The Roman Economy

[Alon]

The following is an edited presentation I gave in a third year Roman history class for those who may be interested in the economy of the Roman world. It is both an introduction to some key ideas in the scholarship of Roman economics and of the debate between primitivists and modernists.

TAXES AND TRADE PRESENTATION

We’ve heard, in previous presentations, about such topics as Trajan’s charities, the bread for the plebs, Hadrian’s wall, and we will hear next week about mining operations, custom laws, and so on and so forth. How were these projects financed? What forces accounted for the tremendous growth of the Roman Empire in power and wealth? I’ll examine the first 200 years of the Christian era and attempt to prove why this period was known as the High Empire or Rome’s golden age. I’ll be discussing economics, in particular, taxes and trade, their relationship and their effects on the citizens, the administration, and the stability of the empire.

There is a scholarly debate in the field of ancient economics on the sophistication of the Roman economy. On the one hand are the primitivists, those who claim Rome’s economy was decentralized and fragmented, few goods were manufactured and traded beyond the subsistence level, and take a minimalist position on the evidence for growth. The modernists on the other believe the economy experienced rapid growth, that taxes propelled trade, and that commercial transactions were a significant part of the tax income. I will be looking at a major article of the modernist school and explain the propositions put forward by the author, and along the way, give the criticisms offered by primitivists.

We begin with the different types of taxes and how they were collected. In the days of the Republic taxes were very low if at all existent. During the Punic Wars, for example, we know the Republican government issued war bonds, basically, borrowing money from the citizens and promising to pay it back at a certain interest rate. But as the empire grew, more money was needed to pay for defense and bureaucracy, and under the Principate, the treasury passed from the senate into the hands of a single man. Many different types of taxes were levied; a land tax, poll tax, an inheritance tax, customs and duties in ports, and so on. Every individual had to pay a tax on the value of his property and a poll tax, to finance the census taken by the local administration. There were other ways for the government to raise funds, for example, clipping or debasing. I will go into more detail later in the presentation, but clipping meant: rather than impose new taxes, the mints would call back coins in circulation, clip them, that is cut off the edges, and melt those bits down into new coins.

Another policy for raising funds was the debasement of coins. Debasement meant the silver content of a coin was reduced and replaced by less expensive metals. People were immediately aware of this and lost confidence in government issued coins. This policy had disastrous effects and it is important to remember that it was used continually by Roman emperors since the Julio-Claudians. The last form of taxation was taxes-in-kind, meaning a tax that was levied in a commodity, not coins. For example, Egyptian wheat was taxed in kind, as was olive oil from Spain. The purpose of this was to avoid middlemen and ensure the city of Rome was supplied with goods necessary, and at a subsidized price, for the plebs. Because of the uncertainties of Mediterranean weather, the successes of a harvest, and other factors, the emperor could not risk a shortage of goods in the city, nor allow it to be sold at market price.

Private individuals sponsored by the government collected taxes. The provincial administration determined how much money each community owed in taxes and left it in the hands of local aristocrats to collect. Although Augustus ended the practice of tax farming, in emergency situations the emperor would often auction the right to collect taxes to the highest bidder. The successful bidder would hand over a fixed sum to the government and then bear the responsibility and risk for collecting taxes. Always collecting more in order to make a profit. This practice helped replenish the treasury in times of need, the government was quickly handed a fixed sum of money and didn’t need to wait for its collection.

The effects of taxes are the central focus of Hopkins’ article. He presents 7 propositions from the available evidence: The first proposition is that taxes paid in money increased the volume of trade in the empire. To us this seems counterintuitive. Any added expense to an enterprise forces it to reduce production or lower quality. However in this case we are dealing with coinage being introduced into a barter economy and the effects of taxation are progressive, creating local markets and surpluses, rather than regressive, imposing an added expense. At the local level, prior to the Roman conquest, peasants consumed most of their produce and trade was minimal. After the Roman conquest and the imposition of taxes, peasants had to earn coins to pay the land and poll taxes. This caused peasants to produce more and to use their surplus in local markets. The creation of enough surplus food drove down its price allowing for the creation of an artisan class. Craftsmen, smiths, potters, and so on who could rely on surplus food and earn their income by producing luxury goods which could be exported or consumed locally. These are small changes on the local level, but cumulatively and over time they had an important impact. They also created middlemen to transport goods, lend and exchange money, and even to sell insurance policies. (See Appendix I)

The cycle is continuous as the greater wealth produced by trade generated greater tax income. A corollary of this proposition gives us the 2nd proposition that trade created tax-exporting regions. This is fairly obvious, but the implications are not. This proposition divides the empire into 3 sections: the first forms a ring of the outer provinces of the empire where legions & auxiliary troops were stationed. The second form the inner ring, relatively wealthy provinces, and the third, Italy and the city of Rome. The outer provinces and Italy consumed more taxes than they produced, we’ll call these tax-importing regions, they required the vast majority of tax expenditure: on troops, officers, administrators, and in Italy, subsidies for the plebs, public building projects, and so on. And the central provinces, on which little tax money was spent, were tax-exporting regions. The implication of this division is that taxes and goods flowed from region to region on a large enough scale to maintain the tax-importing regions. This had several effects: government employees (soldiers and administrators) stationed in the provinces, which were paid from the tax income in cash, spent their money locally. This increased the number of people meeting the demands of soldiers on the frontiers and of officials at Rome. Again, this cycle increased the monetization of the economy, the commercialization of exchange, and the elongation of links between producers and consumers, and more importantly, the growth of intermediaries: traders, shippers, and money lenders, giving rise to urbanization. These changes were most dramatic in the West, where the conquered people did not have previous systems and where we witness a much higher increase in trade from before to after the Roman conquest. In the East, cities were well developed with established networks of local and inter regional trade. The arrival of the Romans often meant reorganization, looting of treasuries, enslavement of laborers, and redirecting taxes to Rome. Despite this, evidence shows that those cities adapted to the Roman system and grew in prosperity.

The development is not so clear cut, and primitivists bring up counter arguments. The networks of tax-stimulated trade were gradual and only worked to increase trade after considerable disruption of the local economy, this is especially the case in the East. Also, a significant amount of the trade within the empire flowed without the tax stimulus. Goods not available everywhere around the Mediterranean were subject to the laws of supply and demand, such as the trade of metals. Also, supply of raw materials fluctuated with weather conditions and therefore staple foods, for example, were constantly traded because of shortages in one area or a glut in another. Besides, taxes in kind did not stimulate trade, they even hurt it. They were a direct transfer of goods such as wheat or olive oil from the producer to the government. Primitivists take this as further evidence that in the provinces the economy remained mostly a subsistence one.

The third proposition concerns rents. Besides the land tax, peasants had to pay rents to land owners on their surplus. This has a similar effect as taxes, farmers had to produce more and interact in the market place to earn coins. This money was spent by wealthy landowners on luxury goods, symbols of their status, expanding local markets. But the farmers had a fixed yield, primitive technology was not able to meet demands of new and higher costs. Therefore, taxes and rents were in competition for the farmers’ surplus. Taxes had to be kept quite low, which allowed high private expenditure. Propositions 4 and 5 are archaeological finds used to support what I’ve been discussing so far. The period of 200 BC to 200 AD experienced a tremendous rise of interregional trade. This is shown by the discoveries of shipwrecks along the Mediterranean coast. What is surprising is that the last two centuries BC show more wrecks than the first two centuries AD. Primitivists use this fact to argue that Imperial taxation did not in fact accelerate trade since it declined in the first two centuries AD. But the difference between the two are very small and Hopkins points out that the Republican period saw much higher rates of piracy and warfare whereas the first two 200 years AD were quite calm in the Mediterranean. It is important to keep in mind that after the year 200, trade begins to decline, as do the number of shipwrecks found. The reason for this decline will be made clear in a moment, and it was a huge decline, the number of ships from 1 to 200 AD outnumber those from 200 to 400 AD by more than 2 to 1.

The 5th proposition concerns the volume of silver in circulation. An increasing volume implies rising demand for coinage and therefore wide spread trade. In the last century of the Republic there was an enormous rise in minted silver coinage, the evidence is weak, but shows that the volume could have increased as much as tenfold in a period of 100 years. What is certain is that the volume was increasing. Under the Principate, the rise in volume was exponential. A rise in money supply would mean that prices increase at a relative rate unless circulation drops or there is a similar rise in the quantity of goods produced. These concepts are not difficult to understand and work the same way in our modern economy. The more money that’s printed the less its worth (just like any other commodity), the more it takes to purchase a good. This is called inflation. But if less money is circulating in the economy, its as if money is being taken out of the system and becomes more valuable. Romans would do this in times of crises, they would hoard money and often did not live to recover it. But the first century AD was a calm and prosperous era, so its doubtful there was a great deal of hoarding. There are also no literary sources discussing high rates of inflation. The only alternative is that trade and production grew at a relative level to the volume of coinage. Meaning there was more money around, but also more goods to spend it on. What all this means, is that we know there were many more coins minted in this era than in the previous one, but we have no evidence for soaring prices and therefore shortages. We know this was an era of prosperity, which means the only way to balance the growing number of coins was more trade and production.

In proposition 6, we’ll take a look at the primitivist model of the Roman economy and how it cannot be proven with the evidence and our previous assumptions. The alternative to the integration of the economy in the first 2 centuries AD is that the production of coins remained low and circulation local. The archaeological evidence shows otherwise. Hopkins took a sample of 90 000 silver coins excavated in 5 different regions (southern Germany, northern Italy, Britain & Gaul, the Balkans, and Syria) and showed that over a period of 150 years the economy was highly integrated and only when the value of coins dropped drastically, causing a rapid decline in trade, did the highly integrated system fall apart. The Roman government had no method of distributing coins except through transactions, and the only city with a mint after Augustus’ reign was Rome. Yet the significant sample used in Hopkins’ experiment shows that those different provinces experienced similar declines and increases in volume of coins depending on the reigning emperor’s policy. This shows us that the Romans had a method for distributing coins proportionately: trade! The frontier provinces and Rome consumed most of the tax income but there had to have been a flow of goods and cash between the Outer Provinces & Rome and the Inner provinces. The second weakness of the primitivist model is that at the beginning of the 3rd century the distribution is no longer even, trade – the mechanism which distributed coins throughout the empire – is in decline at the same time as the majority of government income becomes taxes in kind (such as wheat and oil) instead of taxes in coin. We also know that trade was in decline by the diminishing number of shipwrecks found. To put all of that in one, simple sentence: The decline in the exaction of taxes in coin brought about a decline in trade. (See Appendix II)

Finally, proposition 7 simply states that taxes were kept low. This is evidenced by two assumptions. In the first, Hopkins attempts to calculate the minimum gross production of the Roman Empire. We know that the army consumed the majority of tax income and we have exact figures thanks to literary sources. All that is required is a range of percentages in which the military expenditures would comprise of the vast majority of the state’s income. The second factor is that taxes were in competition with rents. The farmer could only be taxed so much, and the empire, relying on the loyalty of local aristocracies, needed to ensure their prosperity by yielding to a low tax rate so that the landowners could charge higher rents. For the model of coin taxes increasing trade to work, it is necessary for taxes to be low enough not to be too much of a burden on peasants, but at the same time to give them incentives to exchange raw goods for coins.

To summarize these 2 important points: the replacement of taxes in coin by taxes in kind in the 3rd century AD is closely connected to decline in trade. Taxes were kept low because of the few services offered by the empire, the small size of the bureaucracy, and competition with rents. This meant there was greater local autonomy, the government received a high return ratio of tax income to administrative costs, but the taxes raised were relatively low for such a developed economy. To increase taxes would mean to clash with the landowning aristocracies of the provinces who profited from lower taxes (applicable to themselves) and higher potential for rents. The aristocrats were also the administrators and officials of their community, and that meant they were the tax collectors. The peasants paid a lot more for a similar plot of land than landowners and frequently could not appeal injustices to the emperor, but the emperor could not afford to clash with the aristocrats. A corollary of this is that the lower rate of taxes meant a smaller bureaucracy to effectively supervise tax collecting, again to the detriment of farmers and peasants. The government therefore had to find an alternative to taxation. In the case of emergencies, this meant spend reserves, confiscate from or kill the rich, or raise taxes. But more income was required not only in emergencies, expenditures were always rising. The only alternative was the policy of debasement, begun in around 50 AD, which caused the collapse of the Roman economy about 200 years later.

The results were insufficient volume of coinage in the economy, soldiers and administrators were paid more with goods than in coins, and in some cases exacted a tax on the people when the government was short of funds. This was a further breakdown as the central government’s control on tax collecting began to weaken. The economy continued to spiral downwards, less and less middlemen, merchants and money lenders, were available to transport resources over large spaces. The Roman state hit rock bottom when the empire was divided between several generals who formed governments and controlled their region until the reign of Diocletian. Diocletian also attempted to reverse the economic downturn, but with only partial success.

As far as peasants were concerned, the local realities remained similar. The economy remained a subsistent one, peasants continued to consume most of what they produced, but their insecurity further reduced trade in local markets. After this period of upheaval, and when order was restored under Diocletian and Constantine, taxes in kind were the predominant income of the government, and the economy never returned to the levels of trade in the first two centuries AD.

Alone, each of these propositions does not prove a strong network of local markets but together they show definitive interaction between distant parts of the Roman Empire. They show that taxes spirited the growth of once primitive economies and contributed to an age of prosperity not seen in the Mediterranean again for more than a millennium.

Finley, M. I. The Ancient Economy. London : The Hogarth Press, 1985.

Garnsey, P. and Saller, R. The Roman Empire: Economy, Society and Culture. Berkeley :

University of California Press, 1987.

Harl, K. W. Coinage in the Roman Economy, 300 B.C. to A.D. 700. Baltimore : The

John Hopkins University Press, 1996.

Hopkins, K. “Taxes and trade in the Roman Empire (200 B.C. – A.D. 400)” Journal of

Roman Studies 70 (1980) 101 – 125.

Temin, P. “A market economy in the Early Roman Empire” Journal of Roman Studies

91 (2001) 169 – 181.

[Alon]

Appendix I

[Alon]

Appendix II

[Free Capitalist]

Alon, you have an interesting essay.

What sources have you found to be useful about the economy under the Republic (i.e. where did you find that taxes during that era were "very low or nonexistent")?

Also, in your thesis you say that you want to explain why the first 2 centuries AD were called the "High Empire" implying prosperity and high economic activity. But yet in your essay you mention currency devaluation and dilution of percentage of precious metals in coins, which I thought was prevalent during the 3rd and 4th centuries AD, long after the Empire's peak. So I'm not sure how that ties into your thesis, so perhaps you could explain.

[Alon]

FreeCapitalist,

First I would like to point out it isn't an essay but my notes for a presentation I gave. I'd just like to make that clear because as you've noticed, the style is very informal and the notes are not footnoted.

Regarding taxes under the Republic, they are mentioned in either Finley or Harl.

Devaluation of coinage was a constant practice under the Empire, but it was not practiced at an even pace. Under the Julio-Claudians, the silver content was just a few points lower than under the Republic (at around 95%), under Trajan high 80's, and after the Antonines it takes a dive, reaching 40% under the last of the Severans and a mere 2-4% before Aurelian's reform (AD 274).

Thus the effects were gradual and the worst came at the very end of the period I am discussing. Also, other economic factors remained strong, such as the volume of trade. Political factors were also a contribution, matters being fairly peaceful within the Empire. In the 3rd and 4th century the effects of devaluation become obviously apparent, but trade is also in decline and the political situation is deteriorating, military expenditures are far higher.