The History of Inflation is Older Than you Think
Inflation has occurred in many different societies throughout history. We think of inflation as a modern economic concept, but in reality, it predates modern history and has been a prevalent part of societies since the first nations and urban areas emerged.
When silver was used as the currency in Rome, the government would collect silver coins, melt them down, mix them with other metals such as copper or lead and reissue them at the same value, a process known as debasement. When Nero became Roman emperor in A.D. 54, the local coin contained more than 90% silver, but by the 260s, hardly any silver was left. By diluting the silver with other metals, the government could issue more coins without increasing the amount of silver used to make them. When the cost of each coin is lowered in this way, the government profits in the short term from an increase in seigniorage. This practice would increase the money supply but lower the value of each new coin. In other words, inflation occurred.
During the Malian king Mansa Musa’s journey to Mecca in 1324, he was reportedly accompanied by a promenade of nearly 100 camels and thousands of people. When he passed through Cairo, he either spent or gave away so much gold that it diminished its purchasing power for over a decade. Records show that the effects of this inflation reached as far as Britain.
“Price Revolution” in Western Europe
In the 1600s, Western Europe experienced a major inflationary cycle referred to as the “price revolution.” During this time, prices raised about sixfold over 150 years. This is often attributed to the influx of gold and silver from the New World into Spain, accompanied by the rebound of the European population from the Black Death in the 1500s.
Annuities are Ancient too?
A little-known fact about ancient finance is that, although many believe Roman soldiers were the first to partake in annuities contracts, some financial archaeologists argue that annuities existed in Egypt from as early as 1100 to 1700 B.C. when a prince from central Egypt created the first annuity payment plan.
All in all, the financial tools and concepts that affect us today are not unprecedented, and it’s important (and fascinating) to know how these concepts occurred in the past to better understand how they are happening now. If you have questions about how your retirement is affected by inflation or how you can use financial tools to protect your retirement, Click HERE to sign up for a time to talk to us at Barnett Financial and Tax.