I’ve been reading Michael Grant’s excellent biography of Constantine, and had a question for scholars regarding the emperor’s monetary policy. The topic may be a bit esoteric, but I’m hoping a question that can be addressed by economists or classicists will broaden its appeal.
If I understand correctly, Constantine addressed the issue of devalued currency by issuing the solidus, a new gold coin in an economy that had stopped issuing gold and silver coins for quite some time. However, this didn’t solve the inflation problem; Grant remarks these coins were treated more like gold bullion, and so did not circulate enough to improve conditions.
My question is, why didn’t this coin improve economic conditions? Leaving aside the taxes the empire was collecting, why wouldn’t introduction of a high-value precious-metal coin severely curtail inflation? I’m posting in GQ because I’m guessing there’s a good economic theory to explain this…
(During the third century) the empire faced runaway hyperinflation caused by years of coinage devaluation. This had started earlier under the Severan emperors who enlarged the army by one quarter and doubled the base pay. As each of the short-lived emperors took power they needed ways to raise money quickly to pay the military’s “acession bonus” and the easiest way to do so was by simply cutting the silver in coins with less valuable metals. This had the predictable effect of causing runaway inflation and by the time Diocletian came to power the old coinage of the Roman Empire had nearly collapsed; the currency had almost no value.