous documents from the 3rd century AD I'd be interested in seeing them and would stand corrected if they told a different story.....


Matt Franko said...

If you get it from Tacitus, it looks like it was written 500 years later:


excerpt: "The first 6 books of the Annales survive in a single manuscript, now in the Biblioteca Medicea Laurenziana in Florence, where it is MS. plut. 68.1. Since this is the library of the Medici prince, Lorenzo the Magnificent, it is naturally called the Codex Mediceus, or M for short.

This MS was written around 850AD in Germany. The distinctive type of script suggests the event took place in the scriptorium of the Benedictine abbey of Fulda, and this is supported by an explicit reference to Tacitus in the Annales Fuldenses for 852 (Cornelius Tacitus, scriptor rerum a Romanis in ea gente gestarum) which seems to show knowledge of Ann. 2,9."