Diocletian's Price Ceiling Edict

One of the most comprehensive works written on the history of the Roman Empire is “The History of the Decline of the Roman Empire”, published between 1776 and 1788. The work is by Edward Gibbon. The purpose of the book is not to tell the history of Rome, but to provide a detailed example of how a country can collapse. The message is to England.

Rome was in crisis in the 3rd century. However, in the 2nd century, it experienced, in Gibbon's words, "the happiest and most prosperous period in human history." After the collapse in the 3rd century, Diocletian came to power in 284 AD. There was a huge Roman Empire that needed to be put together and put back together.

One of the first issues Diocletian tackled in order to put the empire in order was to put the army in order. Changes were also needed in the form of government. According to Diocletian, it was impossible to govern the lands extending from Britain to Mesopotamia, from North Africa to Central Europe from a single center. He placed himself at the top of the hierarchy as the most powerful emperor and took responsibility for the eastern part of the empire. He appointed Maximian as emperor for the western part. Galerius and Constantius took their places in Roman history as other emperors under the new form of government. This form of government with four emperors was called the tetrarchy.

In ancient times, the most important expenditure item of the state was military expenditure. Items such as health, education and social transfer expenditures were not yet in the state budget. Because these functions of the state were not defined in the ancient world.

In order to cover military expenses, taxes had to be levied on the people. Diocletian increased the number of soldiers from four hundred thousand to five hundred fifty thousand to six hundred thousand in order to defend the empire's lands.

Diocletian's state increased bureaucracy within the framework of restructuring. Bureaucracy means order, and there was no order left in the Roman Empire. In the 266 years until 235 AD, twenty-seven emperors ascended to the throne. In the next 50 years, twenty-six official and 25 nominal emperors took office. With the disappearance of stability, the order of the state virtually fell apart. Diocletian tried to revive this broken order. He did not reside in Rome like the emperors of the past. He only went to Rome once during his time on the throne. Since he was responsible for the eastern part of the empire, he had a palace built in Nicomedia (Izmit).

During Diocletian's period, the contribution of public expenditures to national income was around 6-7% of national income. 2/3 of public expenditures consisted of military expenditures.

Source: https://en.wikipedia.org/wiki/Diocletian#/media/File:Istanbul_-_Museo_archeol._-_Diocleziano_(284-305_d.C.)_-_Foto_G._Dall'Orto_28-5-2006_(cropped).jpg

Diocletian was faced with a major economic problem as a result of the bad management of the past and the taxes he had imposed to pay for military expenses: hyperinflation. The economy was broken and the people were tired as a result of generations of bad management. When the collapse was combined with the taxes imposed to pull the state together and pay for the increasing military expenses, prices exploded. Hyperinflation caused unforeseen social problems to arise.

Diocletian, whose prestige increased with the new policies and bureaucracy implemented, the tetrarchy and the strengthened army, became the “dominus”. In other words, he was seen as an “owner” or “master”. He had professional staff under him who came to power through merit. His increasing power resulted in him having significant influence in society. However, the problem of hyperinflation remained aside.

The merchants were blamed for the rising prices. They were thought to be raising prices excessively. Thereupon, the edict on maximum prices was issued in Antioch (Hatay) in 301. As another solution, the silver content of the coins used was reduced from 95% to 5% (debasement). A ceiling was applied to the prices of all products, from food to textiles, from transportation to all other services. An all-out struggle was launched against hyperinflation.

In the years when the ceiling price edict was declared, there were exactly 1,475 years for Adam Smith to emerge. However, the rules of supply and demand work. There are concepts such as the profitability of a business, the need to keep stock. Economics has developed scientific methods for itself by examining the behavior of people in economic life. In other words, the phenomena that were later defined as rules also existed in societies in ancient times. The market economy has not been named but it works.

The price suppressions implemented as a precaution against hyperinflation do not of course take into account the cost structures of business owners. Although wages are also suppressed, other cost elements are at play. When considered in terms of an income statement, the fact that the empire's businesses cannot make a profit emerges. What will be the result? Business owners who cannot set their prices under free market conditions and who do not have the chance to use natural supply-demand conditions gradually begin to close their businesses. They cannot cover their costs with suppressed prices. This time, another element that further deepens the hyperinflation problem comes into play: supply shortage. Due to the supply shortage caused by the closed businesses, demand cannot be met and hyperinflation becomes a bigger problem. Supply, demand and price cannot form under the natural conditions of the market.

In Rome, a price ceiling edict was issued for goods and services. We can think of the concept of price for deposit and loan interest or any type of price expected to occur under market conditions. Approaches that do not take the market into account when implementing a market economy have very serious economic consequences. It took humanity hundreds of years for these concepts to become ideologies, find definitions, become subjects of class struggles, have system discussions, etc. Diocletian and the rulers under him did not perceive the concept of the market like Adam Smith or could not look at the inflation issue like Keynes and they were able to make such a serious mistake. However, similar mistakes can still be made today.

By the way, there has never been any repression in economics. For example, there are financial repression methods. However, they have scientific definitions, rules and methods. In fact, the methods that led to the neoliberal movement of the 1980s are the financial repression methods of the post-World War II period. What Diocletian suppressed were the prices of the goods in the market. Sound familiar?