The Austrian Business Cycle Theory and the Economic Decline of Ancient Rome:

Diocletian’s “Edictum de Pretiis Rerum Venalium”

Toward the end of the reign of Diocletian, i.e. in the beginning of the fourth century AD, the Roman Empire was in a dreadful economic situation. Since the reign of Emperor Nero, i.e. since the second half of the first century AD, inflation had been posing an ever-threatening, and ever-increasing, danger to the stability of the Empire. Due to the fact that the Romans were much more sceptical about the motives of politicians than their 21st-century counterparts, the (post-)modern method of devaluing a currency by printing fiat money could not be employed by the Roman statesmen and can consequently not have been the cause of inflation in this case. Instead, what the Roman emperors had been doing for about two and a half centuries was to devalue their silver currency, the denarius, either by removing some silver from the coins or by substituting less valuable materials for silver. This devaluation, in consequence, enabled them to argue for the necessity of increasing the money supply. American economist Murray N. Rothbard correctly summarizes this dreadful progression of events when he states:

[B]y various means, such as filing off small parts of the coins, or introducing cheaper alloys, [the Roman emperors] reduced the silver content of the money without changing its original face value. This devalu[a]tion enabled them to add many more silver coins to the Roman money supply. ... By Diocletian's time, the denarius (standard silver coin) had been reduced to one-tenth of its former value.¹

Economists Robert L. Schuettinger and Eamonn F. Butler present a long list of possible reasons which might all have contributed to this inflation process, such as “a succession of short-reigned, incompetent rulers,” “civil wars,” “economic instability,” “a steep rise in taxes,” and “grandiose public works of questionable value.”² Yet despite these myriad accounting factors, Schuettinger and Butler nevertheless come to rightly conclude that “the major single cause of the inflation was the drastic increase in the money supply owing to the devaluation or debasement of the coinage.”³

In 301 AD, Emperor Diocletian resolved to fight inflation. After an earlier currency reform issued by him had resoundingly failed to tackle the crisis, Diocletian decided to solve the problem by issuing the infamous “Edictum de Pretiis Rerum Venalium,” literally “Edict about the Prices of Goods,” which declared price ceilings for over 1,000 goods and services, thereby effectively freezing the economy in a proto-socialist fashion. This article provides a brief analysis of Diocletian’s praefatio to the edict and of Lactantius’ reaction to it—to the best of my knowledge the only surviving ancient response to the edict.⁴ In reconstructing the dreadful consequences of Diocletian’s policy, this essay argues that the logic of the Austrian business cycle theory is applicable to the lamentable course of events. Thereby, it provides evidence that the theory proves more universal than usually assumed, in essence holding true not only in modern but also in ancient times.

The above examination of the historical background gives support for one of the cornerstones of the Austrian business cycle theory, the idea, namely, that economic problems, such as inflation, are created not by the free market but by government interference in the economy. Even Diocletian seems to hint at this point. Discussing the “very causes” (“ipsas causas”)⁵ which have led to the Roman Empire’s high rate of inflation, Diocletian wonders in an ambiguous yet telling subclause, “Why don’t the plunderers grasp that they have as much less as they loot from the state day by day?”⁶ Despite the fact that the term “plunderers” might refer to myriad groups, the fact that Diocletian included this sentence in the part which features the backstory of the crisis suggests a past-oriented stance and is therefore likely directed toward his predecessors. 

As a whole, though, the first three quarters of the document are written in a comparably general tone. Quite the statesman, Diocletian inter alia blames the natura humana and man’s selfish passions for the crisis.⁷ Early in the text, Diocletian contends, “Not setting itself any limit, greed rages and burns, a greed which—without any consideration for the human species—rushes toward its own increase and augmentation, not only in years or months or days but almost in hours and even in seconds.”⁸

It is in the last quarter of the praefatio that Diocletian becomes more concrete. Utterly ignoring the historical evidence which suggests that the crisis was a result of the reckless behavior of irresponsible politicians, Diocletian shifts the blame on to the businessmen. In contrast to postmodern politicians, Diocletian understood that black-market activities could only be prevented under the threat of draconic penalties. To annihilate economic greed, “we decree that whoever takes action against the form of this statue [by charging prices higher than the maximum prices] will be subjected to the death sentence for his audaciousness. ... But to the very same sentence will also be subjected that man who, against this statute, falls for the greed of a seller due to his desire to buy.”⁹ In contrast to his spiritual progeny Richard Nixon, Diocletian even foresaw that a shortage was all but inevitable since the producers could be expected to refrain from selling their goods and services at the lower maximum price. To prevent the imminent danger of scarcity, Diocletian declared, “Nor will be immune from the liability of exactly the same kind the man who has necessary kinds of food and service but then deems it righteous that they need to be withheld from the market to a certain extent since the punishment should be even harsher for the man who provokes a scarcity than for the one who acts against the statute.”¹⁰ Commenting on the overtly anticommercial tone of the entire praefatio, American classical scholar Frank F. Abbott correctly points out, “If we did not know that this was found on tablets sixteen centuries old, we might think that we were reading a newspaper diatribe against the cold-storage plant or the beef trust.”¹¹

The preceding analysis of Diocletian’s praefatio confirms the Austrian business cycle theory in a second respect—the blame for the crisis is artificially and arbitrarily shifted away from the bureaucrats toward the entrepreneurs. Just as the Austrian theory predicts, this fallacious reasoning is used as a justification for government interference to solve the problems which have allegedly been created by the free market. “Toward remedies, thus,” Diocletian arrogantly proclaims, “we rush because the necessity of things has already been demanding action for a long time and we are certainly unflinching when it comes to complaints.”¹² Driven by hubris, Diocletian clearly foreshadows (neo-)Keynesianism by wrongly assuming that the state is in a position to solve the crisis. Ignoring any epistemological and moral constraints, Diocletian apparently concluded that the politicians had enough knowledge and the right incentives to tackle the issue. “We, the ones who think in the long-run, who are the parents of the human species, decree that justice intervene as an unrestrained force in these matters,”¹³ Diocletian stresses. Elaborating on some of the contradictions in Diocletian’s reasoning, Schuettinger and Butler point out, “Diocletian determined to continue to inflate, but to do so in a way that would, he thought, prevent the inflation from occurring. He sought to do this by simultaneously fixing the prices of goods and services and suspending the freedom of people to decide what the official currency was worth.”¹⁴

Due to the lack of sources, it is impossible to meticulously reconstruct the exact course of events. Lactantius, who seems to be the only contemporary of Diocletian to discuss the edict, refrains from giving a detailed account of the immediate consequences of the reform. Apparently, the edict did not create a shortage straightaway. Just as the Austrian business cycle theory predicts, there might have been a short boom phase due to increased consumption. This interpretation nicely fits the historical fact that Diocletian remained the Roman Emperor for another four years after issuing the edict.

Yet in 305 AD, Diocletian resigned, thereby becoming the first emperor to leave office voluntarily. Seemingly, the business cycle had entered its bust phase around this time. Revealing the results of Diocletian’s edict in De Mortibus Persecutorum, Lactantius succinctly notes, “Then much blood was spilled for the most negligible bagatelles and no more goods appeared on the market because of fear, and inflation became much worse until the law was abolished out of sheer necessity and after the death of so many people.”¹⁵ The syntactic and semantic structure of the sentence are telling and lend further support to an Austrian interpretation of the business cycle initiated by Diocletian’s edict. The logical sequence of the statement makes ample that slaughter and bloodshed preceded recession and scarcity which, in turn, further increased the rate of inflation. It needs to be conceded that Lactantius’ reference to the spilling of blood is peculiarly vague. Lactantius might refer either to executions by the state or to civil warlike conflicts among citizens. While the latter interpretation is certainly sound, the former notion is actually more likely and might have in turn contributed to violence among citizens. Even under the threat of the death sentence, the entrepreneurs can be expected to have been continuing to trade on the black market. The execution of these businessmen is likely to have been the source of the ensuing scarcity, thereby resulting in civil unrest due to the fact that the same number of people chased a decreased quantity of goods. As archeologist and numismatician Antony Kropff puts it, “From the (hostile) account of Lactantius ... we might conclude that the edict all but destroyed trade, caused a lot of bloodshed and had to be withdrawn.”¹⁶

In toto, the preceding examination of Diocletian’s edict corroborates the Austrian business cycle theory. First, the bureaucrats wrongly blamed the entrepreneurs for the economic crisis. Second, they emphasized this fallacious narrative to justify government intervention. Third, their interference with the economy seems to have had some beneficial short-term consequences but dreadful long-term effects. Hence, the edict is one of the earliest documents which makes us aware of the inevitable chaos created by arrogant and immoral politicians. The inefficiencies resulting from government interventionism become especially evident if we keep in mind that there was no shortage before Diocletian issued his infamous edict. “Their rampant desire to exploit is mitigated neither by abundance of goods nor by richness of years,”¹⁷ Diocletian writes about the businessmen without understanding their crucial role in having created this abundance and richness.

1. Murray N. Rothbard, “The Edict of Diocletian: A Case Study in Price Controls and Inflation,” Faith and Freedom 1.4 (1950): 11.

2. Robert L. Schuettinger and Eamonn F. Butler, Forty Centuries of Wage and Price Controls: How Not to Fight Inflation (Washington: The Heritage Foundation, 1979), 21.

3. Schuettinger and Butler, Forty Centuries of Wage and Price Controls, 21.

4. The surviving fragments from the edict are collected in Siegfried Lauffer, ed., Diokletians Preisedikt (Berlin: de Gruyter, 1971), 90-211. Throughout this paper, all translations of the edict and the one translation of Lactantius are mine. The translation of Lactantius is based on the text by Samuel Brandt and Georg Laubmann, ed., De Mortibus Persecutorum (Vienna: Tempsky, 1897).

5. Diocletian, “Praefatio,” I.27.

6. Diocletian, “Praefatio,” II.5.

7. The word “avaritia” (“greed”), for instance, is featured eight times in the praefatio.

8. Diocletian, “Praefatio,” I.4-5.

9. Diocletian, “Praefatio,” II.18-21.

10. Diocletian, “Praefatio,” II.21-22.

11. Frank F. Abbott, The Common People of Ancient Rome: Studies of Roman Life and Literature (New York: Charles Scribner’s Sons, 1911), 74. The edict in many ways resembles later nonobjective laws and legislation, such as the 1890s Antitrust Laws, most notably the 1890 Sherman Act. Like the latter regulations, the edict effectively makes responsible economic activity impossible due to its nonobjective character and its vagueness. In essence, the businessman who sells above the maximum price will be executed right away. Yet the businessman who sells at or below the maximum price can arbitrarily be charged with withholding essential goods and also be executed any time. Taken to its extreme, the man who drinks water in order not to die of thirst might be charged with withholding water from the market. (Note Diocletian’s vague reference to “necessary kinds of food and service” (“species victui adque usui necessarias” (II.21 [emphasis added]). Necessary—by what standard? Blank out. Yet what good could be more essential than water?) Hence, the edict effectively gives the government a blank check to get rid of ‘enemies of the state’ whenever, and in whatever fashion, it pleases.

12. Diocletian, “Praefatio,” I.16.

13. Diocletian, “Praefatio,” I.11.

14. Schuettinger and Butler, Forty Centuries of Wage and Price Controls, 22.

15. Lactantius, De Mortibus Persecutorum, VII.7.

16. Antony Kropff, “An English Translation of the Edict on Maximum Prices, also Known as the Price Edict of Diocletian (Edictum de Pretiis Rerum Venalium),” Academia.edu: 27 Apr 2016, 1-2.

17. Diocletian, “Praefatio,” I.20.