Whatever Happened to Penny Candy? by Richard J. Maybury

2.  Tanstaafl, the Romans and Us

The question, whether one generation of men has the right to bind another, seems never to have been started …. [I believe] no generation can contract debts greater than may be paid during the course of its own existence …. The conclusion then, is, that neither the representatives of a nation, nor the whole nation itself assembled, can validly engage debts beyond what they may pay in their own time. ~ Thomas Jefferson

During the 1970s and early 1980s, many western countries experienced double-digit inflation.  Even Japan had double-digit inflation.  Double-digit inflation means that each year prices are rising at 10% or more.  So, for example, if a coffee cost $1.00, it would cost $1.10 the following year. Inflation this serious and far-reaching had not happened in the U.S. since the country had become a nation.  However, we have an example from Roman times of where this type of inflation occurred and we can see the trouble it caused.

It all started with the government.  The Roman government was generally like any other: it had wars and public works projects and welfare programs. As most of us know, welfare is the practice of giving things and money to poor people. Modern governments also have welfare for rich people which is called a subsidy.  If you are a poor person, you are given food, money, medical care, or housing.  If you are a rich person or a big corporation, you are given land, money or buildings.  Unfortunately, the Roman government encountered a law of economics, which is something that cannot be altered.  They encountered tanstaafl which means There Ain’t No Such Thing As A Free Lunch, or more pointedly, nothing of value is free; something must be paid for it, whether it’s with money or time or hard work.  Tanstaafl was a popular term during the Great Depression.

So ….. the Roman government needed lots of things like horses and weapons and gravel and land and tools. It also needed food and clothing for its welfare programs. All these things had to be paid for with money, and the way most governments collect this money is by taxing people.  And so that’s what the Roman government did …. tax, tax, tax, and more tax.  People don’t like giving their money to the government.  They highly dislike being taxed.  And the Roman government discovered that when people are taxed too much, they tend to get angry and revolt and overthrow the government (just like the colonists did during the American Revolution).  So the Roman government didn’t raise taxes further but they still needed money; they encountered the problem that most modern governments have: how to get money without raising taxes.  The Roman government found the solution of counterfeiting, which is simply making phony money.

Octavian and Antony Denarius

Now it is very easy to print money on a press but during the Roman times the main coin was the Roman denarius which was 94% fine silver.  So when the tax collectors brought the money to the government, the government would clip the coins, by shaving the edges off and those shavings were used to mint new coins. Now the government had more money to buy the things it wanted.  But the Roman people weren’t stupid and realized that the coins were lighter and smaller.  They either refused the coins or reduced their value.

In later centuries, people developed an easy way to tell if the coin was clipped: they had notches cut into the edges of the coin and thereby the coin was reeded as dimes, quarters and half-dollars still are today.  Up until 1965 the coins did contain silver and the clad tokens that are used today are still reeded so that they resemble those old silver coins.

Now that reeding had made the counterfeiting obvious, a new system was developed.  When a denarius was brought into the treasury it was melted down and another metal like copper was added to it, so a coin that would come in at 94% silver but would go out being only 84% silver.  Less silver equalled more coins for the government.  Over the years, more metal base was added each time, which is called debasing the money.  In 54 AD a denarius was 94% silver. By 218 AD it was down to 43% and only 50 years later it was down to 1% (Like the half-dollar in the U.S.:  in 1964 it was 90% silver, 5 years later it was down to 40% and now it contains no silver).

The Roman people knew that their money was losing its silver so whenever they had a coin with lots of silver in it, they would save it and spend the low-silver coins.  This behaviour was Gresham’s Law in action, which states that bad money drives good money out of circulation (out of use).  People want to keep good money and dispose of the bad. It happened in the U.S. as the government began to debase the coins, people saved their old silver coins and spent the new ones.  It caused the coin shortage of the 1960s.

Take away: The Roman government had to pay for what it bought however it didn’t want to raise taxes to acquire more money so the politicians started counterfeiting.

⇐ Chapter 1 Money: Coins and Paper                   Chapter 3 Inflation ⇒

Photo #1 courtesy of Leonhard Niederwimmer on Pixabay

Photo #2 courtesy of Smadore on Pixabay