This beautiful piece representing the golden age of Greek art in Sicily was struck by the cruel tyrant who overthrew the Second Democracy of Syracuse. The city was under attack in the late 5th century BC; first, by the Athenians under the tragic hero Alcibiades, who sought to punish Syracuse for its alliance with Sparta, and second by Carthage, its longtime foe across the Mediterranean. In this militaristic climate, the flourishing democracy cracked and gave way to a successful general, Dionysus, who soon became a tyrant.

However, like most military despots, Dionysius struggled with running the government, particularly its finances. He found a solution to his budget and revenue issues, oddly enough, in Plato, who was living in Athens at the time. Plato had argued in The Laws that governments should not be constrained by a lack of bullion and ought to mint coins of non-precious metals like tin. Crucially, for this system to work, Plato insisted that “domestic money should be nonexportable, restricted in its supply, and exchangeable with other monies only through a government authority.”

Plato acknowledged that a “fiat” system not backed by gold was infeasible in international markets; it could only work in a tightly closed domestic system, where full trust in the money’s credit was enforced by the state. Dionysus, probably not too concerned with the details, was sold. He invited Plato to advise him and proceeded to mint gold and silver coins that were overvalued by a factor of two, and tin coins that were given a nominal value equal to certain gold and silver pieces.

The new coins, which competed with properly valued silver and gold issues from across the Mediterranean in Syracuse’s vibrant commercial marketplace, swiftly collapsed from their declared value back down to their commodity value – which was worthless, in the case of the tin issues. Plutarch relates that Dionysius, furious, attempted to punish Plato “by sending him to the slave market at Corinth,” where “several philosophers were present by chance so they could buy his freedom.”

Above: Silver/billon antoninianus of Trajan Decius, struck 249-251 BC. By this time, the coin contained only about 35% silver. The coins were given an additional silver plating to conceal their true purity.

Fiat money was thus dead – at least for several centuries. The next major experiment with fiat money came at a far greater scale – the entire Roman Empire, not merely the single Sicilian city of Syracuse. Throughout the era of the Roman Republic (ca. 211-27 BC) and most of the first dynasty of the Empire (27 BC – 54 AD), the purity of the denarius remained remarkably high – consistently above 95%. Nero (r. 54-68 AD) was the first emperor to debase the coinage, but only slightly, to about 93%. Throughout the next 150 years, debasement occurred, but gradually – the denarius was still about 80% pure by the time of Septimius Severus. However, in the Crisis of the Third Century (235-284 AD), the guardrails on Roman monetary stability were wiped out, as rival emperors battled each other, necessitating a vast increase in military spending and a decline in economic productivity. Inflation, too, was rampant. The coinage became a fiat one; by 260 AD, the denarius no longer existed, and the silver antoninianus, a coin supposedly introduced at the value of two denarii, had been debased to 2% pure. In this climate, the coins minted by the ruling authorities – Valerian, Gallienus, etc – were treated as close to worthless, while a denarius of a long-gone emperor like Vespasian or Hadrian would have been treasured as “real” money.