Grand Super Cycle National Bankruptcies

Part IV

Fall of the Roman Empire

 

By

 

Joseph M. Miller

jmiller585@mchsi.com

 

Daan Joubert

daanj@kingsley.co.za

 

Marion Butler

juneb01@msn.com

 

“The great oak tree had stood on a hill over the Hudson….  It had stood there for hundreds of years, and he thought it would always stand there… He felt safe in the oak tree’s presence; it was a thing that nothing could change or threaten; it was his greatest symbol of strength.  One night, lightning struck the oak tree…It lay broken in half, and he looked into its trunk as into the mouth of a black tunnel.  The trunk was only an empty shell; its heart had rotted away long ago; there was nothing inside – just a thin gray dust that was being dispersed by the whim of the faintest wind.  The living power had gone, and the shape it left had not been able to stand without it.”  Ayn Rand, Atlas Shrugged

 

URLs for previous articles in this series are provided at the end.

 

The Roman Empire enjoyed two centuries of peace and prosperity from it’s founding in 30 BC to the reign of Marcus Aurelius (161-180 AD).  A period of decline lasting to 268 AD was then followed by recovery under Illyrian Emperors, which lasted until the reign of Constantine (324-337 AD).  Subsequent to Constantine, the Empire entered a period of terminal decline, with the ending date of the Western Empire on September 4, 476.  We therefore date the final Grand Super Cycle (GSC5) of the Roman Period as 30 BC to 337 AD.

 

The Roman Empire was the greatest civilization produced by the West to that time, and represented the culmination of 10,000 years of economic advance, which had begun in the Neolithic Age.  In terms of size, population, wealth, military power, scale of business enterprise, number and size of foundations (endowments), and the sophistication of civil and military engineering, the Roman Empire was unsurpassed until the Industrial Revolution of the 18^th century.  To state one example, the city of Rome had a population of one million under the Empire, equal to the population of London in 1800 – the largest world city at the time.  After the fall of the Western Empire, the population of the city of Rome was reduced to that of a mere village.  In this article, Part IV of the series, we will examine the financial ruin of the state, a long and complex process that represents a major cause of the Empire’s collapse.

 

Roman Monetary System of the Early Empire

 

1 sestersius (HS) = about 25 grams bronze.

1 denarius (3.5 grams silver) = 4 sesterces

1 aureus (7.8 grams gold) = 25 denarii = HS100            (8: p.1)

 

Government Revenues and Expenditures in the First Two Centuries AD

 

Revenues of the Republic after Pompey’s conquests were HS340 million.  The annexation of Gaul (51 BC) and Egypt (30 BC) added HS300 million.  Imperial conquests of Papponia, Cappadocia, Mauretania, and Britain added a further HS30 million, providing total revenue of HS670 million in the time of Nero.  During the civil war following Nero’s death, the government ran a huge deficit, and Vespasian addressed the shortfall by increasing taxes 20% during the 70s AD.  This resulted in government revenues of approximately HS804 million (1: Duncan-Jones, p.46).  “And in real terms, it seems they did not rise significantly above that level until the third or fourth centuries.”  (2: Hopkins, p.5)  An estimate of government expenditures in 150 AD is provided in Table 1 below:

 

Table 1. Roman Budget 150 AD (1: Duncan-Jones, p.45)

 

The above figures are estimates, and should not be construed to imply a government deficit, as Rome had a balanced budget under normal circumstances.  Most sources state that Augustus reduced the number of legions from 60 to 28, and that this number was relatively unchanged for the first three centuries AD.  Richard Duncan-Jones provides a thorough cost analysis, and calculates military costs for all periods in the first three centuries on 33 legions.  In his note to table 3.1 (1: p.34) he says, “The legionary total includes new units raised under Marcus Aurelius and Sepitimus Severus.”  These increases, it should be noted, occurred after 150 AD, making Duncan-Jones’ 150 AD military pay figure of HS600 million a bit high. His figure is calculated as HS1,200 annual pay per legionary X 500,000 legionary equivalents: 181,500 legionaries, auxiliaries (47,900 alares & 176,240 cohortales), an estimate for navy & Praetorian Guard, and a 20% adjustment for officers’ pay.   Please note that we chose to present Duncan-Jones’ budget for 150 AD rather than a later version (when there actually were 33 legions) because the monetary system after 150 AD was significantly debased, and financial figures are less meaningful then.

 

Understanding the above revenue and expense equation is key to understanding the financial ruin of the Empire over the course of several centuries.  Military costs, including discharge costs, consumed over 70% of the government’s revenue once the number of legions reached 33 under Septimus Severus.  Vespasian had already increased taxes about as far as they could go without causing unrest, so there was little room to increase funding during periods of extraordinary expenditure due to war or the reigns of extravagant emperors.  Meanwhile, there was little room for reducing expenditure significantly, apart from reducing the size of the military. 

 

During Republican times, financial ruin was avoided during periods of financial stress by conquering and ravishing some new province.  This was no longer possible, since virtually all of the available profitable territories had already been annexed.  The barbarian tribes north of the Empire held no wealth worth taking.  (Augustus said that further conquest would be like fishing with a golden hook.)  Nevertheless, the Empire did have some financial expedients at its disposal when needed, which are discussed by Duncan-Jones and summarized below (1: Duncan-Jones, pp.5-10). 

 

1. Property of the condemned (bona damnatorum). “A recurrent theme is the condemnation of the rich for treason or social dereliction.” (1: p.5)  Over time this method of funding destroyed the old Senatorial class, which was replaced by a new landed elite that derived power from, and owed loyalty to, the Emperor.

 

2. Special Levies and payments.  “The most recurrent of the other forms of payment was aurum coronarium.  Originally a perquisite of successful generals under the Republic…it also celebrated the accession of a new Emperor, soon becoming a regular event.  Augustus refused 35,000 pounds of aurum coronarium offered by the towns of Italy after Actium.  At his British triumph, Claudius received crowns of 9,000 and 7,000 pounds from two prime gold-producing areas, Gallia Comata and Hispania Citerior.” (1: p.7)

 

3. Precious metal from temples and statues.  “In the Severan period, statues of Plautianus were melted down after his fall in 205, and gold lions were melted under Elagabalus.  Under Macrinus there had been a general outcry for all gold and silver statues to be melted down, from a citizen body whose taxes had just been increased.” (1: p.10)

 

4. Sales of goods. “The state’s use of sale mechanisms is shown in the sale of conquered populations as slaves…. Less predictable are the sales of palace goods which took place at times of fiscal stress.  They are attested under Caligula, Nerva and Marcus Aurelius…. Pertinax sold off palace goods, slaves, carriages and arms belonging to Commodus, after inheriting a virtually empty treasury.  Severus Alexander reputedly sold off the palace dwarves.” (1: p.10)

 

We conclude, from the above data, that the Empire had very little flexibility in its budget, either on the revenue side or the expense side.  So long as there were no significant external threats to the Empire, the budget was sustainable over the long haul.  However, once the barbarian assaults became chronic and widespread, rather than local and sporadic, the Empire found itself in a slow, grinding, relentless decline.  Victories over the barbarians could not yield financial gain, while defeats did yield financial loss – in property damage, disrupted trade, and a reduced tax base.  The government responded with ever increasing tax rates that slowly choked off the whole economy, and eventually destroyed the state.

 

Debasement, Price Inflation, and Military Pay

 

Debasement of bronze and silver coinage started in the reign of Nero.  We provided a table showing debasement of the denarius to 235 AD in When Gold is King (p.4) at www.freebuck.com/articles/elliott/00whengoldisking.htm

 (showing weight and purity of the denarius).  A similar table showing the number of denarii per pound of silver is on p.3 of The Roman Economy at www.personal.kent.edu/~bkharvey/roman/economy.htm.

 

Virtually every Emperor, starting with Nero, debased the coinage to some extent, but the impact was minimal through the middle of the second century AD.  Under Augustus, the denarius had been 98% pure silver, and the purity declined only modestly, to 90%, by the time Hadrian died in 138.  Antonius Pius (138-161) reduced purity of the denarius to 86.5%, Marcus Aurelius (161-180 AD) reduced purity to 78%, Commodus (180-192) reduced purity to 73%, Septimus Severus (193-211) reduced purity to 55.5%, and Caracalla (211-217) reduced purity to 51.5%.  Silver debasement under Caracalla was greater than it appears from looking at the denarius, because he also introduced the Antinonianus (double denarius) with 50% more silver than the denarius, but valued at twice as much.  Antinonianus production represented 50% of the face value of all silver coins produced after the Antinonianus was introduced (1: Duncan-Jones, p.142). 

 

Debasement of the currency by some percentage will eventually cause price increases of the same percent (all else being equal) so why do it?  Under the Republic, Pliny said that debasement represented partial debt default by the government, but there was no debt under the Empire to default on.   Keith Hopkins provides an answer, saying that although the army rarely intervened in central politics, Emperors always feared they might.  “The army had to be placated.  What is surprising then is that, given the army’s potential for disruption, soldiers’ pay in terms of silver never surpassed the level which it reached in the reign of Augustus.  Or put another way, every time that the nominal pay of soldiers was subsequently raised the silver coinage was soon debased, so that the cost in precious metal to the treasury was held roughly constant.” (2: Hopkins, p.11)  The validity of this statement can be seen by comparing the debasement rates shown above with military pay increases through 212 AD, shown in Table 2 below.

 

Table 2: Roman Military Pay (1: Duncan-Jones, p. 34)

 

We observe that Vespasian’s tax increase in the 70s AD (increasing revenues from HS670 million to HS804 million) gave his son Domitian the resources to increase soldier’s pay from HS900 to HS1200.  The pay increase of Septimus Severus in 202 AD was followed by massive debasement (from 73% to 55.5% purity), and Caracalla’s pay increase was likewise followed by major debasement. 

 

This debasement had significant impact on general price levels, which Duncan-Jones calculates to have risen 177% from 100 AD to 220 AD (1: Duncan-Jones, p.28).  The military pay increase from 100 AD (HS1200) to 220 AD (HS2400) was 100%.  However, the pay increase from 83 AD (HS900) to 220 AD (HS2400) was 167%, very close to the general price inflation from 100 AD to 220 AD.

 

This price inflation was not due to an increase in monetary gold and silver, as some might assume.  Duncan-Jones estimates total Roman money supply in the middle of the second century at HS20,517 million (HS12,012 million in gold, HS6,864 million in silver and HS1,641 million in bronze coinage) (1: Duncan-Jones, p.170). Annual coin production, averaging HS200 million (1% of the money supply), merely offset a wastage rate of 1% per year (coinage wear & other losses), leaving the money supply roughly unchanged (1: Duncan-Jones: p.167 & p.205).  Therefore, the price inflation to 220 AD was strictly due to debasement, which was done primarily to fund military pay increases.

 

After Caracalla, the rate of monetary debasement accelerated, reducing silver content of the coinage to 40% by 250 AD and virtually to zero by 270 AD (coins were silver washed bronze).  This monetary collapse caused hyperinflation, with estimates of general price increases ranging from “at least a factor of 27” from second century prices to the 290s (3: Duncan-Jones, p.115) to 15,000% in the third century (6: Bartlett, p 8).  (Perhaps the difference can be largely explained by the slight difference in time frames being considered by Bartlett and Duncan-Jones.)  To control the hyperinflation, Diocletian passed an edict in 301 which set maximum prices on some 800 items.  Wages were defined in the edict (section VII.1 to VII.76), with daily unskilled wages (eg. farm labor, mule drivers, and sewer cleaners) set at 25 denarii, and daily skilled wages (eg. carpenters, masons, shipwrights, and blacksmiths) set at 50-60 denarii (10: Frank, pp. 337-40).  These wage rates were fifty times the wage rates at the end of the Republic. 

 

Meanwhile, legionary pay had doubled under Maximinus (235-238) and by the reign of Diocletian (284-305) pay was 1,800 denarii (HS7,200).  This was supplemented by extra donations on special occasions (such as the Emperor’s birthday) and by in-kind pay in grain, bringing total compensation to an estimated 12,400 denarii (HS49,600) plus 30 modii (196.5 kg) of wheat (3: Duncan-Jones, p.116).  This total compensation was 55 times the legionary wage rate at the end of the Republic. 

 

Diocletian’s edict did not halt the spiraling prices, in spite of the threat of capital punishment.  Diocletian specified that a pound of gold was worth 50,000 denarii, but the market rate deteriorated to 100,000 denarii/pound of gold by 307 AD, 300,000 denarii/pound of gold by 324 AD, and an incredible 2.1 billion denarii/pound of gold by the middle of the fourth century (7: Davies, pp.3-4).  “Diocletian’s other reforms, however, were more successful.  The cornerstone of Diocletian’s economic policy was to turn the ad hoc policy of requisitions to obtain resources for the state into a regular system.  Since money was worthless, the new system was based on collecting taxes in the form of actual goods and services, but regularized into a budget so that the state know exactly what it needed and the taxpayers knew exactly how much they had to pay.” (6: Bartlett, p.8)

 

Revenue Losses and Non-military Expenditures Due to the Barbarian Invasions

 

We provided a summary of the barbarian assaults in Rise and Fall of Civilizations Part II (p.8) at www.freebuck.com/articles/elliott/00riseandfall2.htm.   Widespread barbarian invasions began in the middle of the third century, and the tempo of assault increased with the appearance of the Huns in 376.  These assaults caused the Empire numerous financial drains, in addition to the direct military costs already discussed. 

 

Aurelian spent several years (271-276) rebuilding the walls of Rome, a massive and expensive undertaking.  The city remained safe during the fourth century, but it was occupied and sacked twice in the fifth century, in spite of Aurelian’s wall.  The Goths looted the city for six days in 410, and the Vandals looted the city for two weeks in 455.  In the previous century, Julian had spent three years, 357 to 359, rebuilding destroyed forts and towns in Gaul, and similar rebuilding efforts must have been frequent in the fourth and fifth centuries.

 

This looting and physical damage to Roman property reduced taxes derived from provinces that were recovered after barbarians overran them.  For example, “in 445 AD state revenue was 9,600 solidi for Numidia and 5,150 solidi for Mauritania Sitifensis, instead of 77,000 and 41,000 respectively at the time before the invasion of the Vandals.” (5: Bernardi, p.74)  (The solidus was a 4.54 gram gold coin introduced by Constantine.  Weighing 58% of an Augustan aureus, it would be equivalent to HS58 under the Augustan monetary system.)

 

Meanwhile, Rome lost control of the sea.  Preston and Wise say: “As for the imperial navy, it had disappeared during the third century.  By A.D. 250 piracy had reappeared on a huge scale, and in 269 a war-band of invading Goths sailed unopposed through the Hellespont.  Diocletian could finance only the construction of local patrol squadrons in the Mediterranean; by the end of the fourth century the imperial navy was but a memory.” (4: Preston, p. 48)  Given that the Empire was a ring of land encircling the Mediterranean Sea, the loss of sea-control must have had enormous consequences for inter-province trade, particularly critical since Italy was not self-sufficient in food.

 

In additional to all of these financial impacts, after the Battle of Adrianople in 378, the Empire also began bribing barbarian tribes not to raid the Empire.

 

Growing Welfare and Bureaucracy Costs

 

The HS44 million budget for cash handouts in 150 AD (Table 1) was composed of HS22 million in public handouts (congiaria) typically paid to citizens in gold aurii, and an equal figure for cash donatives to the military.  By 212 AD the cost of cash handouts had grown dramatically to HS140 million (HS70 million in congiaria and HS70 million in military donatives) (1: Duncan-Jones, pp.40-41 & p.249).  By 300 AD the military donatives had grown to the point where they constituted the bulk of legionary remuneration, as we already discussed.  We do not have figures for congiaria in the last centuries of the Empire.

 

Hopkins estimates that the free grain distribution, started in the Republic and continued under the Empire, covered 200-250,000 adult males, receiving 33 kg wheat/month (5 modii of 6.55 kg).  This comes to 100,000 tons of wheat annually, worth HS135 million (HS9 per modius) (2: Hopkins, p.8 – see note at end of article).  This grain came from the Emperor’s huge personal domain in Egypt, and is not accounted for in the cash budget for 150 AD shown in Table 1.  If the value of this grain were included, the budget total would be HS967 million, and the grain dole would represent 13% of total state spending – a considerable amount.  Hopkins says that in the fourth century, grain handouts were supplemented with wine and pork.  In addition, the state provided free games in the Coliseum, an amphitheater in Rome that was started by Vespasian and completed by Domitian.  The Coliseum, 615 by 510 feet, stood 158 feet tall and held 50,000 spectators.  In the largest staged combats there, as many as 10,000 people might be killed.  Gladiatorial combat ceased after 404 AD, but wild animals continued to be massacred in the fifth century.  “Citizens at Rome had become state pensioners, bribed into quiescent dependence by bread and circuses.” (2: Hopkins, p.8)  In Tenney Frank’s analysis of the Empire’s decline, he says: “Perhaps there is some connection between the wealth acquired, the enjoyment of that wealth, the resultant indolence, the acquiescence in slavery and in a government which by its benevolent despotism saved the citizens from the need of keeping awake except to gather in their profits.” (10: Frank, p.298)

 

The cost of civilian employees in 150 AD was HS75 million.  The pay of 35 provincial governors, earning HS500,000 to HS1 million each, was the largest single component, costing HS24.5 million, or one third of the total.  By 212 AD civilian pay was unchanged at HS75 million (1: Duncan-Jones, pp.37-39).  Numerous sources attest to a growing and bloated state bureaucracy in the final centuries of the Empire, but we have no figures to quantify the cost.  Gibbon provides anecdotal evidence at the beginning of the reign of Julian (361-363) that describes the situation:

 

“Soon after (Julian’s) entrance into the palace of Constantinople he had occasion for the service of a barber.  An officer, magnificently dressed, immediately presented himself. ‘It is a barber,’ exclaimed the prince, with affected surprise, ‘that I want, and not a receiver-general of the finances.’  He questioned the man concerning the profit of his employment, and was informed that, besides a large salary and some valuable perquisites, he enjoyed a daily allowance for twenty servants and as many horses.  A thousand barbers, a thousand cupbearers, a thousand cooks, were distributed in the several offices of luxury; and the number of eunuchs could be compared only with the insects of a summer’s day.” (9: Gibbon, p.747).

 

Collapse of the Empire: 337 to 476

 

A description of historical events subsequent to 337 AD can be found at:

 www.roman-empire.net/collapse/collapse-index.html.

 

The shrinking revenue and increased spending from all the above causes led the state to increase taxes wherever it could, doubling tax rates during the middle of the fourth century.  “Small landowners, crushed into bankruptcy by the heavy burden of taxation, threw themselves on the mercy of large landowners, signing on as tenants or even slaves.  The latter phenomenon was so widespread and so injurious to state revenues, in fact, that in 368 AD Emperor Valens declared it illegal to renounce one’s liberty.”  (6: Bartlett, p.10)  

 

Fourth century legions deteriorated to the point where they were composed of only tenant farmers and barbarian mercenaries.  Diocletian had increased the number of legions to 60, but these legions, at the end of the fourth century, existed only on paper and were never up to strength.  By 406 the situation was so desperate that Honorius enlisted slaves in the army.  In the Battle of Chalons in 451, one of the greatest strategic battles of Roman history, the Roman army was composed almost entirely of barbarians, with virtually no Romans present at all.  Aurelio Bernardi says: “The negative consequences of the shrinking fiscal revenue on the efficiency of the army existed also in regard to other fundamental services of the state – provisioning of the great cities, gratuitous distributions to the urban plebs, transportation, maintenance of roads, public games, etc.”  (5: Bernardi, p.76) 

 

As for the private sector, banking was abandoned in Western Europe in 410, and would not reappear until the end of the Dark Ages (7: Davies, p.4).  Meanwhile productive land was increasingly abandoned, trade collapsed, and industry languished.  Bartlett describes this financial deterioration as the prime cause of the Empire’s fall. “The barbarian invasions, which were the final blow to the Roman state in the fifth century, were simply the culmination of three centuries of deterioration in the fiscal capacity of the state to defend itself.”  (6: Bartlett, p.10)   Bernadi provides an excellent summation of the Empire’s collapse, and we will give him the final word on the Empire.  “A dangerous vicious circle comes into action.  Increased state expenditure on the army, the bureaucracy, and welfare state commitments brought about a continual unbearable tax pressure.  Tax pressure grew heavier, and the tendency to evasion – illegal or legitimate – on the part of high officials and large landowners was increased…. This vicious circle could lead to only one result, that which shows itself in the course of the fifth century.  The bankruptcy of the enormous State at the same time as small privileged groups, while they evade taxation, heap up riches and create around their villas economic and social microcosms, completely cut off from the central authority.  It was the end of the Roman world.  It was the beginning of the Middle Ages.” (5: Bernardi, p.81)

 

We provided extensive commentary on the fall of the Roman Empire in Rise and Fall of Civilizations Part III, and will not add to those remarks here.  See: 

www.freebuck.com/articles/elliott/00riseandfall3.htm

 

The Dark Ages

 

The savvy reader with a knowledge of history realizes that the fall of Rome was followed by the long period of the Dark Ages. A correction to a GSC Elliott Wave should last about 50-60 years, but the Dark Ages lasted for hundreds of years and saw civilization decline to a very low level by 1000 AD.  Something important happened here to cause this long period of malaise, which was much longer than any correction up to that time in history.  What made the decline so long is that in 337 AD we not only completed a GSC Wave, but waves of much higher magnitude as well.  We will discuss this in more detail in Part VIII, the conclusion of this series.  Part V: The Hundred Years War and the Black Death covers the first Grand Super Cycle following the Dark Ages (starting in 1000 AD) and the subsequent decline in the 14^th century.

 

Note on Wheat Prices

 

Duncan-Jones says the price of wheat in the early Empire was about HS4 per modius (11: Duncan-Jones, p.42).  In calculating the value of the dole based on HS9 per modius, Hopkins says the price of wheat in the city of Rome was 4 times higher than in Egypt, and 2-3 times higher than in Sicily and the rest of Italy (2: Hopkins, p.8).  Diocletian’s price edict (section I.1) in 301 AD set the maximum price of wheat at 100 denarii (HS400) (10: Frank, p.318).

 

Sources

 

1. Duncan-Jones, Richard. Money and Government in the Roman Empire. Cambridge: Cambridge University Press, 1994.

 

2. Hopkins, Keith. On The Political Economy of the Roman Empire. www.stanford.edu/group/sshi/empires/hopkins.pdf

 

3. Duncan-Jones, Richard. Structure and Scale in the Roman Economy. Cambridge: Cambridge University Press, 1990.

 

4. Preston, Richard A. and Sydney F. Wise.  Men in Arms, A History of Warfare and Its Interrelationships with Western Society. New York: Praeger Publishers, 1975.

 

5. Cipolla, Carlo M. ed. The Economic Decline of Empires. Bernardi, Aurelio. “ The Economic Problems of the Roman Empire at the Time of its Decline.” London: Methuen & Co. Ltd., 19970.

 

6. Bartlett, Bruce.  How Excessive Government Killed Rome. www.cato.org/pubs/journal/cjv14n2-7.html

 

7. Davies, Roy and Glyn Davies.  A Comparative Chronology of Money. www.ex.ac.uk/~Rdavies/arian/amser/chrono2.html, 1996.

 

8. Roman Imperial Coinage. www.roman-britain.org/coinage.htm.

 

9. Gibbon, Edward. The Decline and Fall of the Roman Empire, Vol. I. New York: The Modern Library.

 

10. Frank, Tenney. An Economic Survey of Ancient Rome, Vol. V. Paterson: Pageant Books, 1959.  (Diocletian’s  price edict is presented on pp. 307-421.)

 

11. Duncan-Jones, Richard. The Economy of the Roman Empire. Cambridge: Cambridge University Press, 1974.

 

For readers interested in financial details beyond what is presented here, the books by Duncan-Jones are a treasure trove of data.  The article by Bruce Bartlett provides an excellent viewpoint on Rome’s collapse.  We quoted heavily from it in Rise and Fall of Civilizations Part II, and tried to avoid repeating that information here as much as possible.  

 

Previous Articles in this Series

 

Part I: Introduction:

www.freebuck.com/articles/elliott/030104bankruptcies1.htm.

Part II: Fall of the Athenian Empire:

www.freebuck.com/articles/elliott/030113bankruptcies1.htm.

Part III: Fall of the Roman Republic:

www.freebuck.com/articles/elliott/030127bankruptcies1.htm

 

 

© copyright 2003 by Joseph M. Miller, Daan Joubert and Marion Butler, all rights reserved