After his death, the military fought for control over the land Alexander had conquered and this, combined with the silver Alexander had brought from the Middle East, led to one of the first inflations in history.
Dr. Bryan Taylor, Chief Economist
Global Financial Data, August 7, 2023
Alexander the Great conquered the world. He lived for only 32 years, between 356 and 323 BC, and ruled for only 13 years, but during his brief reign he was able to conquer the then known world. He acceded to the throne at the age of 20 after his father Philip II died and began a military campaign that allowed him to conquer the Middle East between Greece and India. He invaded India in 326 BC, but his troops demanded that they go no further. They turned back and went to Babylon, which Alexander had planned to be the capital of his empire. He died there in 323 BC. After his death, the military fought for control over the land Alexander had conquered and this, combined with the silver Alexander had brought from the Middle East, led to one of the first inflations in history.
The Death of Alexander the Great
Unfortunately, there is very little price data available from ancient times. Markets appeared in ancient Sumer during the third millennium BC and goods were traded in the cities of ancient Mesopotamia. Several commodities acted as money: barley, lead, copper, bronze, tin, silver and gold. The unit of account was the shekel which represented about 9.8 grams. Silver was used as a means of payment as early as the third millennium BC. Prices were quoted in terms of shekels of silver, but any commodity, usually barley, could be used to settle a payment. Coins didn’t exist until around 650 BC, but silver in the form of rings, coils, ingots, and lumps were used for payments for goods or for taxes. Since silver had a high value, barley and copper were often used for smaller transactions. Except for the Middle Babylonian period (1500-1155 BC), during the Kassite period, gold was rarely used as money. After around 800 BC, trade picked up again, and coins were introduced in the seventh century BC.
Records of prices in Babylon exist from the fifth to the first centuries BC. There is a vast archive of astronomical cuneiform tablets from Babylon that includes over 1200 cuneiform tablets with almost daily observations of astronomical events and other evidence of daily life in ancient Mesopotamia. A single tablet would cover the events of several days and the observations from those tablets were gathered together to cover events over several months or an entire year. Each “astronomical diary” covered six or seven Babylonian lunar months providing information on the observation of the moon, stars and planets. Information on weather conditions, eclipses, equinoxes, and solstices was included. Observations of Halley’s comet occurred in 234, 164 and 87 BC.
The tablets can be dated with certainty because of their astronomical information. They include information on the prices of different commodities: barley, dates, cress, wool, mustard, and sesame. Alice Slotsky collected data from these tablets between the years 424 BC and 72 BC. Because the commodity information was provided at the end of the monthly summary, a lot of the data has been lost, but there are over 3000 observations for these six commodities. No similar series exists for the Roman Empire.
Figure 1. Price of Barley in Babylon, 385 BC to 61 BC
Figure 1 shows the price of barley in Babylon between 385 BC and 61 BC. The huge increase in the price of barley beginning in 323 BC and continuing until 308 BC stands out (since the graphing software does not display negative dates, we have subtracted the values from 2000, so 1850 in the graph represents 150 BC and 1700 represents 300 BC). The steep rise in prices occurred exactly in the year that Alexander the Great died, 323 BC. The price of sesame increased 7-fold while dates and wheat increased 13-fold during those years. Both the influx of silver that occurred as a result of Alexander’s conquests and the uncertainty that existed while the Wars of the Diadochi were fought to see who controlled Alexander’s Empire contributed to the inflation. The First, Second and Third Wars of the Diadochi and the Babylonian War occurred between 323 and 309 BC. Just as war causes inflation in the modern world, so it did in the ancient world. After the Babylonian War ended and peace prevailed, prices subsided. Babylon fell under the rule of Seleucus I Nicator while Egypt, Asia Minor and Macedon fell under the rule of other kings.
Inflation in the Roman Empire
Other than the Babylonian tablets, there are very few records of prices from the Roman Empire. There are over 2000 prices for slaves at different points in time, but because of the high variation in the slaves and their location, it is difficult to put together a comparable price series. However, we can infer inflation from the reduction in the silver in the Denarius over time. Roman Piso put together data on the decline in the silver content of the denarius between the rule of Augustus (27 BC to 14 AD) and Claudius II (268-270). By the end of the third century, coins were simply dipped in silver to give them the appearance of being made out of silver, though everyone knew they had no silver.
Table 1. Silver Content of the Denarius, 27 BC to 270 AD
What were the causes of these debasements? The first debasement was caused by the fire that consumed Rome in 64 AD under Nero, who debased the currency in order to raise money to rebuild Rome. Nero reduced the silver content of the denarius from 3.65 grams to 3 grams. The Roman Empire faced its first political crisis in 69 AD during the “year of four emperors.” Rome was forced to increase the base pay of soldiers under Domitian in 84 AD.
The decline in the amount of silver was particularly severe after the reign of Marcus Aurelius (161-180). The Antonine Plague of 165 to 180, which may have been caused by smallpox, killed over 10% of the Roman population and over 20% of the Egyptian population. It is believed that the Antonine Plague contributed to a doubling of prices in Egypt. The base pay of soldiers was further increased under Severus (197), Caracalla (212) and Maximus Thrax (235). The Plague of Cyprian struck Rome between 249 and 262 causing Alexandria to lose over half of its population. The denarius lost almost all of its silver as a result. There were monetary reforms under Caracalla (212), Aurelian (270-274), Diocletian (295), Constantine I (310) and Constans and Constantius II (348). They had little success.
The Edict of Diocletian, was issued in 301 AD, and tried to bring stability to the inflation by setting maximum prices on over 1000 goods. It also set the relative values of the gold solidus, argenteus, nummus, radiate, laureate, and denarius. By the time that Diocletian’s reign ended in 305, the edict was largely ignored. Constantine reformed the coinage in 310 AD. The cost of an artaba of wheat in Egypt went from 6 drachmai in 200 to 2000 drachmai in 300, 9,000 drachmai in 314, 78,000 drachmai in 334, 2 million drachmai in 344 and 8,400,000 drachmai in 360. Prices increased by a factor of over 1 million in Egypt between 200 and 360 AD.
Ancient Rome suffered from inflation just like any other era. Prices were relatively stable between the reigns of Alexander the Great and Marcus Aurelius, but after that, war, plagues, and political uncertainty caused Roman emperors to debase the currency by reducing the silver, bronze and billon content of its coins. Edicts that placed maximums on the prices of goods were ignored and supply and demand took over. Unfortunately, there is very little evidence to document the rise in prices over time, but the gradual reduction in silver content and the sporadic prices that survive confirm that inflation occurred in Roman times. Millions of coins were minted before and during the Roman Empire and their silver or lack thereof provide our greatest evidence of inflation. Although gold coins remained pure, the silver denarius went from being 98% pure to being washed in silver. By the time Rome fell, its monetary system had collapsed as well.