Revelations from Rome: Overview of the Ancient Roman Economy
With a trip to Rome planned for this Summer, I thought I would take the opportunity to look at the Ancient Roman economy and compare it to the modern economy. Will there be any similarities or will an ancient economy be totally alien to modern economists? I hope even if you are not interested in ancient history, but just economics, these articles will be an interesting insight into a different system of economics and perhaps it can teach us something about economics today. This is the first part of a four-part miniseries on Ancient Rome with the next sections being released at the start of each of the next three months. I hope you enjoy it.
Like many modern-day developing countries, the Roman Empire was largely agrarian and in particular, they grew grain and grapes for wine. The economy of the empire was dominated by Italy which is said to make up 40-66% of GDP of the Empire. A darker side of Ancient Rome is the reliance on a slave economy, which built Rome’s road network and farmed its fields. With a population of approximately 44m in 14AD, Rome was a major trading partner with India and China. In the Ancient World, the Roman Empire was as much an economic superpower as the USA is today.
Unusually for this period, there was virtually no bartering after the first century AD and a currency (the denarii) was widely used. This meant for trade to occur both actors didn’t have to have goods which the other wanted, therefore, currency allowed trade to occur which otherwise would not have happened. Coinage also had a non-economic purpose which was to spread propaganda and spread the image of a powerful emperor. There was no central monetary authority and emperors were often reckless with coining money in times of hardship which meant the money supply could fluctuate rapidly and create what in the modern sense we would see as hyperinflation. Ancient Rome could be a good example for us of an economic system stifled by an unstable currency. Without confidence in the value of a currency, consumers will not be confident about spending.
Typically of a pre-industrialised economy, most of Rome’s government spending was dedicated to the military, because fundamentally it was this which gave the Roman Empire its strength and it was vital to control grain-producing regions. Apart from this, the government had a very minimal role and all the public services such as education and healthcare which we take for granted today would have been non-existent. The economies of some parts of the Empire would be entirely left to grow by themselves. For a modern person where in the UK the government makes up 41% of GDP, it is hard to imagine this situation. There was no protection for the poor and sick.
What may surprise modern onlookers, however, is the sophistication of their financial and banking industry. Credit was extended and financial markets began to trade contracts for agricultural produce. Senators played a major role in the banking industries and many of Rome’s elite made their fortunes in this manner. For the first time, citizens could access instant money.
Ancient Rome seemed to resemble an early model of globalisation as its extensive roads and access to the Mediterranean Sea allowed it to trade with faraway nations such as China. However, often trade routes were more important for militaristic reasons and trade was vulnerable to raids. Transport by roads was slow and expensive so transport by water was preferred because larger volumes could be transported. Although greater trade routes were established, this was still not close to modern globalisation because there was no method of cheap transport and in only small quantities of high-value goods could be traded.
Many characteristics of Ancient Rome’s economy seems to resemble some characteristics of modern economies such as their banking system and trade routes. However fundamentally, the Roman Empire’s economy was primitive and their economic structures were far less complex than today. Some comparisons can be made but economists should be cautious when judging the economy of Rome on our modern theories and standards.
Thank you for reading. Please subscribe for updates on new posts and to support this blog. The next installment of this series will be on the role of the Roman government and taxation.