Charting The Non-Linearity Of Hyperinflation, And Predicting America's Future Courtesy Of Ancient History

Tyler Durden's picture

A few weeks ago we presented a chart from SocGen's Dylan Grice, which promptly went viral, indicating the ongoing dilution in the Roman silver denarius over the span of two centuries. The comparisons to the purchasing power of the dollar since the inception of the Fed were missed by precisely nobody. Yet one thing that was missing was charting the corresponding reaction in price levels for a key prevailing staple commodity, namely wheat, which was to antiquity what oil is to the world today. Well, courtesy of Paul Mylchreest's latest must read Thunderroad report, prepare to be stunned by another "comparative" chart which does an admirable job at predicting the future courtesy of the past, and which is about to go viral all over again...

From the Thunder Road Report:

Let’s consider the run-up to Rome’s hyperinflation. I think this comment from “Good Money, Bad Money, and Runaway Inflation” resonates with what’s happening in the US today:

“Severus Alexander (AD 222-235) tried to reform by going back to the denarius but, once started, this path of runaway inflation and financial irresponsibility on the part of the imperial government proved impossible to control.”

It also seems that the hyperinflation was preceded by some kind of banking crisis, which is an interesting parallel. From “Demise and Fall of the Augustan Monetary System” by Koenraad Verboven:

“Papyri show it was common for private individuals to deposit money at a bank and to make and accept payments through bankers.Bankers in the west disappear from view around the middle of the 3rd c… A famous papyrus from Oxyrhynchus from 260 CE shows exchange bankers closing in order to avoid having to change the ‘imperial money’. The strategos ordered the exchange bankers to reopen and accept all genuine coins and warned businessmen to do the same. In 266 CE we find for the first time transactions being expressed in ‘ptolemaeic’ or ‘old silver’ as opposed to ‘new silver’.”

The chart shows how inflation remained relatively subdued until a tipping point was reached in the late- 260s A.D Monetary systems can absorb substantial abuse before there is a dramatic impact on the price level. For example, the debasement of the coinage was already accelerating in the early part of the third century A.D., before plunging in the latter part. Indeed, the chart below (apologies for the quality) only shows the trend up to 253 AD. By around 290 AD, the coins were only dipped in silver to give them a coating (<0.5%):

It is amusing that just like the Imperial decline of the Roman empire in the Common Era was matched by unprecedented fiscal profligacy, we have precisely the same thing now. As to what happens next...

“With few exceptions the Emperors of the third century pursued a policy of wasteful expenditure. Personal extravagance, donatives to the populace at Rome, costly civil and foreign wars, in which a pandering to the greed of the soldiery was a condition of success, had drained the wealth of the provinces…The conception of a national debt was as foreign to the Emperors of the third century as it had been to the statesmen of the Republic. Instead, to give an air of SUPERFICIAL PROSPERITY, resort had been had to a POLICY OF INFLATION (my emphasis).”

“The gold coinage lost all stability and regularity, while the debasement of the silver proceeded till Gallienus flooded the market with a worthless billon. The State had virtually declared itself bankrupt…In consequence PRICES SOARED TO AN ENORMOUS HEIGHT, trade was undermined and speculation flourished. Individual fortunes were lost, and in town and country alike the honest citizen was faced with untold hardships without any prospects of better days to come.”

I wanted to explore the extent and timing of Rome’s hyperinflation in quantitative terms and compare what happened then with what’s happening to prices today.

Inflation data during the Roman Empire is not exactly easy to come by, but there is a remarkably good proxy in my opinion, which is the price of Egyptian wheat. The source I used was the research paper “Another View on an Old Inflation: Environment and Policies in the Roman Empire up to Diocletian’s Price Edict” by the Centre of Planning and Economic Research in Athens. Relying heavily on a multitude of other sources, this paper contains a time series for wheat prices stretching from 18 B.C. to 301 A.D.

It’s important to explain why Egyptian wheat prices serve as a good proxy for inflation across the Roman Empire. In very succinct terms, it was probably best expressed by Lionel Casson in “The Role of the State in Rome’s Grain Trade”:

“Grain was to antiquity what oil is to the world today”

It’s worth making three more detailed observations with regard to the role of wheat in the Roman economy. Firstly, agriculture was overwhelmingly the dominant sector in the economy. Here is Paul Erdkamp from “The Grain Market in the Roman Empire – A Social, Political and Economic Study”:

“agriculture was by far the predominant sector within the economy, and in both the Roman world and early modern Europe, agriculture was dominated by the cultivation of grain…It is a commonplace that in antiquity about 80 per cent of the population were engaged in agriculture, leaving only 20 per cent for all other sectors of the economy.”

Secondly, the importance of wheat to both the agricultural sector and the economy of the Roman Empire as a whole. In “Price behaviour in the Roman Empire”, Peter Temin argued:

Wheat is a good index of inflation because its quality does not vary much over time and it forms a large part of ordinary diets.”

And this from Wikipedia:

“The staple crop grown was wheat, and bread was the mainstay of every Roman table.”

Thirdly, Egypt was at times the largest supplier of wheat to Rome, although other important regions included North Africa and Sicily. According to Wikpedia:

“Egypt was also important in providing wheat to Rome. Normally, shipments of Egyptian wheat may have amounted to 20 million modii or more annually. This number can be found in the Epitome de Caesaribus. Twenty million modii of wheat was enough for half or two thirds of Rome.”

Having established Egyptian wheat as the best proxy we have for price levels in the Roman Empire, the chart below shows the price from 18 B.C. to 301 A.D.:

The largely predictable conclusion:

The point I’m trying to emphasize is that the relationship between the debasement of the coinage and price levels is non-linear. A monetary system can be abused for a long period, but not indefinitely. A tipping point is reached when CONFIDENCE in the value of the currency collapses, leading to a surge in inflation – hyperinflation in this case.

The corollary with today’s financial system is that the quantity theory of money is not linear either. However, the abuses are piling up in obscene fashion and we are approaching the tipping point. Today the “path of runaway inflation and fiscal irresponsibility” incorporates all manner of abuses like trillion dollar deficits, bank bailouts, near zero interest rates and Q1, QE2…!

In the next chart, I overlaid the price level for the last 223 years, i.e. 1814-2010, over the price level in the Roman Empire in a way that gave me the best fit. Please note – the price level for the last 223 years uses data for Britain from 1788-1843 and from the US from 1844-2010 – hence the term “Anglo-US 1788-2010” in the chart below.

Pretty much says it all.

Full must read Paul Mylchreest report below:


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Pepe's picture

"The abuses are piling up in obscene fashion" Understatement

Manthong's picture

"It is amusing that just like the Imperial decline of the Roman empire in the Common Era was matched by unprecedented fiscal profligacy"

It is also amusing to note that just after that, in the fourth century AD (Anno Domini for all you with education debased like the dollar) that the heathen Romans "came to Jesus".

Just sayin'.

A.W.E.S.O.M.-O 4000's picture

I’m sick and tired of all of these comparisons to the Romans. What have the Romans ever done for us?


Manthong's picture

LOL. But don’t forget Gladiators, fiddling while the city burns, toga Parties, orgies, vomitoria, as well as Roman Meal Bread and Circuses.

JB's picture

they didn't "come to Jesus." Constantine merely painted over the same pagan ancient Egyptian/Babylonian religion with Biblical characters. and continued to slaughter the REAL followers of Christ.

Manthong's picture

Well then, at least he put on a show. We don't even do that anymore.

Anton LaVey's picture

The "real followers of Christ" never existed.

As soon as a religion -- any religion, really -- becomes "mainstream" and accepted by the powers-that-be, it ceases to become a source of peace and (limited) enlightnment and it becomes a tool of whatever faction is the top dog at the time.

This has been a pattern for all of history. "Christianity" today is nothing more than a very debased, twisted, and watered-down interpretation of the teaching of the radical Jewish rabbi of the 1st Century. You know the one -- he threw the money-changers out of the Temple of Jerusalem a few decades before said Temple was razed to the ground by the Roman legions.

Hephasteus's picture

Ya but I'm dying to become a preacher and offer hearsay after hearsay interpretation of the character of jeebus prist.

Because everybody knows the best way to understand something and get to the truth  is through hearsay.

Byronio's picture

I caught that when reading the article but the days of BC and AD have disappeared, by design, nothing by chance.

bankonzhongguo's picture


That is a very cool posting. 

More insight than a 100 year's of GS BS.

Gully Foyle's picture

Maybe I missed when someone posted this

A prominent, 74-year-old Egyptian former bank chairman, Mahmoud Abdel Salam Omar, was arrested at New York's Pierre Hotel this morning in connection with an alleged sex assault Sunday on a 44-year-old room maid.

The attack allegedly took place when the woman delivered tissues he requested to his room.

The incident recalled allegations against another international finance official at a New York City hotel earlier this month. On May 14, a maid at the Sofitel Hotel claimed, former International Monetary Fund leader Dominique Strauss-Kahn sexually assaulted her in his Manhattan hotel suite. After that incident, New York state Assemblyman Rory Lancman (D-Fresh Meadows) proposed a bill that would protect hotel workers from similar incidents by requiring a panic alert device for staff members who enter hotel rooms.

Strauss-Kahn is under house arrest in New York as his case proceeds.

Omar was arrested on charges of sexual abuse, unlawful imprisonment, forcible touching and harassment.

Sources said that the executive was clad in pajamas when he answered the door to let the maid in. He then allegedly groped her breasts and tried to kiss her before she fled.

Sources gave ABC this account:

When the maid arrived, he asked her to leave the tissues on a table inside his room. Once she was in the room, he allegedly closed the door and locked it.

Egyptian Banker Arrested Watch Video 'Real Deal': Who Is DSK in 90 Seconds Watch Video Dominique Strauss-Kahn Visits Doctor Watch Video

Then, he allegedly grabbed her, kissed her, and fondled her breasts and buttocks. She fought him off and, according to sources, she told him she wasn't there for that. He then grabbed her again. This time, sources say, he rubbed up against her and she again resisted him. He then asked for her phone number. She gave him a false number, and he let her out of the room.

Although the alleged incident occurred on Sunday, the maid reportedly was told by hotel staff that she must report the incident to her direct supervisor, who was not on duty until Monday. This caused a delay in the incident being reported to the police.

"Experienced NYPD detectives found the complainant to be credible," said New York Deputy Police Commissioner for Public Information Paul Browne.

Browne promised "further details" upon Omar's arraignment, and additional comment when asked for more on the arrest or the alleged assault.

Omar now heads El-Mex Salines Co., a solar salt producer in Egypt. He had been chairman of the Bank of Alexandria, sources said.

In the last three years, at least 10 other hotel housekeepers say they have been attacked in the U.S., according to an Associated Press review of court documents and news reports.

Nannies, domestic housekeepers, and elderly caregivers also encounter difficulties on the job. A 2006 report from New York advocacy group Domestic Workers United found 33 percent of domestic workers reported verbal or physical abuse by their employers.

The Pierre, a luxury, 5-star hotel located at 5th Avenue and 61st Street adjacent to Central Park, released the following statement regarding Omar's arrest: "The Pierre's priority is the safety of our guests and staff. We take all complaints very seriously and investigate thoroughly. This incident has been formally reported to the New York Police Department and is under investigation. We will fully comply with the investigation as requested."

zerozulu's picture

I must say, man and horse never gets old.

Diogenes's picture

The 74 year old Omar was charged with assault with a dead weapon.

redpill's picture

So instead of a Consumer Confidence Index, we need a Currency Confidence Index, tracked monthly, to indicate how people feel about their fiat currency. Preferably not run by the BLS.

Whatta's picture

That is a great idea. But who would could trusted to give us an accurate reading and, would it always be "unexpectedly" lower than anticipated with last month being revised downward?

tmosley's picture

We have that already.  It's called "the price of gold".

It's a pretty good indicator.

Internet Tough Guy's picture

Yes, the price of gold is a good indicator, because it floats against the currency. But suppose you linked it to the currency, by a set price. Would it still be a good indicator? No.

tmosley's picture

It is if gold is freely available at that price.

Even better if the currency itself is gold.  Or if the gold is held by private banks that are subjected to the most stringent regulations the free market can muster.

Internet Tough Guy's picture

The romans had your gold currency. They had bi-metallism. What happened? What always happens?

Free gold from currency. Let it float as store of value. Most people save little or nothing. They don't need or want hard currency. You will make their debts harder to pay back and they don't accept it. Never.

tmosley's picture

Uhhh...their civilization lasted for more than 2000 years and was the greatest ever known to mankind?  Then they started debasing and they were wiped out by the Turks?

Go talk to your grandparents if they lived through the great depression.  Ask them if they save money.

Honestly, can't ANYONE explain to me how Freegold will stop hyperinflation in the transactional currency?  Indeed, can anyone explain how it isn't ACTIVELY ENCOURAGED, as people do not save in terms of the transactional currency, where savings is the SOLE SOURCE of purchasing power?

I have asked this question a half a dozen times, and the only answer I can get is "trust the government--it's not in their interest to have hyperinflation".  This is a highly stupid idea, and is not historically accurate.  Governments want to spend.  Give them a printing press, and they will USE IT (surprise!).  Any monetary system that ignores this basic fact is cruisin' for a bruisin'.

tmosley's picture

I understand it now, but there is no check against hyperinflation or abandonment of the transactional currency.

This means Freegold collapses to a gold standard of some sort, and fast.  Period.

People need to understand that there is nothing new under the sun.  Every currency system that can be tried, has been tried.  Metal standards, free from government influence are the most stable form of currency, and will lead quickly to prosperity.  The more government involvement you have, the lesser the degree of prosperity, until you wind up being forced down the road of fiat currencies straight to hyperinflation.  Freegold incorporates no new technology.  As such, it has been tried numerous times in the past, and has always failed, just like every fiat currency has failed within 60 years of adoption of full fully unbacked currency.  Indeed, those collapses must have been so fast, and so complete that they were never even recorded.

FOFOA is a smart cookie, but Freegold is BS.  Gold and silver (and platinum and palladium) are money.  Period.  Any attempt to divorce any portion of the role of money from said money will end in nothing but disaster.  You can't divorce them any more than you can divorce charge from a proton or electron, or mass from matter.  You just can't do it without a big boom of some sort, at the end of which, you will find things are back to the way they always were.

DoChenRollingBearing's picture



Great dialogue guys.

+ $1530

or will that be + $55,000?

Shell Game's picture

I am no expert, but, it was my impression that Freegold is not a currency or monetary policy. It is more akin to an 'event' that normalizes gold to the paper debt central banks and governments have created over the last 100 years.  Subsequently, it paves the way for global gold standards, as Tm suggests.

shortus cynicus's picture

Hyperinflation is also called as run away inflation. If people do not make savings in transaction money at all, so they have nothing to run away from. Any expansion of money quantity would be immediate visible as price increases giving prompt warning about government's policy.

In opposite case (current system), when transaction money is also used as saving money, any expansion of money quantity can easily vanish for longer period of time in savings accounts, including exchange reserves of foreign banks, then, during run away inflation, it come back into circulation all at the same time causing total lack of control.


tmosley's picture

So hyperinflation won't happen because it's already happening?  Come on.

Hyperinflation is caused by two things--printing of money, and by increasing the velocity of money.  The first is always present in practice, as governments always print money so they can get free stuff to bribe us with and to line their own pockets.  The second is caused by the very existence of the Freegold system, in that as soon as you get money, you run down to the money changer and buy gold with it, because you are afraid it won't be worth as much the next day.  Thing is, the money changer has to get rid of it too, because he also knows that he is losing purchasing power to the printers.  The result is an ever increasing amount of currency circulating ever faster and faster, and you have hyperinflation by DESIGN.  QED.

Now, rather than losing purchasing power by holding the transactional currency for any length of time (including the time it takes to get to the money changer), or trying to price goods in terms of hyperinflating fiat currency, people will realize that they hold gold, and others hold gold.  They realize they want gold, and everyone else wants gold (by definition in the Freegold system).  Thus, rather than supporting a class of money changers for no reason, they will simply trade goods and services for gold directly.  Hence, Freegold collapses into a form of gold standard.  QED.

This is a gold specie standard, and is the ABSOLUTE BEST monetary system ever used by mankind.  This can and has existed alongside a silver specie standard.  It can also exist alongside a platinum and/or palladium specie standard.  Hence the exceptionally long life of the Roman Empire (especially when you consider the shift from Rome to Constantinople).  Only the West, which overspent in an extreme manner saw economic collapse which lead to political collapse and conquest.  The East lasted another 1000+ years, until they too succumbed to government overspending.  Of course, if the people had not allowed their government to take charge of minting the coins, they never would have been debased, and we'd probably all be speaking Greek, flying around in spaceships and such.


Imminent Crucible's picture

"Freegold is BS"  I also tend to mistrust the Freegold concept because it sounds like a "have our cake and eat it, too" scheme, and those always have a hidden flaw.

That said, I think it would be vastly preferable to the present regime because it would provide a ready currency for saving, which means the majority of people can give up the fruitless pursuit of yield for their savings to compensate for the fact that their dollars are constantly eroded by the central bank.

FOA says that Freegold will prevent the ruinous accruals of debt that destroy the transactional currency, though I couldn't find the specific limiting mechanism--need to read much more of his ideas. If true, that would preclude the "big boom" you mention that always leads to the crackup and collapse. It is the debt that is the problem, because without the parabolic growth of debt there is no need for the CB to inflate the money supply.

tmosley's picture

If he said that, then I really don't understand why he or his friend would still advocate it.  It's like saying nuclear war is fine and dandy as long as everyone owns a fallout shelter.

Quaderratic Probing's picture

Hyper inflation and they did have gold and silver for money not paper...... no difference between the two in the end

Eternal Student's picture

Sorry, but the statement "they started debasing and were wiped out by the Turks" is rather shallow and ignorant. The decline of both the halves of the Roman Empire is a lot more complex than this. The currency issue is certainly one part of it. But it is far, far from the only part. Or arguably even the most important part.

Even if you read the rather shallow and overly simplistic essay by Martin Armstrong, you might notice that the Western Empire had significant impacts from elsewhere. You won't get that from reading his essay. But the charts there point it out, and the issues are completely ignored, just to save the point he tries to make.

Banjo's picture

Internet Tough Guy: Gold is an excellent indicator when linked to currency. This is the whole reason Nixon closed the Gold window because the French decided they wanted to cash in the excess US dollars with "real physical gold"

The point is gold is always floating relative to currency, you can print money in the trillions you can't dig gold up in the same vast quantity.

lawrence1's picture

Perhaps the percentage of people buying PMs, not just the gold or silver price.  Wonder if there is historical information about the percentage of people abandoning a currency it takes to trigger hyperinflation? 

Irwin Fletcher's picture

Which people? I bet the majority of US citizens do not know that the dollar is not backed by gold.

Whatta's picture

I don't use the dollar, I use MasterCard. I am safe, right? LOL...

Hard1's picture

We are in the equivalent period of 270 AD

baby_BLYTHE's picture

We are all the End of the World

DoChenRollingBearing's picture

Sure seems so doesn't it?  Of course I thought we were there under Jimmy Carter...

Yes, gold and commodities should be held by everyone.  As well as "preparations".

See my TEOTWAWKI article at my blog (as well as my Tinfoil Hat Brigade article too, for comic (?) relief).  Anyone interested send me a gmail promising you'll be nice, and I will direct you there.  100 ZH-ers already can view my blog at their leisure.  And how can 100 ZH-ers be wrong?



Martin Armstrong has covered this this history of Ancient Rome slowly sinking, then BANG!, hyperinflation.  Highly recommended, his knowledge of history and cycles is awesome.

baby_BLYTHE's picture

got a link to that Armstrong piece? I have read him in the past on ZH, seems pretty credible