Economic policy in ancient Rome, Part II Jude Wanniski March 19, 1999

This is the second and concluding part of Bruce Bartlett's essay on Economic Policy in Ancient Rome, which he has given me permission to use at SSU as a guest lecture. Part I ended with a discussion of the Emperor Pertinax, who was good enough to remit the oppressive taxes laid on Rome by his predecessor, Commodus.

State Socialism

Unfortunately, Pertinax was an exception. Most emperors continued the policies of debasement and increasingly heavy taxes, levied mainly on the wealthy. The war against wealth was not simply due to purely fiscal requirements, but was also part of a conscious policy of exterminating the Senatorial class, which had ruled Rome since ancient times. Increasingly, emperors came to believe that the army was the sole source of power and they concentrated their efforts on sustaining the army at all cost.

Average people also suffered. As the private wealth of the Empire was gradually confiscated or taxed away, driven away or hidden, economic growth slowed to a standstill. Moreover, once the wealthy were no longer able to pay the state's bills, the burden inexorably fell onto the lower classes, who also suffered from deteriorating economic conditions. In Rostovtzeff's words, "The heavier the pressure of the state on the upper classes, the more intolerable became the condition of the lower." At this point, the money economy completely broke down. Yet the military demands of the state remained high. Rome's borders were under continual pressure from Germanic tribes in the North and from the Persians in the East. Moreover, it was now explicitly understood by everyone that the emperor's power and position depended entirely on the support of the army. Thus, the army's needs required satisfaction above all else, regardless of the consequences to the private economy.

With the collapse of the money economy, the normal system of taxation also broke down. This forced the state to directly appropriate whatever resources it needed wherever they could be found. Food and cattle, for example, were requisitioned directly from farmers. Other producers were similarly liable for whatever the army might need. The result, of course, was chaos, dubbed "permanent terrorism" by Rostovtzeff. Eventually, the state was forced to compel individuals to continue working and producing.

The result was a system in which individuals were forced to work at their given place of employment and remain in the same occupation, with little freedom to move or change jobs. Farmers were tied to the land, as were their children, and similar demands were made on all other workers, producers, and artisans as well. Even soldiers were required to remain soldiers for life, and their sons compelled to follow them. What remained of the upper classes were compelled to provide municipal services, such as tax collection, without pay. And should tax collections fall short of the state's demands, they were required to make up the difference themselves. This led to further efforts to hide whatever wealth remained in the Empire, especially among those who still found ways of becoming rich. Ordinarily, they would have celebrated their new found wealth; now they made every effort to appear as poor as everyone else, lest they become responsible for providing municipal services out of their own pocket.

The steady encroachment of the state into the intimate workings of the economy also steadily eroded growth. The result was increasing feudalization of the economy and a total breakdown of the division of labor. People fled to the countryside and took up subsistence farming or attached themselves to the estates of the wealthy, which operated as much as possible as closed systems, providing for all their own needs and not engaging in trade at all. Meanwhile, much land was abandoned and remained fallow or fell into the hands of the state, whose mismanagement generally led to a decline in production.

Diocletian

By the end of the third century, Rome had clearly reached a crisis. The state could no longer obtain sufficient resources even through compulsion and was forced to rely ever more heavily on debasement of the currency to raise revenue. By the reign of Claudius II Gothicus (268-270 A.D.) the silver content of the denarius was down to just 0.02 percent. As a consequence, prices skyrocketed. A measure of Egyptian wheat, for example, which sold for 7 to 8 drachmaes in the second century now cost 120,000 drachmaes! This suggests an inflation of 15,000 percent during the third century.

Finally, the very survival of the state was at stake. At this point, the Emperor Diocletian (284-305 A.D.) took action. He attempted to stop the inflation with a far-reaching system of price controls on all services and commodities. These controls were justified by Diocletian's belief that the inflation was due mainly to speculation and hoarding, rather than debasement of the currency. As he stated in the preamble to his edict of 301 A.D.:

For who is so hard and so devoid of human feeling that he cannot, or rather has not perceived, that in the commerce carried on in the markets or involved in the daily life of cities immoderate prices are so widespread that the unbridled passion for gain is lessened neither by abundant supplies nor by fruitful years; so that without a doubt men who are busied in these affairs constantly plan to control the very winds and weather from the movements of the stars, and, evil that they are, they cannot endure the watering of the fertile fields by the rains from above which bring the hope of future harvests, since they reckon it their own loss if abundance comes through the moderation of the weather.

Despite the fact that the death penalty applied to violations of the price controls, they were a total failure. Lactantius, a contemporary of Diocletian's, tells us that much blood was shed over "small and cheap items" and that goods disappeared from sale. Yet, "the rise in price got much worse." Finally, "after many had met their deaths, sheer necessity led to the repeal of the law."

Diocletian's other reforms, however, were more successful. The cornerstone of Diocletian's economic policy was to turn the existing ad hoc policy of requisitions to obtain resources for the state into a regular system. Since money was worthless, the new system was based on collecting taxes in the form of actual goods and services, but regularized into a budget so that the state knew exactly what it needed and taxpayers knew exactly how much they must pay.

Careful calculations were made of precisely how much grain, cloth, oil, weapons or other goods were necessary to sustain a single Roman soldier. Thus, working backwards from the state's military requirements, a calculation could be made for the total amount of goods and services the state would need in a given year. On the other side of the coin, it was also necessary to calculate what the taxpayers were able to provide in terms of the necessary goods and services. This required a massive census, not only of people but of resources, especially cultivated land. Land was graded according to its productivity. As Lactantius put it, "Fields were measured out clod by clod, vines and trees were counted, every kind of animal was registered, and note taken of every member of the population."

Taxable capacity was measured in terms of the caput, which stood for a single man, his family, his land and what they could produce. The state's needs were measured in terms of the annona, which represented the cost of maintaining a single soldier for a year. With these two measures calculated in precision, it was now possible to have a real budget and tax system based entirely on actual goods and services. Assessments were made and resources collected, transported and stored for state use.

Although an army on the move might still requisition goods or services when needed, the overall result of Diocletian's reform was generally positive. Taxpayers at least knew in advance what they were required to pay, rather than suffering from ad hoc confiscations. Also, the tax burden was spread more widely, rather than simply falling on the unlucky, thus lowering the burden for many Romans. At the same time, with the improved availability of resources, the state could now better plan and conduct its military operations.

However, maintaining this system also meant that the system of tying people to their land, home, jobs and places of employment had to be maintained in order to allow for accurate assessments and budgeting. Here again, Diocletian transformed the previous ad hoc practice into a regular system. Workers were organized into guilds and businesses into corporations called collegia. Both became de facto organs of the state, controlling and directing their members to work and produce for the state.

The Fall of Rome

Constantine (308-37 A.D.) continued Diocletian's policies of regimenting the economy, by tying workers and their descendants even more tightly to the land or their place of employment. For example, in 332 he issued the following order:

Any person in whose possession a tenant that belongs to another is found not only shall restore the aforesaid tenant to his place of origin but also shall assume the capitation tax for this man for the time that he was with him. Tenants also who meditate flight may be bound with chains and reduced to a servile condition, so that by virtue of a servile condemnation they shall be compelled to fulfill the duties that befit free men.

Despite such efforts, land continued to be abandoned and trade, for the most part, ceased. Industry moved to the provinces, basically leaving Rome as an economic empty shell; still in receipt of taxes, grain and other goods produced in the provinces, but producing nothing itself. The mob of Rome and the palace favorites produced nothing, yet continually demanded more, leading to an intolerable tax burden on the productive classes. A good example from this period is Pamonthius, an Egyptian wine dealer, who:

being long importuned by the magistrates of his native place with exactions beyond his means, and having for this reason borrowed a great sum of money, and being asked for this and not being able to meet his liabilities, he was compelled by his creditors to sell all that he had, even to the garments that cover his shame; and when these were sold, scarcely could he get together the half of the money for his creditors, who, those pitiless and godless men, carried off all his children.

In the fifty years after Diocletian the Roman tax burden roughly doubled, making it impossible for small farmers to live on their production. This is what led to the final breakdown of the economy. As Lactantius put it:

The number of recipients began to exceed the number of contributors by so much that, with farmers' resources exhausted by the enormous size of the requisitions, fields became deserted and cultivated land was turned into forest.

Although Constantine made an effort to restore the currency, subsequent emperors resumed the debasement, resulting in renewed price inflation. Apparently, Emperor Julian (360-63 A.D.) also refused to believe that the inflation was due to debasement, but rather was caused by merchants hoarding their stores. To prove his point, he sent his own grain reserves into the market at Antioch. According to Gibbon:

The consequences might have been foreseen, and were soon felt. The Imperial wheat was purchased by the rich merchants; the proprietors of land or of corn withheld from the city the accustomed supply; and the small quantities that appeared in the market were secretly sold at an advanced and illegal price.

Although he had been warned that his policies would not lower prices, but rather would exacerbate the shortage, Julian nevertheless continued to believe that his policy worked, and blamed complaints of its failure on the ingratitude of the people. In other respects, however, Julian was more enlightened. In the area of tax policy, he showed sensitivity and perception. He understood that the main reason for the state's fiscal problem was the excessive burden of taxation, which fell unequally on the population. By now, the wealthy effectively were able to evade taxation through legal and illegal measures, such as bribery. By contrast, the ordinary citizen was helpless against the demands of the increasingly brutal tax collectors.

Previous measures to ease the tax burden, however, were ineffective because they only relieved the wealthy. Constantine, for example, had sought to ease the burden by reducing the number of tax units--caputs--for which a given district was responsible. In practice, this meant that only the wealthy had any reduction in their taxes. Julian, however, ensured that his tax reduction was realized by all the people by cutting the tax rate. He also sought to broaden the tax base by abolishing some of the tax exemptions which many groups, especially the wealthy, had been granted by previous emperors.

Nevertheless, the revenues of the state remained inadequate to maintain the national defense. This led to further tax increases, such as the increase in the sales tax from one percent to 4.5 percent in 444 A.D. However, state revenues continued to shrink, as taxpayers invested increasing amounts of time, effort and money in tax evasion schemes. Thus even as tax rates rose, tax revenues fell, hastening the decline of the Roman state. In the words of Bernardi:

A dangerous vicious circle comes into action. Increased state expenditure on the army, the bureaucracy, in welfare state commitments brought about a continual unbearable tax pressure. Tax pressure grew heavier and the tendency to evasion--illegal or legitimate--on the part of high officials and large landowners, was increased. Evasion on the part of the potentiores [large land owners] was increased and the pressure of taxation came to be concentrated on the middle-classes, automatically bringing about a redistribution of wealth distinctly in favor of those classes that in one way or another refused to pay tribute to the State. This vicious circle could lead to only one result, that which clearly shows itself in the course of the fifth century. The bankruptcy of the enormous State at the same time as small privileged groups, while they evade taxation, heap up riches and create around their villas economic and social microcosms, completely cut off from the central authority.

In short, taxpayers evaded taxation by withdrawing from society altogether. Large, powerful landowners, able to avoid taxation through legal or illegal means, began to organize small communities around them. Small landowners, crushed into bankruptcy by the heavy burden of taxation, threw themselves at the mercy of the large landowners, signing on as tenants or even as slaves. (Slaves, of course, paid no taxes.) The latter phenomenon was so great and so injurious to the state's revenues, in fact, that in 368 A.D. Emperor Valens declared it illegal to renounce one's liberty in order to place oneself under the protection of a great landlord.

In the end, there was no money left to pay the army, build forts or ships, or protect the frontier. The barbarian invasions, which were the final blow to the Roman state in the fifth century, were simply the culmination of three centuries of deterioration in the fiscal capacity of the state to defend itself. Indeed, many Romans welcomed the barbarians as saviors from the onerous tax burden. Although the fall of Rome appears as a cataclysmic event in history, for the bulk of Roman citizens it had little impact on their way of life. As Henri Pirenne has pointed out, once the invaders effectively had displaced the Roman government they settled in to governing themselves. At this point, they no longer had any incentive to pillage, but rather sought to provide peace and stability in the areas they controlled. After all, the wealthier their subjects the greater their taxpaying capacity.

In conclusion, the fall of Rome was fundamentally due to economic deterioration resulting from excessive taxation, inflation and over-regulation. Higher and higher taxes failed to raise additional revenues because wealthier taxpayers could afford to do what was necessary to evade such taxes while the middle class--and its taxpaying capacity--were exterminated. Although the final demise of the Roman Empire in the West (its Eastern half continued on as the Byzantine Empire) was an event of great historical importance, for most Romans it was a relief.