The Case of Inflation in Ancient Rome

In 2008, as a result from Global Economic crisis, Cambodia experienced soaring in prices, especially of fuels and food, with inflation rate up to 20 percent. This inflation was mainly caused by the world and local demand while the supply was more costly because of the increasing in fuels costs. This affected Cambodian economy by providing both negative impacts on the consumers and opportunities for some producers to earn more.

This essay will provide the history of the inflation in Cambodia in term of high food prices and the case in the old days. It will focus on the inflation of the Ancient Rome. Starting from the causes of the inflation, this essay will focus next on the effects and the actions responded by the governments of each governments at their respective times. Next, it will present some acknowledgments comparing the two inflation cases. Does the old experience reflect the recent case?

Causes

Ancient Rome

Crisis of the Third Century

The Crisis of the Third Century was a period of barbarian invasion, civil war, and economic crisis happened in Rome. The crisis began when Emperor Alexander Severus (193-235 A.D.) was killed by his own troops. In the following years, the empire fell into civil war. Twenty six different emperors ascended the throne between 234 A.D. and 284 A.D. All the emperors at that time were soldiers and they came to the throne by military coups. Some of them held power for only a few months. Only one of them died peacefully and the others were either killed or died by violence. In 284 A.D., The crisis ended with the ascension and reform of Emperor Diocletian.

Devaluation of Coinage

During the Third Century Crisis, the authority of Rome was weakened. The law and order declined. Also, civil wars disrupted commerce in the cities. The empire imported more goods than they exported. Rome spent a lot of money for the imported goods. To increase supply of money and to protect their subjects, emperors continued to issue new coins by reducing amount of gold content in coinage. The reduction of gold led to devalue the coins. When the weights of gold content in coins were reduced, the merchants demanded more new coins for the same product. This raised prices up remarkably.

Increases in Expenditures

In order to protect the throne, the emperors tried to expanse number of their troops. According to Peden (1984), the number was doubled in size from the time of Augustus to Diocletian. In addition, not only the number of troops increased, but also their pay rose dramatically. Als, the payment rose from 225 denarii, a silver coin, during the time of Augustus (27 B.C. – 14 A.D.) to 750 denarii in the time of Caracalla (198 – 217 A.D.).

Moreover, the administration of the empire had grown enormously. During the reign of Diocletian, he divided the empire into a western and eastern half. He directly controlled the eastern part and he gave the rule of the western to one of his colleagues. Each half of empires anyway slipped into two prefectures’ control. The number of civil servant rose from one to four. Hence, the expense of the empires over its administrations was extremely enormous that the empire no long had money to support these huge expanses. In order to sustain itself, the government started the debasement of coinages and the reform of the taxes collection

Cambodia – Cause of Rising Food Prices

In 2008, as a net importing country, Cambodia experienced rising food prices which had both negative and positive for the people. The rising price closely related to the wave of global food prices driving by several factors including rapid increase in demand, low global stock and high oil prices.

Between 2005 and 2007, the crop yields in the world producing areas were below the average level and they did not response to the world demand of the emerging countries. For example, the world cereal output in 2007 was just 3% larger than in 2005 while there was a decline in overall oilseed output. Moreover, the strong global demand could be seen as the increase in bio-fuel production while many kinds of grains and vegetable oil were needed. For instant, the demand of wheat and coarse grew almost twice (Organization for Economic Co-operation and Development [OECD], 2008).

The increase in oil price also leads to the rising in food price. Cambodia is one of the net oil importing country. Cambodia imports 100 percent of its oil for transportation and other means of agricultural production such as generators, water pump or irrigation system. The increase cost of means production raised up the food price enormously. In 2003, the price of oil in Phnom Penh was at its high 5,450 riel or $1.36 per litre. The result was shown as the price of all varieties of rice jumped to 100 percent from 2007 to 2008. Meat prices increased by 50-70 percent while fist and vegetable rose by 20-30 percent (Cambodia’s Leading Independent Development Policy Research Institute [CDRI], 2008)

Discussion

In Ancient Rome, the inflation mainly happened because of the civil war and the surplus supply of money during debasement of currency. However, the case of rising in prices in Cambodia was due to the global demand and the lack of supply.

Effects

Ancient Rome

Trading Crisis

The trade network was cut off. The widespread of civil wars made it no longer safe for traders and merchants anymore. The exchange of goods was also difficult with the debased currency. Landowners, no longer able to export their crops over long distances, thus, they began to producing food for local barter. They turned to manufacture fewer amounts of goods locally, thus beginning the self-sufficient. This led to shortage of food. Many common free people of the Rome cities began to move out into the countryside in search for food and better protection. Later on, since the money was completely worthless, the trade was done through barter and the economic activities were in deadlock.

Freedom of People

The major consequence of Roman inflation was the liberty of people and their trading freedom. The government followed a policy of free trade and low constraints on commerce. But at this time, under the pressure of economic problems, the government started to strengthen their policy in which people were losing their freedom. The merchants and the artisans now were compelled to deliver their products to the Empire.

The small and middle landowning known as decurions were forcibly assigned a task of collection taxes for the Empire. They faced a danger in implementing the task as it was hard to collect adequate taxes for the Empire during the crisis. Hence, they sometimes had to pay out their own money. When the crisis continued without its end, the decurions no longer wanted to do the jobs. They started to leave their lands and escape to wherever safe and free.

The peasants, known as the coloni, were leaseholders and a free class. They were now under the same pressures as decurions. They were forced to bind to the soil. Consequently, they also began to move away trying to find better opportunities and occupations.

In the contrary, the high price did not suffer much the rules, but only the rulers. The government of the Empire found the way to protect itself and its subjects from the crisis. The soldiers and civil servants enjoyed the benefits of the salaries and bonus in gold standard which remained stable in price whereas all coinages became increasingly worthless.

Cambodia – Effect of Rising Food Prices

High food prices had both negative impacts on consumers and positives impact on producers. Both impacts vary according to economic status. The poor were affected the most. According to the survey report from Cambodia’s Leading Independent Development Policy Research Institute (CDRI, 2008), the poorest 40 percent of the population spend 70 percent of their incomes on food. They live “from hand to mouth” by using their earn USD2-3 per day to buy rice and other necessary food.

When the price rose up, the poor no longer had enough money to pay for family expense. They started to reduce food consumption and therefore result in poor nutritional intake. Some of them had to borrow money to survive and they fell in debt that was difficult to recover. Some had to work harder to earn enough income to buy foods. Indeed, some who was unemployed were hit hardest by high food prices.

When they could not earn enough, they had to take their children out of schools. The reasons for this were first to reduce some expenses over their children and second to get some help from children to work for them. Thus, the school drop-out problem was increased. According to the same source, 13 percent of families had children dropping out of school in January 2008 and 22 percent in June 2008.

On the bright side, the high food price also provided some positive impact. Firstly, farmers received some benefits from the increase of rice prices. They could sell their extra amount of rice to market in higher prices. The average price of rice in May 2008 ranged between 1150 to 1500 riels per kilogram compared to 500 to 900 riels in 2007. However, not all rural residents could produce a surplus of rice for sale. For instant, only about 34 percent of households could sell their surplus of rice to the market because of the 21 percent else were landless and another 45 percent were land poor (Cambodian Development Research Institute [CDRI], 2008). Secondly, the high prices also encouraged the farmers to increase their productions. As the price of rice was higher, the farmers would cultivate their land rather than leaving it free or renting it. However the farmers were also faced with rising input costs such as fertilizers, insecticides, and pesticides. The prices for fertilizer rose by nearly 150 percent (Oxfam, 2008).

Discussion

The effects of the inflation of both cases are similar. All cases have both positive and negative impacts just only to whom they concerns. In both cases, the negative impact was happened to the poor, while less negative or positive impacts were in hand of the riches.

Actions of the Government

Ancient Rome

In 284 A.D., Diocletian ruled the Empire. He introduced new law to repair the damage done in the third century. Firstly, Diocletian recognized that the empire and its crisis were too great for him to handle. Thus, as mentioned above, Diocletian decentralized the administration of the Empire and divided the empire into two parts. For all the parts, Diocletain reorganized the structure of administration and he finally gained most power over the empire. Secondly, Diocletian began to deal with the economy instability by issuing the famous Edict on Prices. This Edict was the reform of the control of currency, prices and wages. Finally, Diocletian demanded a standardization of taxes collection.

Regarded to the control of currency, Diocletian started to raise the weight of the gold coinage which was continued to debase by previous emperors. He issued new silvered coinages in order to respond to the need for coins in the marketplace. However, this reform worked only for less than a decade. Then, the new silvered coinage lost its prices. This reform did not be able to stop the inflation.

Regarded to the control of prices and wages, Diocletian fixed the wages and prices of goods, services and other commodities as a single standard price for all the provinces in the empire. This resulted unbalance between different provinces as the cost of living varied from a province to anthers. For example, Peden (1984) mentioned that Egypt had the lowest cost of living; Palestine had a cost of living twice that of Egyptian; and Rome had a cost of living twice that of Palestine. Thus, Egyptian was not affected by the Edict. In the contrary, it was in Rome that the maximum price was lower than the market price. The result was riots in the streets, disappearance of goods when traders began to hide their goods; finally, this reform even increased greater in prices.

In term of taxation, it was different from a province to another. After failed to control the currency, he started to reform system of taxation. He demanded standardization in order to collect taxes easier. The Empire, by this time, took the taxes in both form of coin and partly in kind from a unit of productivity which included either wealthy landowner or group of small landowners as a unit. But the amount of taxes collected was not fixed and it varied from time to time depend on the need of the empire. Unfortunately, the new system was very strict. It did not take in to account the varied agricultural harvest that depended on season to season. Indeed, no one could be excused for not providing enough taxes on time.

In respond to this heavy taxation, people started to protect themselves by stopping all kind of long-term loan. They started to leave their jobs, their homes, and their social status. Seriously, when people tried to get out of this they were by law compelled to remain in the occupation that they were in. The occupations now were hereditary. The punishment to who against the law was by death.

Finally, Diocletian had failed to prevent inflation – it is not known exactly how long the Edict remained in force. Indeed, trade has been reduced to barter and the middle class was almost destroyed. Since money was completed unreliable, he devised a system of payments in kind. This tax reform has bound the lower classes to the soil and made them effective serfs. The failure of the Edict and reform of currency led to a return to more instability of economy and by A.D 306 the process of the currency debasement had begun again under next emperor.

Cambodia

To deal with the high food prices, government and donors worked closely together. Firstly, the Cambodian government had spent $10million dollars to boost state rice reserves. This allowed the sale of subsidized rice through Green Trade, a state owned company, and has helped to keep domestic prices down. Secondly, the Cambodian government had increased the salaries of civil servants by 20 percent, in an attempt to partially counter the loss of purchasing power caused by higher food price. Textile workers and teachers received smaller wage increase of 6 percent and 10 percent respectively. Thirdly, the government responded to the high rice prices by putting a temporary action to ban the export of rice from 23 March and 23 May 2008. This increased the internal stocks of rice. Consequently, the result was the reduction the price by 10 percent immediately (Cambodia’s Leading Independent Development Policy Research Institute [CDRI], 2008). In the same time, the government decided to double the private bank reserve from 8 percent to 16 percent. This meant to reduce the surplus of cash and to bring up its prices. Lastly, in October 8, 2008, the Asian Development Bank provided $35 million to the government for emergency aid. The donation was used to provide free rice, seed and fertilizer to 500,000 Cambodians, the poorest of the poor among the country’s 14 million people (“Cambodia gets $35 million in emergency food aid”, 2008).

Discussion

In the old days, it was the government alone which was responsible to empire’s problems. The solutions were depended on the mentality of the emperor whether he is justice to the mass of the people or to only their subjects. However, in the present day, the government and non government organizations works closely together to maintain and restore peace and development.

Conclusion

Inflation is an out of control economic problem concerned by all countries if their governments do not take care of it. It provides a hard time for the mass of population. The government plays a major role to response to the high prices. The decision of the government determines the future of every a single of life. Indeed, the responds to the inflation by the government in the modern times and in Ancient Rome are the same.