Price Fixing in Ancient Rome

by Robert L. Scheuttinger and Eamonn F. Butler

Recently by Robert L. Scheuttinger and Eamonn F. Butler:
Wage and Price Controls in the Ancient World

This article is excerpted from the book Forty Centuries of Wage and Price Controls: How Not to Fight Inflation, chapter 2: "The Roman Republic and Empire."

As might be expected, the Roman Republic was not to be spared a good many ventures into control of the economy by the government. One of the most famous of the Republican statutes was the Law of the Twelve Tables (449 B.C.) which, among other things, fixed the maximum rate of interest at one uncia per libra (approximately 8 percent), but it is not known whether this was for a month or for a year. At various times after this basic law was passed, however, politicians found it popular to generously forgive debtors their agreed-upon interest payments. A Licinian law of 367 B.C., for instance, declared that interest already paid could be deducted from the principal owed, in effect setting a maximum price of zero on interest. The lex Genucia (342 B.C.) had a similar provision and we are told that violations of this "maximum" were "severely repressed under the lex Marcia." Levy concludes that "Aside from the Law of the Twelve Tables, these ad hoc or demagogic measures soon went out of use."

The laws on grain were to have a more enduring effect on the history of Rome. From at least the time of the fourth century B.C., the Roman government bought supplies of corn or wheat in times of shortage and resold them to the people at a low fixed price. Under the tribune Caius Gracchus the Lex Sempronia Frumentaria was adopted, which allowed every Roman citizen the right to buy a certain amount of wheat at an official price much lower than the market price. In 58 B.C. this law was "improved" to allow every citizen free wheat. The result, of course, came as a surprise to the government. Most of the farmers remaining in the countryside simply left to live in Rome without working.

Slaves were freed by their masters so that they, as Roman citizens, could be supported by the state. In 45 B.C., Julius Caesar discovered that almost one citizen in three was receiving his wheat at government expense. He managed to reduce this number by about half, but it soon rose again; throughout the centuries of the empire, Rome was to be perpetually plagued with this problem of artificially low prices for grain, which caused economic dislocations of all sorts.

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In order to attempt to deal with their increasing economic problems, the emperors gradually began to devalue the currency. Nero (A.D. 54–68) began with small devaluations and matters became worse under Marcus Aurelius (A.D. 161–180) when the weights of coins were reduced. "These manipulations were the probable cause of a rise in prices," according to Levy. The Emperor Commodus (A.D.180–192) turned once again to price controls and decreed a series of maximum prices, but matters only became worse and the rise in prices became "headlong" under the Emperor Caracalla (A.D. 211–217).

Egypt was the province of the empire most affected, but her experience was reflected in lesser degrees throughout the Roman world. During the fourth century, the value of the gold solidus changed from 4,000 to 180 million Egyptian drachmai. Levy again attributes the phenomenal rise in prices which followed to the large increase of the amount of money in circulation. The price of the same measure of wheat rose in Egypt from 6 drachmai in the first century to 200 in the third century; in A.D. 314, the price rose to 9,000 drachmai and to 78,000 in A.D. 334; shortly after the year A.D. 344 the price shot up to more than 2 million drachmai. As noted, other provinces went through a similar, if not quite as spectacular, inflation. Levy writes,

In monetary affairs, ineffectual regulations were decreed to Combat Gresham's Law [bad money drives out good] and domestic speculation in the different kinds of money. It was forbidden to buy or sell coins: they had to be used for payment only. It was even forbidden to hoard them! It was forbidden to melt them down (to extract the small amount of silver alloyed with the bronze). The punishment for all these offenses was death. Controls were set up along roads and at ports, where the police searched traders and travelers. Of course, all these efforts were to no purpose.

The Edict of Diocletian

The most famous and the most extensive attempt to control prices and wages occurred in the reign of the Emperor Diocletian who, to the considerable regret of his subjects, was not the most attentive student of Greek economic history. Since both the causes of the inflation that Diocletian attempted to control and the effects of his efforts are fairly well documented it is an episode worth considering in Some detail.

Shortly after his assumption of the throne in A.D. 284, "prices of commodities of all sorts and the wages of laborers reached unprecedented heights. " Historical records for determining the causes of this remarkable inflation are limited. One of the few surviving contemporary sources, the seventh chapter of the De Moribus Persecutorum, lays almost all the blame squarely at the feet of Diocletian. Since, however, the author is known to have been a Christian and since Diocletian, among other things, persecuted the Christians, we have to take this report cum grana salis. In this attack on the emperor we are told that most of the economic troubles of the empire were due to Diocletian's vast increase in the armed forces (there were several invasions by barbarian tribes during this period), to his huge building program (he rebuilt much of his chosen capital in Asia Minor, Nicomedia), to his consequent raising of taxes and the employment of more and more government officials and, finally, to his use of forced labor to accomplish much of his public-works program. Diocletian himself, in his edict (as we shall see) attributed the inflation entirely to the "avarice" of merchants and speculators.

A classical historian, Roland Kent, writing in the University of Pennsylvania Law Review, concludes from the available evidence that there were several major causes of the sharp rise in prices and wages. In the half century before Diocletian, there had been a succession of short-reigned, incompetent rulers elevated by the military; this era of weak government resulted in civil wars, riots, general uncertainty and, of course, economic instability. There certainly was a steep rise in taxes, some of it justifiable for the defense of the empire but some of it spent on grandiose public works of questionable value. As taxes rose, however, the tax base shrank and it became increasingly difficult to collect taxes, resulting in a vicious circle.

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It would seem clear that the major single cause of the inflation was the drastic increase in the money supply owing to the devaluation or debasement of the coinage. In the late republic and early empire, the standard Roman coin was the silver denarius; the value of that coin had gradually been reduced until, in the years before Diocletian, emperors were issuing tin-plated copper coins that were still called by the name "denarius." Gresham's law, of course, became operative; silver and gold coins were naturally hoarded and were no longer found in circulation.

During the fifty-year interval ending with the rule of Claudius Victorinus in A.D. 268, the silver content of the Roman coin fell to one five-thousandth of its original level. With the monetary system in total disarray, the trade that had been hallmark of the empire was reduced to barter, and economic activity was stymied.

The middle class was almost obliterated and the proletariat was quickly sinking to the level of serfdom. Intellectually the world had fallen into an apathy from which nothing would rouse it.

To this intellectual and moral morass came the Emperor Diocletian and he set about the task of reorganization with great vigor. Unfortunately, his zeal exceeded his understanding of the economic forces at work in the empire.

In an attempt to overcome the paralysis associated with centralized bureaucracy, he decentralized the administration of the empire and created three new centers of power under three "associate emperors." Since money was completely worthless, he devised a system of taxes based on payments in kind. This system had the effect, via the ascripti glebae, of totally destroying the freedom of the lower classes – they became serfs and were bound to the soil to ensure that the taxes would be forthcoming.

The "reforms" that are of most interest, however, are those relating to the currency and prices and wages. The currency reform came first and was followed, after it had become clear that this reform was a failure, by the edict on prices and wages. Diocletian had attempted to instill public confidence in the currency by putting a stop to the production of debased gold and silver coins.

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June 22, 2009

Robert Schuettinger was educated in a one-room schoolhouse in Charlotte, Vermont. He later studied under Nobel Laureate and Mises Institute founding board member F.A. Hayek at the Committee on Social Thought of the University of Chicago, where he also edited the New Individualist Review with Ralph Raico. Eamonn Butler is director of the Adam Smith Institute. See his website.