So apparently a lot of people constantly think of Rome, and by the numbers alone it's hard to see why. Rome was not the largest empire to ever exist, it also wasn't the oldest, longest lasting, most globally dominant, or even the most innovative. Even still the influence of this loosely defined region and time period is still felt in our own modern economies hundreds of years later. Now a lot of that may be down to chance, Rome mostly dominated Europe and was gradually replaced by nation states that in one form or another still exist today. Nations that in turn became globally dominant in their own right through colonialism and industrialization all played a part in establishing what would go on to be the USA, which is the most economically dominant country in history. The USA, whether it would like to admit it or not, took a lot of lessons from the European nations that established a western presence there, and those European nations took a lot of lessons as breakaway states of the Roman empire, which it must be recognized took a lot of lessons from the empires that came before it. There is a reason that the white house and the US capitol building, arguably the symbols of political power and the most powerful country in the world, look awfully familiar to architecture from 3,000 years ago. The point is, being dominant in a region that would go on to be even more dominant is a great way to get an empire's history remembered over others that are in many ways arguably far more remarkable, but that's an argument for actual historians or architects. The reason we're here of course is to explore the economic legacy that this line of historical hand-me-downs has had on our modern world as even though economists can't predict the future, there are still a lot of concerning lessons to be learnt from the past. Despite just being really interesting, ancient Rome as an economic case study can reveal a lot about a lot of our modern world and also add the perspective that despite its incredible power and influence that has literally rippled through time, even at its peak it was probably only comparable in wealth and industrial might to countries like Uganda, Bolivia or Nepal, and even that might be optimistic. So, what is it that made the Roman economy so influential on our modern economic systems? What can it teach economists about the fundamentally limited nature of limitless growth? And finally, if our own economies have borrowed so much from this ancient empire, are we doomed to repeat the same mistakes? Once we've done all of that, we can put ancient Rome on the economics explain leaderboard. Yes, we've heard you and we got rid of the word national so that we can have a bit more fun with it in the new year. If you're a bit of a scatterbrain like me, you might have hundreds of browser tabs open at a time and it can feel just very disorganized. That's why I was so glad I discovered the Opera browser, who we've partnered with for this video. Their browser's tab islands are a lifesaver. I can separate my work on different video scripts into groups of tabs so I don't get lost clicking around through dozens or sometimes hundreds of disconnected sites trying to work out what I was looking for. On top of that, it has an integrated AI called ARIA that just makes finding what I need so much faster. 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Now before we get into it, we need to clarify that talking about the economy of Rome without specifying a time period is like talking about the economy of the USA without specifying if it's the USA post-civil war or the USA post-dotcom bubble. The Roman Empire in one form or another lasted almost 2000 years up until as late as the 1800s, but for the sake of simplicity, we'll be looking at the time period of around 100-200 AD, the height of the empire at least from a territorial perspective. Now with that out of the way, it might not even matter, because whatever year is selected, the economy of Rome was kind of pathetic, at least by today's standards. Now that might sound hard to believe, since the empire is normally depicted as an all-powerful force that dominated its area of the world and created splendorous wealth, at least for its elite citizens. But the reality is that it was mostly an agrarian state with very little industry, and its economy reflected that. Working out the total economic output of a country, even today with the benefit of modern record-keeping standards and large international organizations that commit to doing the research that need to come up with these numbers, is hard enough. Working out the GDP of a 2000-year-old empire that kept comparatively few records and had no independent oversight based on decayed relics is another challenge entirely. But Raymond W. Goldsmith, who was a legendary economist and historian, made about the best attempt that any economist has ever been able to. He estimated that the Roman empire had a GDP per capita of around the equivalent of 1000-1277 US dollars in today's money, which would make it a desperately poor economy, well below the global average today, with most of its people living in absolute poverty. Collectively, that is a total economic output of around 50-60 billion US dollars, which would also make it a very small economy. GDP, or gross domestic product, is a measurement of how much stuff an economy produces for itself in a given year. But there are two general ways to calculate this number, from the production side, or from the consumption side. Theoretically, it is possible to measure GDP by taking records of every single final good or service that rolls off a production line, gets constructed, or is performed by a worker in an economy. The problem of course is that this would be incredibly difficult to do accurately, because it would involve having a record taken of all of these different events, which happens millions of times a day in any given country around the world. If a nation really did try to measure its economic activity this way, then a large part of its economic activity would just be measuring its economic activity, not really a great outcome all things considered. That's why in the real world, the way that most output figures get measured is by using demand rather than supply. If something of value is made in an economy, it will be demanded by some economic participant. Even things that are made and not immediately sold are counted as an investment made by a business, because in the end the hope would be that those goods could be sold to a consumer, which means that while they are waiting to be sold they count as inventory, which is an asset. If something is produced and not demanded by anyone at any price, then it has no value and the production of that good shouldn't have been counted anyway. Total demand, or aggregate demand as some economists will say, is far easier to measure because every time anybody in a modern advanced economy purchases something, legally at least, there is a record kept for taxation and accounting reasons. Those records can be easily collected by economists and used to construct economic metrics like GDP. Now of course, Roman W. Goldsmith and the other economists that came after him attempting to calculate the GDP, or total economic output, or aggregate demand of the Roman Empire didn't have these data points available to them, but they could still use the same basic techniques. By looking at how much wheat was consumed by the average Roman citizen according to records, they could piece together output figures for other produced goods like foodstuffs, construction projects, and natural resource extraction. They could also look at this from the production side by measuring the average gold mine in the empire and working out how much output that equated to in simple adjusted economic terms. The result was that most Romans lived hand to mouth and wealth was determined primarily by how good the harvest was that year. By global standards at the time, Romans enjoyed a higher quality of life than most people thanks to some investments into infrastructure and some surprising agricultural technologies, but by modern standards even the elites would live far poorer lives than anybody lucky enough to be alive watching this video. This relative poverty leads to an interesting rabbit hole of questions that truly demonstrates just how much of a miracle our modern world really is. So to begin with, why was the ancient world so poor? To produce economic output, an economy needs the factors of production, land labor, and capital. We've mentioned this a lot so I don't want to repeat too much here, but for new viewers of the channel, capital in economics is just a jargony way of describing stuff that helps make stuff. A hammer is capital, the computer that people work on is capital, a truck is capital, the road network is capital, and some economists even consider things like well-protected borders and a robust education system as capital because they are things that help an economy make things. Now producing anything in an economy will increase total economic output or GDP, but it will also require some combination of all three of these factors of production. A factory with the best workers in the world is no good without land to put it on, the richest mines with state-of-the-art drilling equipment are no good without miners, and the most fertile farmlands in the world with skilled farmers are no good without farming equipment and seeds to plant a crop. At the height of its empire, Rome had a lot of manpower, between 50 and 80 million people in total that could work in the nation's industries. It also had a lot of land, great land that was very arable and full of the resources that mattered at the time, and also land surrounding the mediterranean, which was great for fishing and trade and transport. What it lacked was capital. The roman empire basically had nothing that could leverage the work of individual humans. Most of the population was dedicated to farming because most of the population needed to be dedicated to farming. The average farmer at the time working with hand tools and a primitive understanding of weather patterns and no fertilizers could only cultivate just enough food to feed themselves with a bit left over to contribute towards society so that a small group of other people could focus on building great monuments or philosophizing or living lives of ancient extravagance. A modern farmer today using tools like fertilizers, harvesting equipment and weather mapping can individually produce enough food for themselves and thousands of other people, which means most people in our modern economies don't have to spend their time farming, and they can instead focus on other things including innovating to make everybody else more efficient. The roman empire had more capital than most empires at the time, and some of their tools and infrastructure projects were downright impressive, but something like the roman aqueduct was an engineering marvel at the time, which represented a significant investment of economic resources for the empire. Today basically every town in the western world has something that does exactly the same thing, a water system, and it's not considered a marvel, it's considered an expectation. A lack of tools and technology also explains something that is vitally important to understand about our own modern economies. Everybody watching this video right now is probably economically wealthier than even the greatest emperors of Rome. Now on the surface that might look like a crazy statement, but on the opposite side of economic production there is economic consumption. A roman emperor would obviously have access to more goods and services that required land and labor, but far less of the goods and services that required capital, and that's most things that we really enjoy in the modern world. We have access to foods from all around the world, information at our fingertips, transportation that can take us basically anywhere on earth in less than a day, healthcare that can turn what would be a life-threatening injury in ancient Rome into a minor inconvenience, and even things like air conditioning, lighting, refrigeration are conveniences that most of the modern world takes for granted that would have been unimaginable to roman emperors. Now of course personal fulfillment is not a consumption number. Economists can and should consider things like Maslow's hierarchy of needs when comparing the wealth of two groups, which are as wildly different as a modern global citizen and roman emperors. Maslow's hierarchy of needs ranks things that humans consume in order to achieve various desires. At the very bottom of the hierarchy there are goods and services that fulfill the rather essential desire of staying alive, and towards the top there are things that make people feel good, or important, or proud. Now Maslow's hierarchy of needs is just one of, albeit the most famous example of these frameworks, but even by breaking it down and looking at each individual level, people today do much better than even the wealthiest people from ancient times. There's probably something to be said about feeling wealthier when you have the self-actualization perks of being able to rule over a sprawling empire, but outside of housing we have more tangible real economic wealth. Even housing itself. An ancient roman palace might sound nice, but I personally wouldn't trade it for my two-bedroom townhouse with electricity, plumbing, and the internet. Now even if that's not convincing, there are statistical correlations that can show the scale of wealth that we enjoy today in the west, and the easiest one to look at is life expectancy. There is a very strong correlation between economic wealth and life expectancy. This exists between individuals, countries, and even suburbs within the same city. This correlation is in a certain way almost self-evident, as the most valuable thing that we have as humans is our life. But before we get too philosophical, a regular roman citizen had a life expectancy of around 20 to 30 years depending on the exact time period and region within the empire where they lived. Now that was brought down a lot by infant mortality, but even still only around 20% of people reached the age of 50. Emperors been far wealthier fared better, and according to historians had a life expectancy of around 50 years. Even accounting for deaths on the battlefield or the far more common assassination, most emperors struggled to reach what we would now consider old age. This data also ignores infant mortality, because if a baby died in childbirth, or at an extremely young age, they wouldn't become emperor. So yeah, Rome for all of its historical significance was incredibly poor all the way to the top. It was poor because it just couldn't produce as much of the stuff that we take for granted today, and it couldn't produce as much stuff because it didn't have the tools and technology to allow its workers to produce more stuff. So almost everybody spent most of their productive time trying to make enough food to survive with just a little bit left over going to contribute to the wealth of the empire. So the last question is then, why didn't Rome develop capital? Economists may not be able to predict the future, but they also can't predict alternative pasts. That being said, what was the reason that Europe in the 17th century was able to kick off the industrial revolution, but the larger and in many ways more advanced Roman empire remained primarily agrarian for thousands of years? Of course the same question could be asked of every empire that didn't create machinery to reshape our modern world, but for now we are going to focus on Rome. In the case of Rome though, there wasn't much incentive to. They had immense manpower, some of which was made up of regular workers, and a lot of whom were slaves, so early iterations of things like steam engines, which they did have, were seen as little more than a gimmick. Europe at the eve of the industrial revolution actually had a shortage of manpower, so tools that could help one worker do more work was seen as a better investment than just getting an extra worker. Of course there was an element of luck involved as well. Had some Romans stumbled upon piston steam engines and been able to demonstrate the applications of that technology, history may look very different today. Technology like this is also self-reinforcing. Machines that can do the work of field laborers means that more people can work in factories, and more people in factories means more people gaining experience with machinery, and that experience could be shared with other new technologies like the printing press. After thousands of years of almost totally stagnant global economic activity, the compounding effect of new technology took us from toiling in fields, to living lives richer than emperors in the span of a few lifetimes. This shouldn't detract from some of the very real challenges we face in our modern lives, if anything it should add weight to those criticisms. Contented complacence is why we only remember of Rome today. Alright, now it's time to put the Roman empire on the economics explained leaderboard, again using estimates from the peak of the empire in 100-200 AD. Size is something that we've already found to be rather small, again by modern standards. Although even at the time in another corner of the world, the Han dynasty in what would be modern day China, probably had a larger economy overall because farming in that region was more fertile, so it had a larger overall population. And since most economic output in this period was just determined by how many people could farm, it's possible that this empire had the edge. Even still, by modern standards, the best estimates of the Roman empire, with an output of roughly the equivalent of 50 billion US dollars today, would make Rome about the 100th largest economy in the world, in line with countries like Sudan, Jordan, and Uganda. It gets a 5 out of 10. That economic output was spread out over a population of some 50 million people, and again we obviously don't have exact population counts as even the empire at the time probably had no real clue how many people lived within its sprawling borders, but by best estimates this would give the country a GDP per capita of around 1000 US dollars. That would make it one of the poorest countries in the world today, roughly in line with countries like Ethiopia and Rwanda. It would still however put it significantly ahead of places like Somalia and Afghanistan, but that's not necessarily because these places are truly less economically productive, it's just that their industries don't get counted in formal economic figures. So Rome gets a 1 out of 10 for this category. Stability and confidence is alright, all things considered. The empire existed in one form or another for 2000 years, but in that time it was famously plagued by a lot of political power grabs and internal conflicts. Without a lot of modern technology it was also only ever as prosperous as last year's harvest, so it gets a 5 out of 10. Growth effectively didn't exist outside of just adding more people to the empire through conquest. The average Roman citizen was producing just as much economic value at the start of the empire as they were at the end. So it gets a 0 out of 10 because from its peak it only ever lost nominal output. Industry was also basically non-existent. Outside of a few specialised tradesmen and elites who could dabble in science, philosophy and engineering, most people spent most of their lives farming and performing subsistence duties. The empire gets a 2 out of 10, really only propped up by the building industry, which may have been impressive for the time, but would be nothing special today. Altogether that gives Rome an average score of 2.6 out of 10, putting it right down at the bottom of the leaderboard. Which we are sure will make a lot of people very angry, but by modern standards it's hard to put it anywhere else. If you want to see what's happening to the ancestral home of the Roman empire today, we made an entire video last month on the long list of economic challenges that Italy is facing in the modern age, which you can click to on your screen now. Thanks for watching mate, bye.
