Mark Koyama on the Macroeconomics of Ancient Rome

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David Beckworth: Mark, welcome to the show.

Mark Koyama: Thanks, David. Yeah, it's great to be here.

Beckworth: I'm glad to have you on. So, how did you get into economics and into these areas where you've specialized.

Koyama: Yeah. So, it seems like a long time ago, now. I chose to study history and economics as an undergraduate at Oxford, having actually studied some economics at high school. And the British system is such that you can't choose. Well, once you've chosen your undergraduate major, you can't change easily. So, you apply for a subject. I applied for history and economics, I was locked in.

Beckworth: Interesting.

Koyama: So, decided to have my path decided early on. And actually, modern history and economics is a great, great course at Oxford, because you do the same economics program as with PPE students, and then you do a large proportion of the history program of the history undergraduates.

Beckworth: Oh, very interesting. So, you did that at Oxford. You went on to graduate school, and that's what led you down this path towards an economic history institutions focus?

Koyama: I think so, yeah. I was very lucky. We did a lot of economic history as an undergraduate. I was actually lucky enough to be taught by people like Bob Allen and Jane Humphries, who are distinguished economic historians, even as an undergraduate. So I kind of had that opportunity early on. And then I decided to do a graduate degree in economics.

Koyama: I was actually interested in macro at the time. I was more interested in growth, business cycles, those types of topics, but I came to realize that I wasn't really cut out for selling business cycle theory. And whereas I am, was very interested in growth theory, my interests were quite historical, so the economic history made sense. And the economic history is a way to study the origins of economic growth. So the way I would define myself these days is almost like a comparative economic historian, which is unusual to them, because normally...

Koyama: The term comparativist normally comes from political science, where the idea is, in order to study political institutions in the U.S., you've got to study how they work in Europe or how they work in Latin America, also in Africa. And similarly, I think if you want to study the origins of economic growth, it doesn't make sense to be a country specialist. You should study Industrial Revolution Britain, Europe, but you should also understand what was going on in say China or other parts of the world, as well.

Beckworth: Yeah. I think it's easy for us to become very insular and focus on our economy, our local issues, and forget to take the broader perspective. And really, to understand history broadly, I think, makes us better economists. Now, you mentioned your focus shifted to long-run macroeconomic growth issues, which is a nice segue into your recent writings on the economics of Rome. You've written several really intriguing posts on what it was like in Rome and what were some of the key issues in terms of long-running economic growth in Rome, the decline of Rome. And we'll get to those.

Beckworth: I've had a little bit of a side interest in Rome myself, but I approach it from the short-run macroeconomic perspective. There are some, well, at least one well-known financial crisis in 33 AD, and we'll come to that later. There's a few others that historians mention. But both of these speak to the issue of macroeconomics in Rome and the area that's been overlooked. Ancient historians have spent a lot of time on Rome, but the economics of Rome hasn't ever received as much treatment.

Beckworth: We'll talk about, in a minute, Peter Temin's book, where he's done a really fantastic job of looking at Rome. Before we jump into economics of Rome and all the fascinating things that go with it, why don't you give our listeners just kind of an overview of Roman history and some of the key developments?

Overview of Roman History

Koyama: Sure. I'll paint in broad brushstrokes.

Beckworth: Yes.

Koyama: I should add, initially, as an economist, I'm not an Ancient Historian, so I'm not a specialist. I mean, I didn't read the sources in their original language, but I've interested in Rome for a long time as well, and I think I've read quite widely in the secondary literature.

Koyama: So, Rome is, it's a city-state and initially a monarchy. It becomes a republic in the early 6th century, BC. For a long time, it's just one of many city-states in Italy, in Latium. So, it's not particularly successful, initially. But around the 4th, early 3rd century it starts expanding.

Koyama: So, what distinguishes Rome from other city-states is partly its openness to incorporating new individuals, immigrants, neighbors, as citizens or as allies. So, Rome rises. It becomes bigger and bigger. It takes over the Italian peninsula, and it comes into conflict with neighbors like Carthage, later Macedon, the Seleucid Empire. And it expands into your Mediterranean-wide empire, or imperium.

Koyama: So, this process takes several hundred years, although the actual is quite rapid between the defeat of Carthage and, say, the defeat of Greeks in the second part of the second part of the 2nd century, BC. So, by, say 0 AD, Rome has become an empire. And so, the republican institutions have been replaced by basically what's a monarchy. Initially it's a disguised monarchy. So, if the first emperor, Augustus, claims just to be the first citizen of Rome, not to be a dictator or a king. He's not royal and there's ambiguity about the succession, and a senate. There's still elections in Augustus' reign. So this is a gradual transition from a republican institution into a monarchy.

Koyama: Historians normally think this was a, almost an inevitable consequence of increase in size. So, whereas Rome could function well as a republic where it was small, as it expanded, that expansion meant that the army is controlled by the generals, who would have more and more independence, and more and more say on politics back home. And that meant that, basically, civilian politicians found it harder and harder to oppose generals, people like Pompey, Caesar, and then Augustus.

Koyama: So Rome has become a monarchy by, say, circa... Well, Augustus' reign is typically dated to the defeat of Marc Antony, Battle of Actium, 31 BC. So, that's where Roman empires, we think of that.

Beckworth: Okay.

Koyama: And it's expanded by the state, across all of the Mediterranean. It's acquired, I mean, modern France, Gaul, it's acquired territories in the Near East. So it's a pretty big empire. It continues to expand a little bit after that, but not so much. So, in the reign of Augustus' successor, Tiberius, basically the border's become more or less fixed. And the only major additions then to a Roman Empire, subsequently, the only major permanent additions, I should say, are Britain, which is added by Claudius in the 40s AD, and then Dacia, it's a modern-day Romania, which is added by Trajan in the early 100s.

Beckworth: Fascinating. Now, the height of the Roman experience, or Roman empire, is really, it's the late republic, early empire. Is that right?

Koyama: So, from an economic point of view, the early empire, I think, is where most ancient historians would say the pinnacle of Rome. So, from a historical point of view, from a historical interest, I think the republic's fascinating because you have so many big characters and so much literature survived. You have letters of Cicero, you have Caesar's writings, you have a great flowering of culture and art.

Koyama: But from an economic point of view, it's likely the high point was the early empire. So, when we say the early empire, we're talking the period from Augustus to roughly the early 3rd century or late 2nd century, depending on your perspective. So, there's a famous line by Edward Gibbon where he claims the happiest time to have been alive was the 2nd century AD. So, this reign of good emperors between Nerva and Marcus Aurelius.

Beckworth: Okay.

Koyama: And so, Marcus Aurelius, he's the last of these so-called Five Good Emperors. And according to the more traditional histography he makes this big mistake by allowing his kind of murderous, monstrous son to become his successor, and then things go downhill after that.

Beckworth: Is that Caligula?

Koyama: That’s Commodus.

Beckworth: Oh, Commodus.

Koyama: So, the movie Gladiator captures this. Of course, modern historians are much more skeptical of this, and a more economic rationale for the decline in the empire we observe at that time is the plague. There's a major Antonine Plague, which takes place in the reign of Marcus Aurelius.

Beckworth: Now, when is the Pax Romana period? When does that run? Is that roughly the same period as you just described?

Koyama: Indeed. The term Pax Romana, this idea of the Roman Peace... And there actually a recent book by Adrian Goldsworthy, he's a distinguished historian of Ancient Rome, and he's written a book with that title. And so, the Romans are never really always at peace, so the Roman Peace is misleading in that sense, because the Romans are always fighting frontier wars. But what it does refer to is internal peace within the empire.

Beckworth: Okay.

Koyama: Yeah, you can date that from, certainly... So, Augustus is one of the first Romans to really proclaim peace as a virtue, like, "Peace is a good thing. We've closed the gates of war. What we're experiencing, peace." One of the major ideological justifications for Roman power is the imposition of peace.

Koyama: So, if you defy the Roman Empire, then there'll be bloody warfare, so that's what happens to anyone who rebels. But the Roman Peace is this general sense that, if you were born in many parts of the empire, you would not even see soldiers very often. You would be living in a demilitarized civilian society. So, the army was professional. Most people were not going to be fighting or trained in warfare.

Koyama: And so I think for... So, historians dispute this peace, but I'm pretty persuaded by people like Goldsworthy, who claim that there was a genuine peace, like there really was more peace in the Roman Empire in those centuries than, say, in the period afterwards or the period before.

Economic History of Early Roman Empire

Beckworth: Okay. Well, let's now look at the economy during this time, at the height of the Roman experience you just described. I want to begin by kind of working our way through parts of Peter Temin's book, which I highly recommend to our listeners. The title is, “The Roman Market Economy,” by Peter Temin, who's a very well-known economic historian. Is he at MIT?

Koyama: Yeah. He's Emeritus at MIT.

Beckworth: Okay, so he's been around for a while.

Koyama: Yeah.

Beckworth: As a grad student, I read his work on the Great Depression, so it was interesting to see him switch into Rome.

Koyama: Yeah. I mean, he was known for his work on America and economic history. Yeah.

Beckworth: Yeah. So, it's pretty ambitious to switch into Rome. But it's a really fascinating book, and I think the key point of his book is to show that Rome was a market economy. It had all the prerequisites, the institutions needed to make a market economy function. And I just want to read. In his introduction here, he has some points he outlines before he gets going in the book.

Beckworth: He says, "First, economics provides a useful insight into ancient history." And as you go through the book you realize there are many ancient historians who have a problem with that, who push back against that. You obviously endorse that, and you use those same tools yourself.

Beckworth: "Second," he says, "Ancient Rome had a market economy." And again, part of the book's objective is to develop that. He goes, "Third, Pax Romana stimulated Mediterranean trade." And he gets, later in the book, about the wheat and some other goods that were traded in rationaling. "Fourth, ordinary Romans lived well, probably better than any other large group, consisting of many millions of people before the Industrial Revolution."

Beckworth: And, "Fifth," he goes, "We're learning more about the Roman economy all the time," and this book's kind of the latest installment of that understanding. And so he makes the case that Rome was a market economy. So, I want to just go through a few of the claims that he makes and then get your response to it, and some of the facts that he states, but then also his interpretation of those facts.

Beckworth: So, he begins by noting that Rome was the largest city, prior to the Industrial Revolution, had a million people. There's different estimates between, about the time of early... well, right before, I guess, the imperial stage, but about a million people. And he mentioned, with a million people, how do you feed that many people. Right? They certainly weren't going to be fed by adopting a bi-local diet that we see a lot of people promoting.

Beckworth: In fact, as I was reading the book I was thinking, "If the Romans had done bi-local, they would have all starved to death." But he mentioned their diet included wheat, wine, oil, dry legumes. And they had to be brought from somewhere, and so he argues there was this vast Mediterranean trade. Now, he points and looks closely at wheat. Do you think this is a reasonable argument to make?

Koyama: We know they were importing each month, wheat from Egypt and... I imagine Rome exhausted local stores of grain fairly early on, so initially is the main supplier of wheat to the Roman Empire. And one of the reasons Augustus is keen to annex Egypt is because it's such a productive cultural region, and it supplies wheat to Rome.

Beckworth: Interesting.

Koyama: And actually, and no senator was allowed into Egypt without the emperor's permission, precisely because if you controlled Egypt you could literally cut off the grain supply to Rome and starve it into submission.

Beckworth: Fascinating.

Koyama: So, Egypt was extremely important to the Roman Empire. We know this. One issue is fixed, one issue, which I am actually, I'm an expert on. One issue which historians debate is the extent to which this grain supply was market-provided, and the extent to which it was provided by the government, because the government was... The emperor was very keen to ensure that his grain supply was stable. So, it's always a mixture. Some of it was privately provided and some of it was organized by the state.

Beckworth: Yeah. Peter Temin mentions the number of ships required to feed Rome in one year. He estimates 4,000 ships had to be brought in, which assumes you have the infrastructure, you have the docks, everything. So it's quite an endeavor just to feed Rome in a given year. And he makes the argument that a large portion of it, even if there were some government involvement, every year there's the Annona, is that how you pronounce it? Where the government hands out to the public?

Beckworth: A large portion of the wheat was imported privately, and even the government portion was often outsourced to private merchants, and they had incentives, everything from maybe getting to become a citizen to reduction of some of your taxes. So, he makes this claim. And I guess what's fascinating to me, and I want... Maybe you could speak to the responses this has gotten.

Beckworth: He's gone and collected data. And again, I encourage listeners to look at the book. He's collected data and he has shown empirically, there's a nice scatter plot in the book that shows this, that the farther a grain production site was away from Rome, the cheaper the price of wheat was. So, if you were in Sicily your price was a little less. The price was a little less there than in Rome. If you're all the way, say in Palestine, it was even cheaper because you had to account for transportation costs. So, by the time you get to Rome, you have to compete all on the same market price.

Koyama: Yeah. I think that's a nice analysis. One drawback, of course, when we have a book and see the scatter plot, it's very, I think eight observations in that scatter plot?

Beckworth: Yes.

Koyama: It's consistent with my view of how an economy of the size and scale of Rome would have functioned, so an economy where we know there was a complex division of labor, people were making a wide range of manufactured goods, there was a market for consumption goods, for luxury goods. So, all of these features combined suggests a level of economic sophistication, organizational sophistication, which is consistent with markets, at least in goods like grain, operating it relatively smoothly.

Koyama: There has been some pushback on some of these claims of market integration. And with the current data it's difficult to rule. I mean, it's going to be difficult to make a conclusive case either way, but certainly in line with what other facts we know about the Roman Empire.

Beckworth: Yeah. He mentioned somewhere in the book that... He mentioned the Romans loved to talk and write constantly about prices. So, they, Roman citizens were very aware of prices. It was a mechanism they used to help allocate resources, he argues.

Koyama: Yeah. I think it certainly, certainly as a price mechanism was important. Yeah. You can see it in people like Cicero. Senators are nominally not supposed to be involved in business activities, but the impression you get from reading about these guys is they all were earning money, they all were indirectly involved in all kinds of commercial enterprises, they all cut tax farming contracts. There was a lot of private-public partnerships going on.

Beckworth: Let me ask you this. So, in general, the empire is so big, and Rome itself was so big that there had to be labor specialization. I mean, you couldn't exist at that... That city, a million people could not exist without labor specialization, in many areas, not just wheat. Wheat's one of the documents, but in general...

Beckworth: In fact, I was going to get to this later, but even labor markets, he argues, were relatively fluid, dynamic. People responded to price signals in terms of wages.

Koyama: Yeah. I mean, I think what Temin's doing in that book, he's laying out the case for a Roman market economy. Then it's going to be up to other... It's like a challenge, I'd say, to other ancient economic historians. And they can choose to push back or challenge his particular examples, but he's putting the case in very clear terms.

Beckworth: Yeah. So he, step-by-step he lays out and does... Again, to prices, he mentions how some of the emperors responded whenever there was a supply shock, a natural disaster. And some of the early ones actually responded in a way that an economist would smile upon. Some of the later ones did price controls, which we teach in Econ 101 to avoid. You make things worse. But Augustus, in 74, he actually gave out funds to help individual citizens buy the wheat, as opposed to trying to fix the price.

Beckworth: It was interesting. He gave an income transfer. He gave out funds from the treasury. Pompey actually went out and sought to increase the supply. He didn't try to change the price. Which, I found that to be interesting, that they figured that approach. Of course, you get to Tiberius, Tiberius and Nero, they later imposed a bunch of them, and later imposed price ceilings and get all the kinds of distortions you do with that.

Beckworth: So, it's fascinating to see that prices, the way we teach prices in Econ 101 are very much at work, at least it seems that way, in this time.

Koyama: So let me, let me kind of set this in context a little bit. So, something else I've touched upon briefly is, there's a big debate, old, longstanding, like unbelievably longstanding debate, it actually goes back to the Enlightenment really, about whether or not the Romans were modern or not.

Beckworth: Okay.

Koyama: And so, within the historical literature. And so this something which is a debate, which recent historians want to move beyond, understandably. It goes back really far, but let me begin with a kind of like the 20th century version of this debate where, in the early 20th century you have all of the economic historians who are basically influenced by classical economics. And so they look at Rome and they make the similar suppositions you're making.

Koyama: So they're like, "This is a big city, a highly urbanized population. People seem to be..." We know from just documents, that people specialized in minute tasks. We know there's a fine division of labor. We know they're using credit. We just know this because the amount of money that people like Cicero talk about is so large that it's unfeasible to imagine people carrying around silver coins.

Koyama: I mean, and we know actually from the shipwrecks, it's got a lot of Mediterranean shipwrecks, and we don't find very many coins on these shipwrecks. We find some, but not enough to suggest they were buying and selling everything with coinage. They were using credit, which is something I guess we'll get to later.

Koyama: So the traditional, the view circa come 1920 was that, indeed, this was a market economy. So, Temin's view is not super new in that sense. He's revitalizing, reinventing that view. However, then the puzzle was, if they were a market economy, why did they not have an industrial revolution? Why did they not transition to capitalism, modern capitalism?

Koyama: And then there was a huge pushback by ancient historians. And the most famous guy in this movement is Moses Finley. He was professor at Cambridge. And so this pushback was so decisive that by the '70s and '80s no ancient historian subscribed to the old view anymore. And so now things have changed a little bit, largely because of the archeology. The archeology is now prompting a reevaluation, and we're finding more and more evidence for a wide range of economic activities.

Did Ancient Rome Have Markets?

Koyama: So, Temin's book is like, it's a revitalization or a revival of its old view, but with the tools of modern economics and benefiting from some of the archeology. I don't think it's the final word on this. Previously, the reason historians, ancient historians in the period of the '40s, '50s, and '60s were so skeptical of the existence of markets, because it seems... To an economist, it seems like prima facie, without other evidence, just based on the basic facts it seems like they must have had some kind of market economy to have been...

Beckworth: Support that many people.

Koyama: Yeah, exactly. So, why were historians skeptical? And I think there's several reasons, and I'll just very briefly discuss them.

Beckworth: Sure, please do.

Koyama: One reason was that the literary, the sources which survive are very difficult to interpret, so you need a huge amount of subtlety to understand them. So, from the Middle Ages, from the 16th, 17th, and 18th century, we have merchant accounts, copious merchant accounts. And we have data, we have numbers. We know the number of ships leaving particular ports and so on. Remember, we have very little of that data. There is some, but it's very little.

Koyama: What primarily survives are sources from literary writers. So, we have senators, we have historians, who are providing the land-owning elite's view on politics. And incidentally, they're going to mention these government policies you discussed there. Incidentally, they're going to mention that Augustus distributed grain. But it's not going to be the main... They're not writing treatise on economic history or economics, they're writing about the politics. We lack that direct evidence, so inferring it is going to be difficult.

Koyama: Secondly, the historians who write may not have understood, or they didn't feel the need to explain how credit instruments worked. They took it for granted that either you understood it or maybe they didn't think that it was interesting, so they didn't mention it. So, if you stick to the original sources, you can get the impression that maybe they weren't so sophisticated when it comes to economic matters.

Koyama: And then the second issue was that historians of that generation, they really thought it was naïve to imagine the Romans are like us. So, I mentioned Gladiator, the movie. Many people are big fans of sword and sandal epics. There's a remake of Ben Hur, which I have not seen. That may be bad, but I'm a huge fan of the original. So, we all like Roman movies. And in these Roman movies, we often depict Romans as being modern people, similar to us in some sense. They're barbaric, perhaps because they have gladiator fights, but otherwise they're sophisticated, modern people. They're not alien to us.

Koyama: But the mood of historians in the '50s and '60s was very much like, "That's a mistake. Don't imagine these are reasonable, land-owning... Don't think they're just like people from the 19th century. They're really quite distant to us. They have different norms, different values, different priorities, their interest in status.

Koyama: So, they may be lending money, but they're not lending money to make a profit, necessarily, they're making money because that's a way of exerting control over their followers.

Beckworth: Okay.

Koyama: So, this is kind of Moses Finley's position, is that, bear in mind these cultural differences and don't automatically assume that the same things which apply today, same institutions today, are the same in the past. Historians were extremely persuaded by this, and skeptical of the earlier research which was talking about economic growth and capitalism in the ancient world. And the pushback which has come more recently has been mostly because this view advocated by Finley has been less and less supported by the archeology.

Koyama: So, as the archeological evidence comes in, it is more consistent with the older view, or Temin's view.

Beckworth: So, what are some examples of archeology finds that lend themselves to the Temin view?

Koyama: So, amphora, so evidence of long distance trade.

Beckworth: Okay.

Koyama: Evidence of shipwrecks is always problematic to interpret because... But we see a large increase in the number of shipwrecks containing traded goods in the period we've discussed, in the early empire, the Principate Period. We also find that you can do... There's just more and more thing being dug up, and we're often finding standardized goods.

Beckworth: I see.

Koyama: Or, pottery where a particular factory will trademark it.

Beckworth: Interesting.

Koyama: And to interpret with psychological evidence, I think you do need some economics, and so that's why Temin's book is so great.

Beckworth: You know, Temin mentioned in the book along those lines. The granaries they built were so sophisticated. One was, he said, 5,000 square meters, which seemed unusually big. But he said, just the infrastructure there is consistent with the story of a large market system.

Beckworth: Let me go ahead and jump into the credit discussion, since you brought it up. I had an article, and I think I shared it with you, but this article here, Revisionist View of Roman Money, and this came out in 2006. And this is in the Society for the Promotion of Roman Studies, so it's a Roman Studies journal. But this person is making the case that credit existed in Rome. He invokes some of the very arguments that you did, that some of these transactions were really, really large and there's no way, physically, they could have transported. I was shocked that, in 2006, he had to make this argument, that credit was such a foreign thing to ancient historians.

Koyama: Yeah. The author is William Vernon Harris. He's a professor at Columbia, and he's actually a very, very distinguished Roman historian, but not an economic historian. So, actually, that article's impressive because he does seem to understand some... He's familiar with economics. He's actually, he's famous for other work. He's a classicist. So, I found the article persuasive. I found it very intriguing, as well.

Koyama: So, the skepticism for credit comes from this Finley position.

Beckworth: Okay.

Koyama: And it, again, stems from the fact that things are not necessarily evident in our sources. So, people don't describe complicated monetary transactions in our sources very often, and so it would be easy to imagine maybe these complex monetary transactions didn't exist. But actually, when you look at what they are describing, from an economic perspective, it only makes sense if they're using credit extensively. And they find credit for many of them. Yeah. They're understanding constraints. They understand the effect an increase in the supply of money would have. They understand how a crisis in confidence can lead to credit drying up.

Beckworth: Yeah. So Temin documents that there were brokers, there were banks, people understood interest rates. We much preferred new price. And there's several examples of panics, systemic panics, which imply connections across various markets. I want to get to the big one in a minute, the panic of 33 AD that I looked at a little bit. But Temin, in his book, mentions that Cicero wrote about a crisis...

Beckworth: So, Cicero is writing in 66, and this happened 20 years earlier, but this is what Cicero wrote. He wrote, "For coinciding with the loss by many people of large fortunes in Asia, we know there was a collapse of credit at Rome, owing to suspension of payment." Then he goes on some more. But what he's doing is making this link between what happened in Asia and what happened to the credit markets in Rome. I mean, that clearly says there's a linkage there, in international credit markets.

Koyama: Yeah, certainly, and these are linked together by these, largely, these tax farming companies are very important in collecting the tax revenue. And the senators would be kind of indirect partners in this companies, often. And they'd have agents in Asia, telling them what the prices were and what was happening locally.

Beckworth: Yeah. So I mean it's-

Koyama: They were money lenders. So, Brutus, this is fairly well-known. So, Brutus, he's celebrated by Shakespeare as this great, noble Roman. He's a usurer.

Beckworth: Oh, really? Okay.

Koyama: Yeah. I mean, he's like Cicero. And so, he's lending money to provincials at exorbitant rates of interest. As an economist, we may not think there's actually that much wrong with being a usurer, but it's just interesting because the noble Brutus is seen as this great kind of republican hero, but he's famous... Cicero criticizes him for charging very high rates of interest when he lends out money, and then demanding repayment on unreasonable terms.

Beckworth: Fascinating. Well, let me move to the panic of 33 AD. And there's been some work actually done on it, just a few articles I've come across, and you probably know about the literature in this than I do. But the ancient historian, is it Tacitur?

Koyama: Tacitus.

Beckworth: Tacitus, yes. He wrote about... Actually, three ancient historians wrote about this event. It was such a big deal that three ancient historians... And he's the one who's wrote the most about it, but even his account isn't entirely clear what happened. So, there is some uncertainty in knowing what exactly happened, but let me share with you my understanding, and correct me where I'm wrong.

Beckworth: But, apparently there was some law on the books that required the citizens, or at least the aristocrats to hold a certain percent of their wealth in land. And it wasn't really enforced. And so, over the years, many of them had their wealth in the money market, making loans, which led to more financial intermediation, money creation.

Beckworth: And then something triggered Tiberius to enforce the law on the books, and I'm not sure if it was some kind of internal debate going on, but he enforced this rule, which mean they had to liquidate their loans, they had to pull money out of the money markets. The money market basically froze up, which created a panic.

Beckworth: So, both, you can think of both, if the suppliers of credit are no longer creating new loans, that means the money supply is dropping. And at the same time, the panic is increasing the demand. So this huge gap between the band of liquidity and the supply of it. And it spreads elsewhere, and so property prices fall, wealth falls.

Beckworth: In fact, Peter Temin talks about this crisis in his chapter on land. He does it somewhere else too, but he talks about how the price of the land was very similar to what it is today. When I was reading this account of the panic of 33 AD it sounded very similar to, in some ways, not entirely, to 2008. There was a financial panic and then land prices collapsed as well.

Beckworth: So, it's fascinating to see that this credit crisis, which was so pronounced that three ancient historians wrote about it, that it was known throughout the empire. And at the end, Tiberius had to step in and bail it out. Tiberius had to... And I have here, 100 million sest...

Koyama: Sesterces.

Beckworth: Sesterces, thank you. So, the imperial treasury stepped in and bailed out... So, Tiberius helped trigger it, and then he stepped in to fix it. But, to me it speaks clearly that there was these markets that were interconnected, that were large, and that finance was very much a part of the understanding, back then.

Koyama: I think so. So, I'm not an expert on that particular crisis, but it's consistent with, this view that the credit was important, vital to the Roman economy. It's also in line with the view, which is kind of contrary to traditional views of the Roman state, actually.

Koyama: So, the view most historians have, and I have had as well, previously, was that the Roman state basically did war and they provided justice. Economic historians think all nation-states were like this. The primary thing they did was raise taxes to fight wars, and then they also provided law courts, and they don't do other things. They're not interested in the economy.

Koyama: Managing the economy is a modern development, but actually this is in line with a different view, which is maybe the Roman state was more knowledgeable about things like monetary policy or practicing some kind of monetary policy. They had an awareness of these issues, which is not that surprising, given the sophistication they show in other regards. And of course, we can only infer this from a few occasional episodes. You only see the actions they take when things are going wrong, I guess.

Beckworth: Yeah. So, something that came across my mind as I was reading this is, "Why don't we have better evidence from Rome? Why isn't there better archeological evidence?" I mean, this was a sophisticated society. We're making the case that it was sophisticated. Why isn't there better documentation that we can point to.?

Koyama: So, the archeology is... The archeology is vast. There's a huge amount of archeological evidence, a vast amount. People are still finding stuff, often. So the archeological evidence is unbelievably vast, and it clearly shows Rome was sophisticated. The issue is, there's a limit to what the archeology can tell you.

Beckworth: Okay.

Koyama: So, the archeology cannot tell you very much about credit because, by definition, what survives are physical objects. And so, without an understanding of economics it's going to be difficult to fully interpret the archeological evidence, even though it's great. And that's what we need to argue about. That's why I think more work needs to be done in terms of a debate between economic historians, economists, classicists, ancient historians, and archeologists, along those grounds.

Koyama: But to answer your point more fully... Rome was a literate society. Paper was obviously, it was papyrus, it was expensive, they had to have it in rolls rather than in books, but they were writing all the time. So they would have been writing accounts to recon kind of... None of that survives. So, the stuff which survives from the Roman Empire, it's basically stuff which was recopied. Unless you're in Egypt, where the climate is very dry, so papyrus survives.

Beckworth: Yeah, I was thinking of the Egyptians.

Koyama: In the Egyptian case, we get papyri surviving with prices. And that's one of the reasons why a lot of these books, so Temin's book but also other books focus on Egypt, because there you get actual stuff surviving. In the rest of the empire, basically the papyri was just destroyed. The only stuff which has survived is stuff which was recopied. Often, it had to be recopied not once, but many times.

Koyama: So, recopied in the Carininean Period, recopied in the late to Middle Ages, before it finally kind of got printed. And as you can imagine, when you're dependent on one copy being recopied, these works were unbelievably fragile. And so things were just lost. And so all of the merchant records, handbooks which might have been written have gone, and what survived was what was of interest to people in the Middle Ages, monks mostly.

Koyama: So, the writings of Christian fathers, those have survived. Caesar was seen as a great Roman stylist, so all of Caesar's writings have more or less survived, and Cicero. Cicero was a great stylist, so his stuff survived, and a few historians, but we only... We have some sense of how much we've lost because we know later writers refer to all these other historians who have not survived.

Beckworth: Interesting. I was thinking along these lines, too. In one of his chapters in his book, he looks at prices in, I want to say Greece, Babylon, I'm sorry. Is it Babylon?

Koyama: Yeah, yeah.

Beckworth: And there's like 400 years worth of data. Now that comes off these cuneiform tablets. I'm like, "Well, why don't we have something like that for Rome," but maybe a different environment, different background. So, here's the question I have to ask, and this may be one that completely reveals my ignorance. But the burning of the Library in Alexandria. Had that not happened, would we have a lot more records to answer some of these questions we're discussing?

Koyama: So, my understanding, I'm not an expert on this either, but I actually think the burning of Alexandria is potentially a bit of a myth.

Beckworth: Oh, okay.

Koyama: No, in the sense, in the folly... I don't think it's total myth, in the sense that we... I recently was watching the 1960s movie of Elizabeth Taylor, Cleopatra.

Beckworth: Okay, yes.

Koyama: And they have the burning of Alexandria there, and it's blamed on Caesar. And that's actually true, that there apparently was a fire in the Library in Alexandria when Caesar was fighting in Alexandria. So, basically, the Library of Alexandria was burned many times. That's the point.

Beckworth: Okay, what-

Koyama: And the final time, which probably decided it, was when the Arab invasion took place.

Beckworth: Okay.

Koyama: But I do believe, I mean it could... We don't know when the destruction of these books or papyri or whatever full took place. But yeah, obviously, clearly a lot was lost. I think a lot was lost... Yeah, a lot was lost then, a lot was lost in various invasions.

Beckworth: Okay. So, maybe we would have had more data to answer some of these questions, but we just don't exactly what all was in there. Let me move, then, to one last part of this book and then we'll move on to some of the questions you've been tackling in your writing. Well, the last part of the book, we'll get to, but I want to talk quickly about labor, because he has a chapter on labor.

Beckworth: On labor, I just, it was fascinating to read again, to reinforce this point that Rome was a market economy, that workers responded to wages. And I learned something fascinating too, that there was open, what they called open slavery in Rome, versus the closed slavery we had in the American South, or even more similar, I guess, that was to what happened in Greece. So, explain real quickly to us, what is open slavery, and why was it useful in Rome?

Labor Markets and Open Slavery in Ancient Rome

Koyama: I think this refers to the fact that slaves were freed fairly regularly. Right?

Beckworth: Yeah.

Koyama: So, and then slavery was not based on race. So, there were a large number of slaves. The proportion of slaves to free people is a matter of some controversy. The argument Temin makes is that there are different types of slaves. So, being a slave in a silver mine was going to be horrible, regardless.

Beckworth: Right.

Koyama: So, we didn't want to eulogize or romanticize Roman slavery and say, "Oh, it was great." I mean, it's not like they're so happy or anything like that at all. But what is the case is that slaves and semi-freed slaves were given roles which required discretion and economic responsibility, and that was not necessarily the case in, say the U.S. South. In the U.S. South you could have your slave be a cotton textile producer. You could go have them pick cotton. Right?

Beckworth: Mm-hmm (affirmative).

Koyama: And whip them and flog them and do any type of work, but it was harder to allow them to run a business for you. Roman slavery seemed to function slightly differently in that there were trusted household slaves who, incentivized, perhaps by the promise of freedom by a credible promise they would be freed in the future could be used as managers, estate managers or accountants or run a business.

Koyama: And we know there were a lot of freed slaves in the Roman population. And certainly, once you became freed, your descendants had not servile mark on them, so they could rise to any level. So, we do know at least, I mean, definitely episodes of social mobility, where the sons of freedmen become powerful, important people. And they become very rich.

Beckworth: Yeah, that's what Temin brings out, that there was... Now, he said this was more true in Rome, in the urban setting, and the rural agricultural setting it wasn't as much the case, but you could reasonably expect to be freed if you worked hard, you took initiative. The incentive was there. The carrot was there, versus the stick approach.

Koyama: So, my understanding of the literature is... Yeah, that's one argument, and some people are... I think William Harris and others push back a little bit on this.

Beckworth: Oh, okay.

Koyama: The literature, the historical literature suggests that slaves could be freed, and we have plenty of records of slaves being freed, so we know manumission happened a lot, and it was a reward for good service. We're not in a position to say how many.

Beckworth: Okay. Well, Temin claims that slavery, though, was at most one-fifth of the population of Rome, so it wasn't a big...

Koyama: Yeah. I've seen-

Beckworth: Is that reasonable.

Koyama: I've seen higher numbers. I've seen higher numbers.

Beckworth: Higher numbers? Okay, so it could have been higher. Okay.

Koyama: And it varies over time. So, one thing that's always difficult... We're talking about a huge period of time. And so initially... By 100 AD that could well be the case. 100 years earlier... Apparently, Caesar captured once, at a slave market, 400,000 Gauls, in the 50s BC.

Beckworth: Wow.

Koyama: So, there's a huge period where Rome is just expanding rapidly, and they're just capturing all these slaves. And so you can imagine Rome and that period having a lot of slaves. But over time, they're freeing them, as you say, they're entering the ordinary population, so by 100 or 200 years later I think the number of slaves was considerably lower. Yeah.

Beckworth: Okay. So it depends on the time.

Koyama: I think so, yeah. I hesitate to make a...

Beckworth: All right, so I want to go to the end of the book, because you've written on this. So, given we have a market system, then the question is about economic growth. Why didn't it have an industrial revolution? Why didn't it take off? Sure, things were better in Rome than in any other time up to that point, but why didn't the industrial revolution occur at Rome? And Peter Temin makes the case, "Well, they were still stuck in the Malthusian trap. They were just at maybe the nice part of the trap." And you had some thoughts that you originally wrote on it. I wish you could share that with our listeners.

Why wasn’t there an Industrial Revolution in Ancient Rome?

Koyama: Yeah. So, to put this in a larger context, a lot of the literature and economic history relies on the idea that before around 1800 most societies were Malthusian in some broad sense. That is to say, as incomes went up, so did population. That means you could have periods of economic growth, you could have periods where there's new technology, or in the Roman case it's plausible that the Pax Romana generates the commission to market expansion, to more trade, greater division of labor, productivity goes up.

Koyama: So you have this period of prosperity, but in the Malthusian world that period of prosperity means you have more people. You have more workers, more farmers, and because of diminishing returns to productivity of agricultural land, as the population goes up, workers are pushing on the more marginal land. And so that marginal product is actually going down. So there's a negative feedback effect.

Koyama: It's self-correction where the initial increase in income generates more people. More people cause per capita incomes to go down. So, per capita GDP, real wages return to some equilibrium level which is often still at subsistence. So this model is why we use the economic history. And it seemed that a lot of societies could have some periods of growth but not quite prove a cycle of Malthusian trap.

Koyama: So, people apply to think about China, like why didn't China have an industrial revolution? Why did previous periods of medieval Europe kind of not lead to sustained growth. And then Temin is just doing this. He's saying, "Yeah, this is the standard model. It applies to Rome as well."

Koyama: So, I'll tell you why I'm skeptical of this. One issue is, the prediction of this framework would be that Rome naturally would have... So, regardless of barbarian invasions, internal decline, the Antonine Plague, or whatever disasters we could think of, the prediction would have been that the prosperity in the Roman period was a temporary one.

Koyama: So, Jack Goldstone, who's a kind of prominent economic historian of a policy school uses the term growth efflorescence to refer to these kind of temporary optics and per capita GDP. In the Roman case, we don't know. So, as a matter of fact, if we agree, if at the high point of the Roman economic experience is the first two centuries AD, so the early empire, the Principate, then in the 3rd century the empire declines.

Koyama: There's a series of political crises, internal political crises and external invasions. And so there's an economic decline there, which is exogenously imposed, and there's a plague. So we don't see, we don't know if there would have been this Malthusian correction or if the Roman experience would have been sustained. So, that's untestable.

Koyama: But Temin is saying, even if they hadn't declined or if they had continued to experience success and maintain the Pax Romana, they would have stopped growing. I'm skeptical of that on the grounds of skepticism about the Malthusian model's applicability to societies which are heavily urbanized and have large market economies.

Koyama: And so in particular, there's this guy, Lemin Wu, but he's not met anyone who've written down two-sector Malthusian models. When you have, in addition to the agricultural sector you allow for what you can think of as an urban sector or a luxury goods sector or a consumption sector. And in that sector, if you have productivity increases in that sector, it doesn't necessarily mean you have more people.

Koyama: So, if you have a productivity increase in agriculture, that allows you to feed a higher population, but if you have a productivity increase in this kind of urban sector, you might not necessarily have as large an impact on future population growth. And so, in a two-sector story, some of the strongest Malthusian predictions don't necessarily hold. And you could have more sustained periods above subsistence.

Koyama: And so, without going into the details of that model, there is that reason, and there are other reasons, I suspect, to think that longer you can sustain living standards above subsistence the more chances you have of breaking out of the Malthusian trap. Right?

Koyama: And just finally, another way to think about this, using a different model, is drawing kind of on endogenous growth theory. So, endogenous growth theory says, if you have ideas, new ideas, that allows you to overcome diminishing returns because ideas are non-rival and non-excludible.

Koyama: And so you can imagine that in a world of subsistence, like grinding poverty, then people who might have ideas never ever get the chance to develop them or fulfill them, whereas in a society which is comparatively rich, there are still people who fall through the cracks, but the chances are, you're a genius, you might find your niche and be able to generate new, productive ideas.

Koyama: Now, so in a Roman case, if a Roman economy was able to sustain some level of above subsistence GDP for some period of time, that would have made the chance of some talented, clever, smart, innovative people rising, rising to the top greater.

Beckworth: Well, it seems the Malthusian model, the simple one that most historians use seems, in my view, grossly inadequate or misplaced, because Rome was a big, urban center, and they're applying an agricultural model to an urban setting. So, just on the face of it, why would you apply a model based on the agricultural assumptions into an urban setting?

Beckworth: But let's segue into the other piece that you've written. And you've really touched on it, but let's go a little deeper here. And that is, you've responded to some claims about what led to the decline of Rome. One of them is Peter Brown, and if you can speak to that, but just in general, what is... Speak to him, but also, what is your overall view. Why did Rome decline?

Why did Ancient Rome Decline?

Koyama: So, I'll try and be concise. So, the traditional view, which I've just mentioned, is for the economic decline of Rome. So, there's an economic decline and then there's a political decline, and they're two separate things. So, the traditional view, which I actually think still has a lot going for it, is that there is an economic decline after, say 180. So I mentioned, this is the end of the year, the end of Marcus Aurelius' reign. And there's a plague, as well.

Koyama: So, the 3rd century sees the decline in inscriptions and civic building projects. A lot of towns in Gaul get walls. Rome acquires its Aurelian Walls in the 3rd century. So, the Pax Romana is under threat. There are invasions, there are a lot of civil wars, so resources are being used on military purposes rather than necessarily on civilian ones. And so there's signs of economic decline in the 3rd century, at least in some parts of the empire. And this is also a period of political decline.

Koyama: Then, Diocletian in the 280s basically reestablishes the Roman Empire on a stable footing, and his policies are continued by Constantine, who of course Christianizes the empire. And so traditional historians distinguish this empire from the previous one, from the empire of Augustus, which is called the Principate, they would the empire of Diocletian the Dominate, because Diocletian basically imported in a lot of Persian norms about... If not a god, then blessed by the gods, then he's a god. He claimed he was a god, and people had to bow before him, whereas Augustus maintained the fiction of being First Citizen.

Koyama: Diocletian dispenses with this. Other emperors had dispensed with it, but Diocletian makes this permanent, and the empire becomes militarized. The army gets much larger. So the army, we don't know exactly how large it becomes, but it roughly goes from maybe 400,000 men to over 600,000. And the number of bureaucrats and civil servants, tax cut, this goes up. So there's an increase in the size of the Roman state, and that's successful in stabilizing the borders and reasserting Roman power.

Koyama: Traditionally, historians saw this as a period of decline. Now, more recently, based on archeology, some ancient historians have argued that actually the economy was flourishing in this period. And this, particularly, maybe not Gaul or the frontiers, but other parts of the empire, say in North Africa and Spain, continued to flourish in this period. So they pushed back against the view that this was one of decline.

Koyama: If you keep the traditional view and say this was a period of decline, then that decline is very consistent with the institutions of the Roman Empire becoming less market-orientated. And actually, William Vernon Harris, in the article he mentioned, he says, "Basically, Roman banking disappears in this period, as far as we can tell." There's a lot of inflation, so this is what they were worried about. So there's a huge inflation, the coinage... There was no evidence of banks in the 4th century AD.

Koyama: And Constantine, as I was saying, uses a gold coinage, and it does suggest that... There's some evidence that cash, small change, bronze coinage became less important, suggesting the decline in monetization in the economy. So according to a traditional view, you might think that the institutions of the Roman economy are becoming less favorable. However, I think that view is actually, probably the right one, although I don't have the expertise to make a final call on that.

Koyama: The revisionists say, "Oh, prosperity was continuing. We can find evidence of it into the 6th century, and even maybe it was greater in some parts of the empire than it was earlier, but it's difficult to ascertain the general trends. And the revisionists were also saying, "Prosperity continues through this period, and it only declines after, say 400 AD, in the Western Empire, and after 600 in the Eastern Empire.

Koyama: The most obvious reason for the decline after 400, obvious to most people believe barbarian invasions, so invasions of... That's the old-fashioned term, but the invasions of peoples like the Goths, Alans, later the Huns, Anglo-Saxons into England, Franks into Gaul, these large-scale movements of people. That disrupted the economy, they destroyed cities, they destroyed agriculture. So that's one plausible explanation for the decline. It's like, again, an old-fashioned theme.

Koyama: But ancient historians really have pushed back on the view that this was as destructive as was traditionally imagined. And so where Peter Brown is coming into, and he's... It's not necessarily he's only, he's summarizing the views of many people, it's that these barbarian invasions were not destructive, particularly. They were migrations of people's rather than sackings of many cities.

Koyama: And as a result, he argues that the decline of the empire is brought about by the decline of the Roman state. And so, in the 5th century of Roman state, stops collecting taxes, and it breaks up into... The central tax collecting fiscal authority breaks up, and he sees this as so crucial to the Roman economy, that's the engine of economic decline in the Roman Empire.

Koyama: And so, to most economists, I think most mainstream economists, this idea is somewhat preposterous, or at least under-argued, and that's why I took issue in my particular blog piece.

Beckworth: I mean, he's arguing, not just like a Keynesian story. He's arguing that long-run growth is driven by the state.

Koyama: Yeah. And so it's not a mainstream economic view. It's not reconcilable in the mainstream. Essentially, his view is held by several ancient historians, because if you're drawing on the work by Chris Wickham, and I've tackled this in several blog posts. In their argument, Roman economy by the 4th century was held together by the Roman state. So, you pull the state away and the economy collapses.

Beckworth: Okay. So, going back to just the decline, what you think is the reason for the decline. Why don't you restate what you see as the decline. What are the key things?

Koyama: So I think the decline... Let me reiterate. I think there are two stages. So there's this high point of Roman Empire, first two centuries, which is what Temin is writing about. The Pax Romana is disrupted. After that, the Roman state is less able to defeat its enemies, faces more invasions and more civil wars. So, from 200 onwards, there's a distinct decline in Roman institutions, their ability to basically sustain the market economy. The type of sophisticated credit markets we discussed seemed to go into decline.

Beckworth: Okay.

Koyama: I think the policy-making by the emperors was probably much less sophisticated by the third and fourth century. The emperors were no longer senators. They often were military commanders who were much more hostile to trade and commerce. This is evident, actually, in Diocletian's price edicts. The Diocletian basically says, "If you charge a higher price from what I say is legal then I'll feed you to wild animals."

Beckworth: Okay. So you have all these symptoms of decline.

Koyama: But the empire is still there. So, even though I think the high point has been reached, and when secular and economic decline, this is still an empire which supports long-distance trade, Rome and other cities are still very big. They're still doing long-distance trade. So, that continues in Western Europe until 400, and in the Eastern Empire until the Islamic invasions of the 7th century.

Koyama: And so there's this high point in the Principate and then a period of declining but still some prosperity, and they'll still have an economy for several hundred years later. And that's brought to an end in Europe. I would argue that the key factor in that decline is clearly the breakdown of peace on the frontiers, and the massive invasion of... I shouldn't say massive, because for numbers it'd be small, but the decline of security associated with the invasions of the 5th century.

Beckworth: Okay. So, then I guess what you're saying, the rise of maybe the administrative state in Rome, corruption, that's not as important of a story? Okay. What's important is these exogenous shocks from the outside?

Koyama: Yeah. I mean, so even in 400 we observe a society which is clearly prosperous by pre-industrial standards.

Beckworth: Okay.

Koyama: It's the Roman Empire. Even in its decline, it's prosperous by pre-industrial standards, but it's not... I strongly believe it's not as prosperous as it was 200 years earlier.

Beckworth: So, there was some mild decline, but then these big shocks came and kind of pushed it over the cliff?

Koyama: Yeah.

Beckworth: So, had those big shocks been the invasion, the plague was-

Koyama: The plague is earlier. The plague is earlier. But, yeah.

Beckworth: The plague is earlier. Okay.

Koyama: It's the invasion.

Beckworth: It's the invasion. Had the invasions not occurred, would Rome, you think, have been in a position where maybe the industrial revolution would have occurred?

Koyama: That's a great question. That's fascinating, actually. So, in some sense, the invasions were not totally exogenous, so Rome's decline means its ability to defend its frontiers is declining. So you could save this slow decline I described, diminishing tax revenues, decline in the efficiency of the army makes it possible for the movement of peoples to reach for frontiers. And the movement of peoples is also something to... It's something which is outside the story, because that was happening for other reasons.

Koyama: And perhaps it was inevitable, perhaps it was impossible to maintain those frontiers for hundreds and hundreds of years. People were migrating. They were pushed, perhaps by the Huns. But to argue your point, you could imagine a world in which Justinian, who's the Byzantine emperor of Eastern Roman Empire in the 6th century, he reconquers Italy and North Africa. You can imagine a world where he is successful in recreating a Western Roman Empire.

Koyama: And that scenario would actually be similar to what happened in China in the same period. The Chinese, the Han Empire breaks down, it fractures into many states. There are many barbarian invasions. But then an imperial state is reconstituted. Can imagine that happening in Rome. The only question is, would that have led to the industrial revolution? And I think the answer would be...

Koyama: I think it would have raised the chances of some sustained economic growth taking place earlier, but there's no guarantees, so no promises. And the state which would have been reconstituted would not necessarily have been as favorable to markets and trade as the early empire had been. And the Chinese case suggests that you can have a prosperous market economy at various points in history without industrializing.

Beckworth: Very interesting. Our guest today has been Mark Koyama. Mark, thank you for being on the show.

Koyama: Thanks for having me, David. It's been fun.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. If you haven't already, please subscribe via iTunes or your favorite podcast app. And while you're there, please consider rating us and leaving a review. This helps other thoughtful people like you find the podcast. Thanks for listening.