The Problem of Money

Inflation (people don’t change)

One of the greatest problems of any money throughout history has been inflation — the gradual debasement of a currency that weakens its purchasing power. Although inflation is often discussed today in connection with printing unbacked paper money, the phenomenon is nothing new. It existed long before modern banks and central banks. Its roots run deep into history and it reappeared whenever rulers or politicians succumbed to the temptation to manipulate money to gain wealth or finance wars and state spending.

While high taxes or outright theft provoke immediate public resistance, inflation is a slower, less visible process that most people barely notice at first. But when prices start to rise, wages fail to keep up with living costs, and savings lose value, the consequences become painfully obvious.

Debasing money took many forms — shrinking coins, diluting the gold and silver content, or uncontrolled printing of paper notes. History shows a recurring pattern: money controlled by states and rulers repeatedly runs into the problem of inflation, because human greed does not change.

The Roman Empire — when gold and silver lost their value

One of the best-known historical examples of inflation is the Roman Empire. Early on it had a strong and stable economy based on a trusted currency — the denarius. This silver coin initially contained up to about 95% silver, which gave it real value and earned the trust of merchants across the empire, from Britain to the Near East.

As Rome expanded, its expenditures grew dramatically: ever-larger armies, roads, urban infrastructure, baths, temples, and other projects. At the same time, emperors and the aristocracy became accustomed to increasingly luxurious lifestyles that required vast resources.

Rulers faced a dilemma — how to get more money? Raising taxes triggered resistance, so they chose an “easier solution”: currency manipulation. Because gold and silver could not be mined fast enough, they diluted coins with cheaper metals such as copper and lead.

This process unfolded in several stages:

• Gradual reduction of silver content — under Augustus (27 BC – AD 14) the denarius had about 95% silver; under Nero (AD 54 – 68) it fell to ~90%, and by the 3rd century AD it contained less than 5%.
• Shrinking the size and weight of coins — to save precious metal, rulers minted smaller, lighter coins.
• Issuing ever larger quantities — once coins contained only minimal precious metal, emperors struck huge amounts to cover expenses.

The consequences were disastrous. People realized the coins were worth less and demanded more money for the same goods. Inflation accelerated and trust evaporated. Merchants refused debased coins, many reverted to barter. By the 3rd century AD, a full economic crisis erupted — trade slowed, cities declined, and the empire slipped into chaos. The loss of monetary trust proved irreversible and contributed to Rome’s downfall.

The Middle Ages — diluting gold and silver in European coins

After Rome’s fall, European kingdoms tried to build stable systems based on their own currencies. Rulers minted gold and silver coins with real value and wide acceptance. Yet, as in Rome, greed, wars, and power ambitions led to the same scenario — monetary debasement.

To finance wars, armies, and lavish courts, rulers used devaluation as a subtle “tax.” Instead of openly taxing their subjects, they changed coin composition and size, gradually eroding real value.

They did this in three main ways:

• Diluting precious metals — replacing gold and silver with cheaper metals (copper, tin).
• Shrinking coin size — smaller, lighter coins while the nominal value stayed the same.
• Mass minting — more coins in circulation meant declining purchasing power.

France — the king who devalued the currency 80 times

A famous medieval example is King Philip IV of France (1285–1314), known as Philip the Fair. Ambitious and authoritarian, his reign was full of conflicts, wars, and financial troubles. He continually sought new ways to refill the royal treasury.

Philip IV devalued the French currency more than eighty times — changing coin values every few months and stripping people of their savings. The process was gradual and calculated to avoid immediate rebellion, while his rule was marked by military campaigns, clashes with the papacy, and enormous court expenses.

Key episodes of his reign:

• Conflicts with England and Flanders — battles for control over wealthy trading cities that resisted French power.
• Clash with Pope Boniface VIII — attempts to tax church property led to excommunication; Philip ultimately installed a pro-French pope in Avignon.
• Suppression of the Templars — accusations of heresy enabled confiscation of their wealth to fund the crown.
• Luxurious royal court — heavy spending on administration, officials, and nobility.

To cover these costs, Philip IV carried out more than eighty monetary reforms. His strategies included:

• Diluting precious metals — increasing the share of cheaper metals in coins.
• Shrinking coin size — smaller and lighter coins with the same face value.
• Mass issuance — flooding the economy with new coins, fueling inflation.
• Frequent value changes — creating persistent market uncertainty.
• Forced acceptance — ordering merchants to accept coins at official value.

The Problem with Today’s Electronic Money

The core problem of modern electronic money is how easily it can be copied. Consider a simple analogy. If I hold a gold coin and give it to a friend, ownership is obvious — whoever physically holds the coin owns it. It can change hands many times, but the owner is always the person who physically possesses it.

In the digital world it’s different. If I take a beautiful sunset photo and send it to a friend, who forwards it further, who owns it? Everyone has an identical copy, indistinguishable from the “original,” and copying can continue indefinitely. This applies to all digital things — text files, music, videos, and electronic money.

To prevent chaos in electronic transactions, financial flow “caretakers” were introduced — banks. Banks track balances, verify transactions, and protect the system from duplication. But by acting as a central authority, they also became the custodians of your money — which is not always in the customer’s best interest.