A Denarius for Your Thoughts

by Jim Davies

Exclusive to STR

March 23, 2009

Britain has turned out some pretty good mathematicians over the years, and one reason may be the complexity of its old currency system, which we were expected to understand by the age of six or so. Its structure was that of Pounds, Shillings and Pence; symbolized £, s and d and pronounced LSD (which may be why Brits of my generation did not all immediately tune in to Timothy Leary upon hearing those letters spoken).  

There were 20 shillings in the pound and twelve pence in the shilling, hence 240 pence per pound. One was therefore introduced at that tender age to base-12 and base-20 number systems, as well as the more usual base-10. When in the 1960s IBM and others marched in to the island to market their punched-card tabulators and computers, designs had all to be modified, if any commercial tasks were to be performed; and it was quite a brain-strain sometimes to squeeze an extra machine cycle out of them because those mods used circuitry intended for something else.  

Overlaid on that basic structure came the coinage. There were farthings (4 to a penny) and ha'pennies (2 to a penny) and threepenny bits (3d) and silver sixpences (6d) and florins (2s) and half-crowns (2s 6d or 2/6) - a hefty coin, that half-crown, and to further confuse the scene it was sometimes called the half-dollar, because at some point the exchange rate had been $4 to £1. I hope you're still with me, for it was not feasible to go shopping for candy or fireworks without mastering all this.  

All that was rationalized in 1971; the old penny was retired (with its halves and quarters) and the new one was introduced @ 100 to the pound and was designated "p". So there are now 5p to the shilling (though that term is no longer used) and the florin became a 10p piece and the half crown, before phase-out, was worth 12.5p. And the kiddies can now be taught environmental care in place of base-12 math. Sic transit gloria mundi.  

The old penny was of course used in these Colonies, and the word "penny" stuck and as we know is sometimes used today in place of the "cent" even though its value, if it existed, would not be the same. I think it's a handy name, because when spoken in the plural, it can't be confused with "sense." One more thing, though: did you notice, the old pennies were abbreviated "d" while the new ones are "p". Why?  

Answer: when the British Empire was a-building, its builders modeled it in part on the Roman one--they were all classicists. And in ancient Rome , the everyday coin was the Denarius, with a d. It was made of silver, and its value plays an important part in history.  

Roman government knew one thing well: how to conquer a neighboring country, subdue its residents and exploit their labor. One other policy worked nicely; after subjugation, the conquered residents were enabled to become Roman citizens; having failed to beat them, they were allowed to join them! This was quite clever, for over a generation or two it extinguished any lingering resentment. Jews, with their insistence upon being a special Chosen People, were an exception--but usually this worked fine. Former foreign enemies could join the civil and military service and even become Caesar, or Emperor. Evidently the parents of Saul of Tarsus were Roman citizens, because in Acts 22:27 Paul commanded respect by saying that he was "born" a Roman. So the whole Empire became staffed not by some kind of "Italian Mafia"--even if there had been enough to go around--but by former victims who had been absorbed.  

This model worked fine, until Rome ran out of enemies.  

Having encircled the Med and built state-of-the-art autostrada to enable chariots to rush from Carlisle to Cairo and from Madrid to Macedonia , there were no other resources within reach of plunder. To the West was the ocean, to the South the Sahara , to the East there were Persians and Indians but the logistics of doing battle so far away much favored the defenders, and to the North there was an array of fierce barbarians protected by the Alps . So by early A.D., the Empire was as big as it was going to get. Its now-substantial middle class had no more slaves or first-generation absorbees to do the grunt work. For a couple of hundred years at the end of the Republic, Italian Romans had been tax-free, like Kuwaitis are today; but those days were gone. How, then, could the administrators of the known world maintain their high standard of living without actually working for it?  The problem was vexing indeed, and has some interesting echoes in today's America .  

We free-marketeers know that the answer is obvious; if Rome 's government had gone out of business after sending everyone to a Mises School , a Roman civilization would have survived and prospered to an almost unimaginable degree; but it didn't. All they knew was how to compel; voluntary exchanges were not in their vocabulary. These didn't merely behave like fascists; they invented the very word.

So instead, they had to find a way to decrease the living standards of their impressive middle class--to make it cost less. Reducing wages for border-defending soldiers and administrators being no way to encourage loyalty, they chose instead to disguise the plan by paying them in money whose real value was reduced. There were two main coins, the silver Denarius and the gold Aureus; the latter was used for payments to the government and the former was used in payments by the government.  In the year 70 AD, Caesar Vespasian decreed that there were 25 Denarii per Aureus. Again, the thought that a market might value the exchange rate differently was not part of his thinking process, any more than it was when Congress set the silver/gold ratio at 16:1 in 1837.  

So far, so good. Then, the Denarius had to be devalued so as to cut the cost of running the Empire, i.e., to impoverish people. It was done by debasing the silver with other metals, and periodically by decreeing that the exchange rate had changed. According to Wikipedia, there were 833 Denarii per Aureus in AD 301, then 4,350 in 370 and a whopping 4.6 million in 402; the Empire imploded in 410. As money wages became increasingly worthless, government employees just walked off the job (rather as they will in the runup to E-Day, in about 2027, though for quite different reasons) and evacuated the cities to go and grow their own food in the countryside; and so the machinery of government collapsed.  

There are two key things to note from this story of Rome's decline and fall: (1) that inflation rate, over the 332 years, averages 3.72% a year, which happens to be almost exactly what the US government has done to the dollar since it established its quasi-central bank in 1913, and (2) in order to debauch a currency, government does not need to decree that it takes the form of paper and does not need to operate through a Federal Reserve Bank.  

Both of those latter assertions are made of straw. Every government in the world inflates its currency and all of them except ours do it through a directly-operated central bank without the pretense of letting a "privately owned" banker take the heat; and the Roman example (many times emulated in later centuries) did the job without even resorting to paper (or papyrus.) Strident calls to "abolish the Fed" are therefore irrelevant; they should instead be "abolish the government."  

The other essential thing to learn from the story of the Denarius is that for 95 years past, the US Government has already devalued its currency at almost precisely the same rate as that followed by the Romans. Government will of course never learn the lessons of history, and will therefore repeat them; therefore, it must go--before it ruins this civilization like the Roman governments ruined theirs.