Economic Reasons for the Roman Empire's Decline | Early European History And Religion

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TAXATION IN THE ROMAN EMPIRE

Severan Roman bridge in Turkey

Dr Peter Heather wrote for the BBC: “The old empire had employed two key levers of central power - large-scale taxation, two-thirds of which was then spent on maintaining the second lever, a large professional army. “This high-tax, high-spend structure meant that the Roman state both intruded itself bureaucratically into localities to raise taxation, and was also able, if necessary, to compel obedience to its demands by employing the army, which the taxation supported. The new states of post-Roman Europe were much weaker affairs. Even where other less important Roman institutions survived, the new kings had only much-diminished revenue rights and their armies were composed of semi-professional contingents of local landowners. [Source: Dr Peter Heather, BBC, February 17, 2011 |::|]

The characteristic patterns of local Roman life were in fact intimately linked to the existence of the central Roman state, and, as the nature of state structures changed in the post-Roman world, so too did local life. The Roman city, for instance, was the basic unit of local administration through which taxation was raised. As central tax raising powers disappeared, so too did the need to keep the city, and by 700 A.D. it was history. |::|

“Many of the more advanced elements of the Roman economy, such as specialised production and long-distance trade, quickly disappeared too. The Roman state had subsidised large-scale transport structures for its own purposes, but these had also been used by traders. As this command economy collapsed, so did much of the trade dependent upon it. |::|

Rise and Fall of Economic Growth in Ancient Rome

Bruce Bartlett wrote in the Cato Institute Journal: “Rome’s pro-growth policies, including the creation of a large common market encompassing the entire Mediterranean, a stable currency, and moderate taxes, had a positive impact on trade. Keith Hopkins finds empirical support for this proposition by noting the sharp increase in the number of known shipwrecks dating from the late Republic and early Empire as compared to earlier periods. The increase in trade led to an increase in shipping, thus increasing the likelihood that any surviving wrecks would date from this period. Rostovtzeff indicates that “commerce, and especially foreign and inter-provincial maritime commerce, provided the main sources of wealth in the Roman Empire.” [Source: Bruce Bartlett, “How Excessive Government Killed Ancient Rome,” Cato Institute Journal 14: 2, Fall 1994, Cato.org /=]

“Hopkins also notes that there was a sharp increase in the Roman money supply which accompanied the expansion of trade. He further notes that this expansion of the money supply did not lead to higher prices. Interest rates also fell to the lowest levels in Roman history in the early part of Augustus’s reign. This strongly suggests that the supply of goods and services grew roughly in line with the increase in the money supply. There was probably also an increase in the demand for cash balances to pay taxes and rents, which would further explain why the increasedmoney supply was non-inflationary. /=\

rich Romans

“During the early Empire revenues were so abundant that the state was able to undertake a massive public works program. Augustus repaired all the roads of Italy and Rome, restored the temples and built many new ones, and built many aqueducts, baths and other public buildings. Tiberius, however, cut back on the building program and hoarded large sums of cash. This led to a financial crisis in 33 AD. in which there was a severe shortage of money. This shortage may have been triggered by a usury law which had not been applied for some years but was again enforced by the courts at this time.The shortage of money and the curtailment of state expenditures led to a sharp downturn in economic activity which was only relieved when the state made large loans at zero interest in order to provide liquidity. /=\

“Under Claudius (41—54 A.D.) the Roman Empire added its last major territory with theconquest of Britain. Not long thereafter, under Trajan (98—117 A,D.), the Empire achieved its greatest geographic expansion. Consequently, the state would no longer receive additional revenue from provincial tribute and any increase in revenues would now have to come from within the Empire itself. Although Rostovtzeff credits the Julio-Claudian emperors with maintaining the Augustinian policy of laissez faire, the demand forrevenue was already beginning to undermine the strength of the Roman economy. An example of this from the time of Caligula (37—41 AD.) is recorded by Philo (20 B.C—50 A.D.): ‘Not long ago a certain man who had been appointed a collector of taxes in our country, when some of those who appeared to owe such tribute fled out of poverty, from a fearof intolerable punishment if they remained without paying, carried off their wives, and their children, and their parents, and their whole families by force, beating and insulting them, and heaping every kind of contumely and ill treatment upon them, to make them either give information as to where the fugitives had concealed themselves, or pay the money instead of them, though they could not do either the one thing or the other; in the first place, because they did not know where they were, and secondly, because they were in still greater poverty than the men who had fled.’” /=\

Inflation and Taxation in Ancient Rome

Bruce Bartlett wrote in the Cato Institute Journal: “As early as the rule of Nero (54—68 AD.) there is evidence that the demand for revenue led to debasement of the coinage. Revenue was needed to pay the increasing costs of defense and a growing bureaucracy. However, rather than raise taxes, Nero and subsequent emperors preferred to debase the currency by reducing the precious metal content of coins. This was, of course, a form of taxation; in this case, a tax on cash balances (Bailey 1956). [Source: Bruce Bartlett, “How Excessive Government Killed Ancient Rome,” Cato Institute Journal 14: 2, Fall 1994, Cato.org /=]

“Throughout most of the Empire, the basic units of Roman coinage were the gold aureus, the silver denarius, and the copper or bronze sesterce. 5 The aureus was minted at 40—42 to the pound, the denarius at 84 to the pound, and a sesterce was equivalent to one-quarter of a denarius. Twenty-five denarii equaled one aureus and the denarius was considered the basic coin and unit of account. /=\

poor in the provinces

“The aureus did not circulate widely. Consequently, debasement was mainly limited to the denarius. Nero reduced the silver content of the denarius to 90 percent and slightly reduced the size of the aureus in order to maintain the 25 to 1 ratio. Trajan (98—117 AD.) reduced the silver content to 85 percent, but was able to maintain the ratio because of a large influx of gold. In fact, some historians suggest that he deliberately devalued the denarius precisely in order to maintain the historic ratio. Debasement continued under the reign of Marcus Aurelius (161—180 AD.), who reduced the silver content of the denarius to 75 percent, further reduced by Septimius Severus to 50 percent. By the middle,of the third century A.D., the denarius had a silver content of just 5 percent. /=\

“Interestingly, the continual debasements did not improve the Empire’s fiscal position. This is because of Gresham’s Law (“bad money drives out good”). People would hoard older, high silver content coins and pay their taxes in those with the least silver. Thus the government’s “real” revenues may have actually fallen. As Aurelio Bernardi explains: ‘At the beginning the debasement proved undoubtedly profitable for the state. Nevertheless, in the course of years, this expedient was abused and the century of inflation which had been thus brought about was greatly to the disadvantage of the State’s finances. Prices were rising too rapidly and it became impossible to count on an immediate proportional increase in the fiscal revenue, because of the rigidity of the apparatus of tax collection.’ /=\

“At first, the government could raise additional revenue from the sale of state property. Later, more unscrupulous emperors like Domitian (81—96 AD.) would use trumped-up charges to confiscate the assets of the wealthy. They would also invent excuses to demand tribute from the provinces and the wealthy. Such tribute, called the aurum corinarium, was nominallyvoluntary and paid in gold to commemorate special occasions, such as the accession of a new emperor or a great military victory. Caracalla (198—217 AD.) often reported such dubious “victories” as a way of raising revenue. Rostovtzeff (1957: 417) calls these levies “pure robbery.” Although taxes on ordinary Romans were not raised, citizenship was greatly expanded in order to bring more people into the tax net. Taxes on the wealthy, however, were sharply increased, especially those on inheritances and manumissions (freeing of slaves). /=\

“Occasionally, the tax burden would be moderated by a cancellation of back taxes or other measures. One such occasion occurred under the brief reign of Pertinax (193 A.D.), who replaced the rapacious Commodus (A.D. 176—192). As Edward Gibbon (1932: 88) tells us: ‘Though every measure of injustice and extortion had been adopted, which could collect the property of the subject into the coffers of the prince; the rapaciousness of Commodus had been so very inadequate to his extravagance, that, upon his death, no more than eight thousand pounds were found in the exhausted treasury, to defray the current expenses of government, and to discharge the pressing demand of a liberal donative, which the new emperor had been obliged to promise to the Praetorian guards. Yet under these distressed circumstances, Pertinax had the generous firmness to remit all the oppressive taxes invented by Commodus, and to cancel all the unjust claims of the treasuly; declaring in a decree to the senate, “that he was better satisfied to administer a poor republic with innocence, than to acquire riches by the ways of tyranny and dishonor.’” /=\

State Socialism in A.D. 3rd Century Rome

Bruce Bartlett wrote in the Cato Institute Journal: “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, in order to eliminate any potential rivals to the emperor. 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. [Source: Bruce Bartlett, “How Excessive Government Killed Ancient Rome,” Cato Institute Journal 14: 2, Fall 1994, Cato.org /=] “As the private wealth of the Empire was gradually confiscated or taxed away, driven away or hidden, economic growth slowed to a virtual standstill. Moreover, once the wealthy were no longer able to pay the state’s bills, the burden inexorably fell onto the lower classes, so that average people suffered as well from the deteriorating economic conditions. In RostovtzefFs words, “The heavier the pressure of the state on the upper classes, the more intolerable became the condition of the lower”. /=\

Kneeling barbarian

“At this point, in the third century A.D., 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. The remaining members of the upper classes were pressed into providing 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 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's Efforts to Improve the Economy

Ralph W. Mathisen of the University of South Carolina wrote: “Another problem was the economy, which was in an especially sorry state. The coinage had become so debased as to be virtually worthless. Diocletian's attempt to reissue good gold and silver coins failed because there simply was not enough gold and silver available to restore confidence in the currency. A "Maximum Price Edict" issued in 301, intended to curb inflation, served only to drive goods onto the black market. Diocletian finally accepted the ruin of the money economy and revised the tax system so that it was based on payments in kind . The soldiers too came to be paid in kind. [Source: Ralph W. Mathisen, University of South Carolina ^|^]

“In order to assure the long term survival of the empire, Diocletian identified certain occupations which he felt would have to be performed. These were known as the "compulsory services." They included such occupations as soldiers, bakers, members of town councils, and tenant farmers. These functions became hereditary, and those engaging in them were inhibited from changing their careers. The repetitious nature of these laws, however, suggests that they were not widely obeyed. Diocletian also expanded the policy of third-century emperors of restricting the entry of senators into high-ranking governmental posts, especially military ones. ^|^

Diocletian's Price Controls

Bruce Bartlett wrote in the Cato Institute Journal: “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 .02 percent. As a consequence, prices skyrocketed. A measure of Egyptian wheat, for example, which sold for seven to eight drachmaes in the second century now cost 120,000 drachmaes. This suggests an inflation of 15,000 percent during the third century. [Source: Bruce Bartlett, “How Excessive Government Killed Ancient Rome,” Cato Institute Journal 14: 2, Fall 1994, Cato.org /=]

“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 Diodetian’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 (1984: 11), 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: Prices Edict, 301, Preamble: “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.”

Diocletian’s Economic Reforms

Diocletian coin

“Diocletian’s other reforms, however, were more successful. The cornerstone of Diocletian’s economic policy was to turn the existing A.D. 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 had to pay. /=\

Diocletian coin

“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 was 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 (1984: 37) 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 suffer from A.D. hoc confiscations. Also, the tax burden was spread more widely, instead of 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. In order to maintain this system where people were tied to their land, home, jobs, and places of employment, Diocletian transformed the previous ad hoc practice. 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.” /=\

Economic Reasons Behind the Fall of Rome

Bruce Bartlett wrote in the Cato Institute Journal: “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.’ [Source: Bruce Bartlett, “How Excessive Government Killed Ancient Rome,” Cato Institute Journal 14: 2, Fall 1994, Cato.org /=]

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.’ /=\

Constantine coin

“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 AD.) 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 areaof 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. 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. Jnlian, however, by cutting the tax rate, ensured that his tax reduction was realized by all the people. 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 (Bernardi 1970: 59, 66). /=\

“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 1 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. Thns even as tax rates rose, tax revenues fell, hastening the decline of the Roman state. /=\

Julian coin

“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 widespread and so injurious to the state’s revenues, in fact, that in 368 AD. 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 (1939: 33—62) has pointed out, once the invaders effectively had displaced the Roman government they settled into 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 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.” /=\

Image Sources: Wikimedia Commons

Text Sources: Internet Ancient History Sourcebook: Rome sourcebooks.fordham.edu ; Internet Ancient History Sourcebook: Late Antiquity sourcebooks.fordham.edu ; “Outlines of Roman History” by William C. Morey, Ph.D., D.C.L. New York, American Book Company (1901) ; “The Private Life of the Romans” by Harold Whetstone Johnston, Revised by Mary Johnston, Scott, Foresman and Company (1903, 1932); BBC Ancient Rome bbc.co.uk/history/ ; Project Gutenberg gutenberg.org ; Metropolitan Museum of Art, National Geographic, Smithsonian magazine, New York Times, Washington Post, Los Angeles Times, Live Science, Discover magazine, Archaeology magazine, Reuters, Associated Press, The Guardian, AFP, The New Yorker, Wikipedia, Encyclopædia Britannica, Encyclopedia.com and various other books, websites and publications.

Last updated November 2024