3.4 How to Remove Value from Money

The devaluation of the Roman denarius (D) by Caesar is a classic example of how to devalue, or to remove work from, money. Here is how Caesar did it:

It takes work to mine silver. Additional work is required during the process of minting coins.

Shortly before the meridian of time, and when the Roman Republic was transitioning into the Roman Empire (45 B.C.), the denarius contained 4.5 grams of silver. [4] The value of 1 denarius was equal to the value of 4.5 grams of silver. Although we don’t know exactly the price of a loaf of bread or a lamb chop at this time, let’s assume that the price of 1 kg of lamb chop was 1 denarius. This equality can be expressed as:

According to the Transitive Property of Equality, if A (silver) = B (denarius) and B = C (lamb chop), then A = C.

The cost of running an empire was expensive. As emperor, Caesar constantly needed more money to conquer the world and pacify the plebians. How did he make more money?

With 1,000 grams of silver, Caesar could mint 222 denarii (1,000 grams of silver/4.5 grams per denarius).

By reducing the amount of silver in each denarius from 4.5 grams to 3.9 grams, Caesar could now make 256 denarii (1,000 grams of silver/3.9 grams per denarius) producing 34 more denarii (256-222) without requiring any additional work from miners or minters. This action, unfortunately, would inflate the money supply by 15% (34 new denarius/222 original denarii), but only Caesar would know initially (until the information was leaked).

The new value of the denarius after the devaluation would be:

1 denarius = 3.9 grams of silver

Since A = C, if A is reduced by 13%, C must be reduced by the same amount to maintain equality. 

The expression of equality is now:

Alternatively, if you want 1 kg of lamb chop, you now have to pay D1.15 15% more denarius so the expression of equality would be:

So the result of the devaluation of the denarius is a reduction in the amount of food you can buy (1 kg to 0.87 kg of lamb chop) or an increase in the price of the original amount of food (D1 to D1.15).

Over time, Caesar continued to devalue the denarius. After another 100 years of war, free bread, and circuses, Caesar needed even more money so the silver content in the denarius was reduced from 3.9 grams to 3.3 grams. What was the result?

The previous expressions of equality:

4.5 grams of silver = 1.15 denarius = 1 kg lamb chop

3.9 grams of silver = 1 denarius = 0.87 kg lamb chop

The exchange rate, as dictated by Caesar, is now:

3.3 grams of silver = 1 denarius

The denarius was devalued 15% ((3.9 – 3.3)/3.9)

To maintain the previous state of equality (1 denarius = 3.9 grams of silver = 0.87 kg lamb chop), market participants will react by decreasing the amount of lamb chop by an equal amount as the decrease in the value of the denarius (15%).

The new expression of equality is now:

Alternatively, if you wanted a full kg of lamb chop, you now have to pay D1.36 (15% more) so the expression of equality is:

It’s when Caesar devalues the denarius that inequality ensues. Market participants then have to decide whether to raise prices for their products, reduce the amount of product in each package (package downsizing), or do some combination of both.

Over the span of a few hundred years, the silver content in the denarius was reduced from 3.9 grams to 0.5 grams as illustrated in the chart below: [5]

Chart Source: The Money Project

By 275 AD, if you wanted 1 kg of lamb chop, it would cost D9 instead of D1, as shown in the table below:

If equality (4.5 grams of silver = 1 kg of lamb chop) is maintained, the 1 denarius that originally purchased 1 kg of lamb chop would now only be able to purchase 0.11 kg of lamb chop, as shown in the table below:

Once the denarius was fully devalued (worthless) by Caesar, around 300 AD, it was replaced by the Argenteus which means, ironically, silver–of which it was made. [6]