economic history

266 And All That by Krugman

Ah, some of the comments on my post about cynical lack of realism happen to illustrate a favorite observation of mine: the extent to which people who demand that we learn the lessons of history tend to rely on historical episodes in which we have very little idea of what really happened.

Thus, they’ll tell us to ignore the extensive evidence from the past century that fiat currencies needn’t lead to runaway inflation — instead, look at how currency debasement led to the fall of Rome!

Or, maybe, how the fall of Rome led to currency debasement?

The thing is, we have no data and not even that much informal evidence on the economy of ancient Rome. We do have informed speculation: Peter Temin had a lovely paper in the JEP (and a book I haven’t read yet) on the prosperity of the Augustan empire, which he estimates was comparable to late 17th-century Europe. All of that fell apart in the third century:

Around the start of the third century CE, the early Roman Empire came to an end under the pressure of a number of problems: several emperors who were exceptionally autocratic and excessive and a series of revolts by the army which in turn led to Rome being ruled by a series of short-term emperors.14 The disruption manifested itself in many ways, including increased inflation in the third century CE that is visible to us through debased coinage and occasional price quotations.Inflation was less than 1 percent in the first and second centuries CE, but prices doubled after the Antonine plague of the late second century and doubled again soon thereafter. The denarius began to be progressively debased at this same time.

So currency debasement can ruin your whole day — as long as it’s accompanied by civil war and plague. This is actually the same pattern as modern hyperinflations, which have always followed major political disruptions, like the collapse of the Central Powers at the end of World War II or the breakup of the Soviet Union.

But isn’t it odd that people prefer the largely undocumented distant past to the far better documented recent past? Why? My guess is that it’s precisely the vagueness that attracts them, because it’s so much easier to project your prejudices onto the scattered information available.

Inflation Lessons From Syria's Civil War—Hyperinflation is Never a Monetary Phenomenon by Yglesias