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REBELLION, RIOT AND MILITARY COUPS
When civil war broke out among rival emperors of Rome in AD 192, the winner, Septimius Severus, granted the troops a pay increase and paid for it by increasing the number of silver denarii in circulation. This increase in money supply could only be achieved by means of a debasement of the silver content to 48 per cent. An old denarius thus had only the same nominal value as Septimius Severus’ new denarius but had a much better silver bullion content. Inevitably, the older, finer coins began to disappear – to be melted down for their higher bullion value. So, a vicious circle would have been created: the emperor minted more coins to pay the army; in order to do so, he debased the silver content of the coin; that in turn caused the older, finer coins to disappear out of circulation, being melted down for their finer silver content. This in turn created a demand for more money – of poorer quality – to be minted and issued to replace those that had disappeared from circulation. Unless the state was able to access entirely new stocks of silver – usually by conquest – the only way to issue new coins was by taking in older ones with good silver content, melting those down for their silver bullion and reducing the amount of silver added to the newest issue of coins. The effect may have been a net transfer of wealth from some sections of society to the army and perhaps an increase in the speed with which money changed hands. The discovery of new mines and their exploitation in conquered countries might to a certain extent hold off debasement. But, if the economy were to expand too quickly and army pay increased too dramatically – and if supplies of new bullion could not keep pace – there were limited means of coping with the problem: debase the coinage, replace some payments with goods in kind or replace the lowest denominations with base metal.
The demand for an increased money supply to pay armies is clearly understood by figures for the average annual pay of a Roman soldier:
Reign | Average annual pay in denarii |
Julius Caesar (46 BC) | 225 |
Domitian (AD 81–96) | 300 |
Septimius Severus (AD 193–211) | 600 |
Caracalla (AD 211–217) | 900 |
Maximinus (AD 235–238) | 1,800 |
Source: Williams, Jonathan (ed.), Money: A History (British Museum Press, 1996).
The same source also reports one estimate that during the middle of the second century, 75 per cent of the Imperial budget of 225 million denarii was spent on paying the army of 400,000 troops. The cost of paying a single legion, according to one source,1 amounted to around 1,500,000 denarii a year. Tacitus relates the case brought against Publius Vitellius in AD 32, during the reign of Tiberius, who was charged with ‘offering the keys of the Treasury and the Military Treasury for seditious purposes’.2 Clearly, with such a large proportion of the budget allocated to the army, control of the Military Treasury would make the difference between a successful and an unsuccessful conspiracy or coup.
The demand for increased money supply to pay the army in turn required a substantial increase in coin production capacity. New mints had been established in Gaul, Britannia and elsewhere by rival emperors who had broken away from Rome’s central authority during the third century. The situation in the third century had been aggravated by the fact that army and civil servant salaries had not kept pace with inflation, forcing the authorities to make up the shortfall with supplies in kind. Coin production capacity increased but raw materials were not forthcoming in sufficiently large volumes to keep pace with the enhanced production capacity; the silver content of the denarius was consequently debased to eke out the available silver stocks.
The observation of Milton Friedman that periods of war increase the demand for money3 finds clear support in the record of inflating salaries for Rome’s troops; but it could equally be said that the demand for an ever-increasing issue of money to pay the armies continued during peacetime to guarantee their loyalty in societies where armed forces do not feel themselves to be subordinate to the civil government.
China
In the China of the early Sung dynasty, the army grew in size from 378,000 in AD 975 to 912,000 in AD 1017 and 1,259,000 in AD 1045 and, as it grew, so too did the troops’ demand for additional allowances and perks. The government had no choice but to increase the issue of money on a major scale to cope with these demands. Improved methods of producing silver and copper, increases in the availability of raw materials and in spending on defence led to a massive surge in money supply, the state budget expanding from 22,200,000 ‘strings’ of cash (a cash being a bronze coin and a string consisting of 1,000 coins) in AD 1000 to 150,800,000 in AD 1021. Inflation was the inevitable result.4
Primitive efforts to dupe the military with debased coinage rarely survived exposure and the hostility of the intended victims. Late in the sixteenth century, the authorities in the province of Zhejiang in Ming-era China attempted to force the circulation of state issue coinage by paying one-third of military salaries of the Hangzhou garrison in coin at the official rate of 1,000 bronze coins to a tael of silver, a tael weighing anywhere between 34g and 40g according to the region of China in which it was used. However, it soon became apparent that the market rate was 2,000 coins to a tael of silver, reducing the promised 30 per cent of salary in coin to 15 per cent in real terms, and depriving the troops of the remaining 15 per cent. The predictable result: the garrison mutinied and, without a force to impose law, the city was left in a state of disorder and exposed to rioting mobs protesting against unrelated, but punitive taxation.5
The Power of the Military in the Ottoman Empire
Authorities ignored at their peril the willingness of a military caste to revolt when its demands for payment in sound money went unfulfilled. Until the early nineteenth century, the Janissary corps of the Ottoman Empire was one of the most powerful elements in that empire. Only the elite Janissaries were up to the task of meeting the best European troops head to head and the decision to increase threefold that part of the army demanded a corresponding increase in expenditure.6 However, not only did the Empire have to increase the level of its military expenditure for an expanded Janissary corps, it also had to ensure that the quality of the money was acceptable to this powerful sector of society.
During the reign of the Ottoman Sultan, Mehmed II (1451–81), the Janissary corps revolted in response to regular debasements.7 The sultan had two periods of rule, the first standing in for his father in 1444 when Mehmed II was only 12 years old. That year the Janissaries were paid in newly issued silver akçe, which had been debased by 11 per cent in silver content and weight. Alert to a reduction in the external exchange rate against the Venetian ducat, which was the international standard of monetary reliability, and wise to the likelihood of an increase in prices, the troops gathered around a hill outside the capital city of Edirne and demanded a return to the old standards of silver content and weight or an increase in their salaries. The government buckled and increased the troops’ pay by about 16 per cent. Although this event, known as the Buçuktepe incident after the name of the hill, is viewed as only partly down to the government’s imprudent action in debasing the currency, it and other rebellions in Ottoman Turkey that involved the issue of the quality of money demonstrate the importance in certain militarised societies of maintaining military salaries at an appropriate level to offset the effects of debasement and inflation.
The pattern repeated itself in the late sixteenth century. The army had expanded as a result of lengthy wars with Persia and Austria and, to cope with vastly increased national expenditure, the sultan’s government debased the silver coinage, leading to a drop of 230 per cent in the external exchange rate. The fixed rate of pay of the Janissary corps was insufficient to cope with the inflation in prices and the problem came to a head when, in 1589, the government chose to pay them in debased coin rather than in the older, higher quality coin. Almost inevitably, the Janissaries revolted, demanding the execution of the high official deemed responsible for the debasement, a demand to which the sultan acceded. The episode became known as the Beylerbeyi incident after the unfortunate scapegoat.8 Prior to this event, the demands of the military caste for ‘sound money’ had had a curiously stabilising effect on the Akçe over a period of about a hundred years from 1481 onwards, with one single exception of debasement in 1566.
By the end of the sixteenth century, the Ottoman administration appeared to have learned the lessons of these mutinies. A very high proportion of payments from the Ottoman Treasury went towards the payment of troops. To get a measure of the importance of securing the army’s loyalty: documentary evidence of Treasury payments over two sample periods, the first over a period of nearly a year from July 1599 and a second period of two years beginning in 1602, indicate that 70 per cent of all disbursements went to the army. It is difficult to ignore the similarity with the estimation that 75 per cent of payments from Rome’s Treasury were allocated to the army. Moreover, the fact that 67 per cent of payments made to the Ottoman army were in gold, the best store of value, seems to be further evidence that the state had begun to take the army seriously.9 Even when the state resorted to military payments in the higher quality silver coin known as the shahi during wars with the Iranian Empire in the second half of the sixteenth century, it was evident that production of those coins noticeably increased at the mints in the eastern part of the Ottoman empire, the region where there were large concentrations of troops. Conversely, high-volume production slowed down and mints were closed at the end of the war and troops were dispersed.10
The power of the military in Ottoman Turkey was undisputed. When Sultan Mehmed IV was deposed in 1687 and replaced by Suleiman II, the new sultan had to pay the obligatory ‘accession gift’ to the army. Attempts to raise enough money through new taxes on the population of Istanbul backfired when the people revolted. The administration addressed the challenge by minting copper coins with an enhanced face value of one akçe (previously a denomination reserved for silver coins), using new presses that had been installed the previous year and making use of various sources of copper for the raw material. Additional rooms were added to the Istanbul mint, expanding the minting capacity simply to satisfy the military demand for a gratuity on the accession of a new sultan.11
Only the suppression of the Janissary order in 1826 by the reforming Ottoman Sultan Mahmud II, who ruled from 1808–39, removed this powerful obstacle to repeated debasements, the first serious one being implemented during the period 1828–31. The seigniorage yield (the profits a government or central bank can make from the issue of money) as a result amounted to half a year’s total revenues.12
| Weight of kuruş (g) | Silver content (g) | Exchange rate to pound sterling |
1808 | 12.8 | 5.9 | 19 |
1818 | 9.6 | 4.42 | 29 |
1828 | 3.2 | 1.47 | 59 |
1839 | 2.13 | 0.94 | 104 |
Source: Pamuk, Şevket, A Monetary History of the Ottoman Empire (Cambridge University Press, 2000), p. 191.
The power of the military in monetary matters in certain societies could still be seen in the twentieth century.
Chile
The First World War had changed definitively the relative economic strengths of Britain and the United States. The strength of the City of London as a centre for the financing of international business and Britain’s position as the world’s leading gold standard country prior to the war had given the country a pre-eminent position in world trade. Prior to the war, America had been heavily in debt to the banks of Britain and France, among others. During the war, however, America’s economic position was transformed from that of net debtor to net creditor. Much British gold had been shipped via Canada to America to pay for materiel and foodstuffs. As the war progressed, Britain was forced to take significant loans from America, some of which were passed on to Britain’s allies, France and Italy. Emerging from the war years as indisputably the world’s leading economy, the US expanded its comme...
