The Roman Empire, a civilization whose power and influence once spanned the known world, ultimately succumbed to a variety of pressures, but a major factor in its decline was the combination of unchecked deficit spending and the unsustainable growth of its government. The Roman state, compelled to finance a vast military and an increasingly complex bureaucracy, found itself in a position where expenditures routinely exceeded revenues. Rather than take unpopular measures such as raising taxes or cutting spending, the Emperors repeatedly resorted to debasement of the currency, reducing the precious metal content of coins, which led to rampant inflation and an erosion of public trust. This combination of runaway government spending, the ever-increasing size and cost of the state, and the manipulation of the monetary system created a destructive cycle of economic instability, which ultimately contributed to the empire’s collapse.
This may well sound all too familiar to readers in 2025!

The Foundation of the Problem: Deficit Spending
- The Roman Empire’s need to maintain a strong military and vast bureaucracy led to ever increasing government spending while revenues were in decline or stagnant. When the costs of maintaining the Empire exceeded revenues, emperors began to manipulate the coinage to cover the difference, rather than increase taxes. If this sounds familiar, it is – Deficit Spending.
- The empire’s reliance on war plunder and tribute for revenue ended as expansion slowed, and this exacerbated the issue of funding the state.
- Some scholars believe that the Roman state was in permanent fiscal difficulty from the Julio-Claudians onward.

Debasement of Currency as a Response
- Faced with a shortfall in revenue, emperors chose to debase the currency by reducing the precious metal content of coins while keeping the face value the same. This action effectively increased the money supply, allowing the government to pay its obligations, particularly to the military, but it was a short-sighted solution.
- The debasement of coinage is characterized as a move from intrinsic money (where the coin’s value is tied to its precious metal content) to fiduciary money (where the value is not directly tied to the metal).
- The Denarius, once made of pure silver, became increasingly debased with copper and other inexpensive metals.
- The Antoninianus, introduced by Caracalla, is seen as a key example of debasement. Initially considered a double Denarius, its silver content was repeatedly reduced, contributing to a loss of confidence in the currency.
The Cycle of Debasement and Inflation
- The increase in the money supply through debasement led to inflation, where prices of goods and services increased. This occurred because more money was available, but the supply of goods did not increase at the same rate and the value of the coins decreased.
- As the value of coins decreased due to debasement, prices for all goods like wheat increased. The economic conditions worsened with corruption, power struggles and civil wars. Some scholars argue that the inflation was also driven by a nominal re-tariffing of coins that greatly increased the money supply, without any increase in the supply of precious metals. While an increase in the money supply does not necessarily lead to inflation, for example the significant monetary expansion following the 2008 economic crisis, Roman government attempts to control prices with edicts failed, further highlighting the economic instability and further reducing confidence in the currency and government.
Erosion of Confidence and Economic Decline
- As the currency lost value, economic activity declined. Trade became difficult, and long-term investments became increasingly risky. Repeated debasement eroded public confidence in the currency. People lost faith in the state’s ability to manage the monetary system.
- The debasement of the currency, combined with other factors, led to the transition from a monetized economy to a “natural economy”, where goods were exchanged directly rather than through currency.
- There was a corresponding decrease in private investments due to increasing risk and uncertainty, with buildings, roads and other public works falling into disrepair.
Evolution of the Administrative State
- Initially, during the Republic, tax collection was outsourced to private contractors called publicani, who bid on the right to collect taxes. The system was often abused by publicani and regional governors colluding to maximize profits to the detriment of the provinces.
- During the Principate, emperors like Augustus introduced reforms to centralize tax collection by creating a census and employing imperial agents to oversee tax-collection activities. This was a move away from the decentralized system to one with a more hierarchical structure and which was intrinsically easier to control.
- The administrative changes under Augustus included a distinction between senatorial and imperial provinces, with the Emperor taking direct control over the imperial ones. The emperor also created the fiscus, a separate treasury for imperial revenue. The fiscus allowed the Emperor to directly control a large portion of the state’s revenue, which meant he could use it for personal expenses, to fund the imperial administration, and to pay for public services. The creation of the fiscus also allowed for a more regularized system of tax collection based on wealth and population, which also reduced the “progressivity” of the existing tax system
- The system evolved towards a more formal bureaucracy, with loyal employees directly under the Emperor’s control who oversaw tax collection and other imperial functions. This created a system with career paths and greater accountability than the previous system where governors were essentially “free-riding” on the state’s resources.
Consequences of Growth of the Administrative State
- The growth in the bureaucracy likely helped to reduce the abuses and corruption associated with the publicani system however the expansion of the administrative state came at a great cost, with more resources being directed toward government activities and the maintenance of the new, imperial bureaucracy.
- The increased tax burden, the debasement of coinage, and the expansion of the administrative state also reduced incentives for productivity and investment, as well as increasing the cost of doing business.
The Collapse of the Empire
- The debasement of the currency was both a symptom of and a contributing factor in the overall decline of the Roman Empire. It was also a key factor in the empire’s shift away from a “liberal” economic system to a more controlled and ultimately failing one.
- The loss of economic stability due to inflation, combined with other factors such as external threats, social unrest, and government corruption, contributed to the eventual collapse of the empire.
- The empire’s inability to maintain economic growth and provide a stable system of currency was a major failure of government which had long term and ultimately terminal consequences. In addition, the increasing tax burden, amongst other factors, caused the costs of doing business to increase, further fueling inflation.
The growth of the administrative state, while initially intended to correct the problems of the Republic’s decentralized system, became a costly endeavor that added to the Empire’s financial strain. The need to fund both the military and a larger bureaucracy through deficit spending contributed to a cycle of debasement and inflation which eroded public confidence in both the currency and the government and was a major factor in the empire’s eventual collapse.
Online Sources and Resources
- Currency and the Collapse of the Roman Empire by The Money Project: This article examines how hyperinflation, soaring taxes, and devalued currency contributed to Rome’s economic paralysis and the eventual shift to inefficient barter systems.
- Rome’s Runaway Inflation: Currency Devaluation in the Fourth and Fifth Centuries by the Mises Institute: This piece explores how persistent public overspending led Roman rulers to continuously devalue the currency, exacerbating economic decline.
- Currency Reform in Ancient Rome by the Adam Smith Institute: This article discusses the persistent decline in the value of the Denarius, Rome’s primary coin, from the Republic through the Crisis of the Third Century AD.
- How Excessive Government Killed Ancient Rome by the Cato Institute: This study argues that economic deterioration resulting from excessive taxation, inflation, and over-regulation fundamentally contributed to Rome’s fall.
Scholarly Research Articles
These papers provide in-depth analyses of the economic challenges faced by the Roman Empire, particularly concerning currency devaluation and taxation, offering insights into how these factors contributed to its decline.
- The Economics of Government and the Fall of Rome by Mark Koyama, published in Social Education. This paper discusses how the devaluation of Roman coinage led to economic instability and contributed to the empire’s decline.
- Debasement and the Decline of Rome by Kevin Butcher, featured in American Journal of Numismatics. This study examines the relationship between the debasement of Roman currency and the subsequent economic decline.
- Tax Collection in the Roman Empire: A New Institutional Economics Perspective by Santiago Sánchez-Pagés, published in Constitutional Political Economy. This paper reviews the Roman tax collection system from the Late Republic to the Principate, focusing on the transition from tax farming to a state-controlled system.
- Inflation and the Fall of the Roman Empire by Arthur E. Bloom, provided by the Federal Reserve Bank of St. Louis. This article explores how inflation, driven by currency debasement, played a major role in the empire’s downfall.
- A Market Economy in the Early Roman Empire by Peter Temin, associated with the Massachusetts Institute of Technology. This research discusses the nature of the Roman economy, including aspects of taxation and monetary policy.