The Economy of Ancient Rome

[Music] ancient rome was perhaps the most significant ancient civilization to have existed throughout history the Empire lived for over 1,000 years and in that time it gave us the foundations for our modern society democracy a court based legal system Latin languages in the alphabet three-course meals and perhaps it was one of the first modern economies to move beyond a simple agrarian Empire and develop things like modern banking lending taxation and yes even financial crises as we know them today in the same way that scholars will study a dead language like Latin to discern the foundations of meaning in modern dialects economists can study the histories of ancient civilizations like Rome to determine basic economic functions in a time before modern financial systems could skew results and Rome was perhaps the most developed case study that we could look at amongst all of this though it must be remembered that Rome and the entire ancient world was extremely poor we think of Rome in our minds a caster scenes from gladiator with huge spectacles and emperors and nobility draped in untold riches but the reality was pretty different from what we might imagine and this is great it gives us a point of reference to understand how our modern society has developed into the globalized world that we take for granted today and it may give us some insight into what a future economy may hold and finally a huge disclaimer is that of course Rome was an empire of Empires the nation spanned over more than 1,000 years hundreds of rules and even capital cities moved around more than once so exploring the economy of ancient Rome would be like exploring the economy of the United States and assuming that Jamestown was being developed at the same time high-frequency trading was taking place in New York which is of course very very silly so instead it is important to understand that Rome and its economy as an evolving system that grew and decline the same way that any other economy is destined to today so with that out of the way let start with the fun stuff that is central to any functioning economy Benjamin Franklin famously said that there is no guarantee in life apart from death and taxes and perhaps this tongue-in-cheek expression did not take into account the many societies that have existed throughout history without direct taxation but that's a story for another time what does matter is that one of these central drivers of Rome's success and longevity was the skill that they employed in levying taxes today taxes are something that we take for granted but even in our modern world filled with automated record-keeping electric banking and instant communication levying taxes is extremely difficult and takes the work of huge government organizations with thousands of workers to effectively process thing and even then mistakes and oversights are made now partially this is probably due to how many different types of taxes we have there are big ones like income and company tax but there is also gasoline taxes sales taxes liquor taxes import taxes candy tax the list is pretty exhaustive but at the beginning of rome's reign they alleviated a lot of this difficulty by focusing on one select type of tax which was actually one of the only types of taxes to not exist in most modern nations today and that is a wealth tax at the start of the empire the nation was little more than a small spit of land on the italian peninsula centered around what would go on to be the city of rome because of this relatively small size and because they lacked any alternatives rome was able to levy taxes from the wealth of its citizens the people that were worth taxing were predominantly landowners the government would send representatives out to their estates to basically tally up their net worth the same way that we would today all of their assets from their land to their buildings livestock gold reserves slaves yes mate they were assets back then and anything else of note was given a cumulative value and a would be taxed upon that normally this tax was around 1% of the net worth of every land owning individual within the nation this would in turn go towards funding basic roads markets and infrastructure but primarily it was a protection racket pay us these taxes or we will take your land away because well we are the ones with the huge army now this sounds mean but in reality most landowners were relatively happy to pay these taxes because it also meant that they could call on the well-established military if anybody else tried to invade because well the Italian peninsula at this time was a little bit cozy beyond this a wealth tax was a pretty ideal arrangement for this type of society not many people had jobs as we know them today where you had a single task for a set amount of hours and you would earn a set amount every year which means taxing them a set amount of their income was going to be pretty difficult so a wealth tax was easier for starters it was also much much harder to hide if you wanted the roman government to defend your claim on some land or livestock or whatever you would need to report it and pay taxes on it but beyond that the taxes you paid effectively determined your rank in society wealthy individuals did of course have to pay more at the end of every year but they would in turn also be given more senior positions within the Roman military which at this time was a pretty big deal so for all of these reasons this system worked well for a very very long time but eventually of course the Roman Kingdom became well an empire spanning across most of Europe at this point they needed a better system of collecting taxes as Rome's military grew in size and their penchant for conquest grew along with it the Empire started claiming more and more territories and very quickly it came to a point where their old system would no longer work over an empire as vast as the one that they were ruling over the wealth tax was great on a small scale but at the height of the Empire most of the land was conquered land and most citizens were the conquered they didn't necessarily share the same positive outlook on paying a portion of their wealth back to the capital to fuel a military that was the same military that actually conquered them so what happened instead was that the Empire was broken up into territories with relatively independent governments put in charge of managing the function of these individual states taxes were then to be collected by these states with a healthy portion returned back to Rome the effective collection of these taxes was another matter all-together because the Roman nobility was relatively smaller number compared to the conquered populations the Romans basically privatized tax collection for every region Roman officials would work out how much tax they wanted to extract richer regions like the East would require higher taxes than regions in the north for example once a figure was decided on Rome would basically auction off the rights to tax this region private contractors would bid for the right and the highest bidder was selected the winning contractor would then pay the Roman government upfront and get their money back by going out and levying taxes on the citizens of the individual regions these contractors still had to follow the rules on what could be rightfully taxed but they would often bring the muscle to a region to extract these taxes without requiring the intervention of a standing Roman army of course it was not a perfect system for example privatizing tax collection - what amounted to a mercenary organization was a hotbed for corruption surprise surprise but the policymakers in central Rome were not overly concerned they got their money up front to fund their Grand cities and keep their army operating so that they could continue to command unparalleled influence in the region and the best part is they didn't even have to worry about the administration themselves now this sounds a lot like ancient colonialism a wealthy militaristic nation claims foreign land and extracts the wealth of the conquered nations back to their capital to build an ever increasing military to repeat the cycle all over again similar in many ways to the British or the Dutch and the Spanish colonies of more modern history and this was sort of true in a very limited capacity but it wasn't the whole story Rome expanded its influence through conquest no doubts there but life and the Empire wasn't necessarily that bad for people that accepted Roman rule in exchange for the taxes they levied Rome would build roads and infrastructure throughout these states now this was partially to cement their claim to the land but served a dual purpose of opening up these regions to trade with other areas within the Empire beyond that these areas got to fly the flag of Rome which sounds like a bad thing but in reality it was a warning sign to the rest of Europe that hey don't mess with us because we have the largest army on earth sitting behind us for this level of protection and the trade that was facilitated these taxes were a reasonably fair price to pay for most citizens at most points throughout the history of Rome on the part of the central Roman government this was a win-win for them as well these areas were Rome and the prosperity of these regions was by extension the prosperity of the empire this probably had a lot less to do with colonialism as we know it and was in a sense a lot like a franchise model an independent entity would come under the banner of a unified institution they would pay fees out of their own profits for being part of that institution and in return they got the security reputation and collective industrial power of the larger institution now of course McDonald's doesn't expand its restaurant portfolio by sending its legionaries to invade the local Dirty Bird but the similarities are otherwise pretty striking so whatever you call it the Roman model did adapt over time and was incredibly effective at ruling over a vast Kingdom with minimal need for local administrators but despite all of this the nation even at its height was not nearly as wealthy as most people assume Rome was at the time a very powerful Empire and home to a very very developed economy but it must be remembered that throughout all of this empires history China and India were wealthier this wasn't necessarily the fault of the Romans they were a more advanced civilization it's just that advancements didn't mean as much as they did today Rome had a robust banking system widespread trade routes fiat currencies and a lot of other stuff that sounds incredibly modern but it was just an agrarian civilization which meant that despite all of these advancements it was still ultimately limited by how much food it could grow a vast majority of the Roman population worked in agriculture in an attempt to ensure that the Empire swelling population could be fed which meant that because China and India just had better farmland and larger populations they were wealthier economies it sounds so strange to us in the modern world because farmland has fallen by the wayside in determining the wealth of nations in our modern world countries like Canada Australia or Saudi Arabia can be very very wealthy and powerful despite having very very limited farmland because we live in a world of abundant food production they can just trade their industrial capacity for food production and it's a win-win over all in ancient Rome despite all of their other advancements they were still a population limited by food centered around a peninsula that has legendarily terrible soil of course trading helped with this dilemma but even still the total GDP of ancient Rome at the height of its empire was only around 32 billion u.s. dollars a year at today's currency rate by extension these also meant that Rome had a GDP per person of 527 dollars making it poorer than every single country on Earth today now we have explored the issue of massive wealth disparities between the modern industrial world that we live in today and the agrarian world that existed prior to the Industrial Revolution before on this channel we even took it one step further and use this to determine the wealth of future civilizations like the Star Wars galaxy but the reason it is so important for ancient Rome is that it gives us a clear case study of what a world would look like if we had remarkably modern financial systems but that went without the modern technology that we take for granted today Rome throughout its history adopted banking systems that were surprisingly modern in nature and we used to fund things like Wars and construction projects banks as we know them today really took off in the Empire and a robust system of accounting was implemented such that people could keep their wealth in banks rather than needing to hoard it themselves this was incredible in and of itself but perhaps more curiously it may have led to one of the first economic downturns in history an economic downturn which was just so eerily similar to the downturns that we see today financial crises as we know them today look to be a result of our modern financial system and particularly the system of debt reliance that a lot of our modern economies are based on we have things like the debt cycle model that shows that we are more or less destined to go into a crisis every decade or so what causes these crises are normally an over leveraged society with too much debt and then some kind of external shock that brings the whole thing crashing down for example we are probably living through something pretty similar to that right here right now in 2020 fortunately for Rome its reliance on debt was normally not quite as heavy throughout its years but it did build up more and more as more developed banking became more widespread by the time Jesus was out doing his thing in the world switched its clocks over from BC to AD the via sacra a thoroughfare in the heart of Rome was the ancient equivalent of Wall Street a bustling marketplace lined with merchants and banking houses these institutions move money all over the empire and operated as a bastion of fortune for wealthy merchants senators and emperors but they were fractional reserve entities they loaned out the money that was kept with them in the hopes that it would be returned with interest before too many people actually came to withdraw their money sounds risky but they figured so long as they kept a healthy reserve of currency they should be alright because most people just tend to leave their money in the bank and forget about it and they were right up until a few key things went very very wrong the year 33 ad was not a great time for the empire it was under the rule of arguably one of the better emperors at the time empro Tiberias but despite his best efforts there were a few key events that were going wrong agriculture had been on decline for many many years due to a run of bad weather there were earthquakes and riots and some of the colonies and to top it all off three ships that were carrying a significant amount of gold for one of the banking houses were sunk in the Red Sea taking down with them a large portion of the bank's operating capital I suppose one benefit of modern banking is that goldman sachs share portfolio can't be lost at sea anyway these problems had meant that many more people had taken on debt to remain functional during these more pressing times and that would normally have been fine given how conservative lending was in the ancient world but it had become increasingly more and more speculative as the banking houses sought ever greater profits what kicked it all off though was falling land prices on the Italian peninsula in an effort to maintain these prices the emperor decreed that all senators in Rome must have at least one-third of their wealth invested into land within the space of 18 months at this time it must be noted that Roman senators were rich they were basically one step below Emperor the equivalent of modern billionaires funneling that kind of money into land that quickly required some pretty big withdrawals of course the banks at the time had been lending more and more of their reserves out into dodgy investments or sinking ships so they didn't actually have that much left in their vaults so when the Senators came knocking they basically had to shut their doors this is called a bank run the bank's responded by calling in all of their debts all at once which caused even more issues people were desperate for cash which quickly made it one of the most valuable things to be holding on to and had the opposite effect of what the emperor originally intended people that needed to suddenly repay their loans had to sell their land and assets meaning that these goods dropped in price this is just deflationary pressure on the economy and it's super bad and the solution was surprisingly modern it was quantitative easing the Emperor instructed the Treasury of Rome to distribute 100 million sesterces to trusted banks of Rome this was the equivalent of about two billion dollars today and remember this was in an economy with a GDP of only around 30 billion this money came with stipulations that it had to be lent out to the people in negative money for no interest and they could only get it if they put up double the value of the land as a security so no more risky loans they also had to keep a certain amount of it on hand for depositors which is what we know today as reserve requirements and eventually of course all of the money that was lent to the moneylenders was to be returned back to the Treasury getting money back out into the economy meant that people weren't so desperate to hoard cash because there was war going around and they didn't need to sell their assets because if worse came to worst they could easily just go out and get a nice interest-free loan without even realizing it the Roman government had effectively created a quasi central bank and went through a process of quantitative easing sixteen hundred years before anybody else thought hey this may be a good idea now I would love to say that Rome lived happily ever after but the eventual successor to Tiberius was a lovely young man called Caligula the economics of ancient Rome is often something that is neglected in the rich history of the empire that stood for a thousand years and I mean to most people it probably isn't as exciting as wars of conquest or ancient palaces filled with excess of every kind or Russell Crowe fighting to the death in the Coliseum but it may very well be more important to understanding the history of the Empire than any of these other more exciting things could have been the stories that remain of ancient Rome have been told over and over again in the history books but they tend to focus on points of vibrant conflict or political intrigue in reality if you do really want to understand a society you are best off learning about the mundane realities before the epic tales economics is a social science and if you understand the economics of a nation a time period or even an empire you will go some way to understanding the people that made it up in return looking at civilizations that came before can tell us a lot about our modern world its economy what our banking system is based on and what our future may hold hi guys thanks for watching if you did enjoy the latest video please consider liking and subscribing if you really enjoyed please consider supporting the channel on patreon like these lovely people did it helps to make these kinds of videos possible I also want to hear your opinions on the subject which you can share on our Q&A session which is hosted on our second channel linked in the video description or our discord server which is also linked in the video description thanks guys bye

Channel: Economics Explained

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Keywords: the economy of ancient rome, the economics of ancient rome, the economic policies of ancient rome, the economics of rome, the economics of ancient rome explained, the economy of ancient rome explained, ancient rome economics explained, ancient rome economy explained, roman empire economics explained, roman empire economy, the economics of the roman empire, the economy of the roman empire, roman empire economy explained, ancient roman economy, economics explained

Id: XMYruhJb8e0

Length: 21min 50sec (1310 seconds)

Published: Sun Apr 26 2020

Reddit Comments

[u/XonixIRE]

Great video thank you! Money printer goes Brrrrr!