How Alexander caused a great Babylon inflation

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Andrew Feinberg

White House Correspondent

Alexander the Great may have been the all-time great military genius and conqueror of much of the then civilised world, but he was also responsible for the first inflation.

It lasted a decade, and for the man in the street in ancient Babylon, it halved the value of the shekel in his pocket.

Putting too much money into circulation – a mistake no inflation-conscious Chancellor would permit today – was the probable explanation for the spiralling inflation, according to researchers who have analysed archaeological data from Babylon for the first time.

In the research, reported in the journal Explorations in Economic History, economists looked at a vast archive of cuneiform tablets from the first millennium BC. Among other things, the tablets chart the prices of six key commodities: cress, mustard, dates, wool, sesame and barley.

Professor Peter Temin of the Massachusetts Institute of technology, who carried out the study, found that immediately after Alexander's death in 323BC, inflation kicked in.

"It is the first documented inflation, and evidence suggests that there was a market economy in ancient Babylon," he said. It is thought that the political uncertainty surrounding Alexander's death triggered inflation in much the same way that modern City institutions react to bad news.

Booty brought back by Alexander from his conquests, mostly silver, was probably responsible. "Prices could rise either because agricultural goods were scarce or because the stock of silver suddenly rose,'' said Professor Temin.

"If one of Alexander's successors wanted more soldiers, he would pay them more than the going rate. When they went out to buy barley or whatever, and they were told there wasn't any, they would be able to offer more money. In the time-honoured way, the trader would find that he did have barley to sell after all."