The history of economics is often only discussed from Mercantilism to the present era and the Neo-Classical school. However, Many of these economic theories that are discussed today originated over a millennia before in the Roman Empire. Prior to the insurgence of mercantilism was the era of the dark ages and the infamous feudal system that time and time again has been proven only to hinder growth or stop it all together. The feudal system didn't just appear from nowhere it was slowly developed over time and emerged out of a more complex economic system that mirrors the economies that arose from the feudal system. The Romans over centuries had developed a complex and volatile economy based on currency and free trade. However, the Roman economy was young and naive and eventually crumbled taking the empire along with it. The Romans were still able to leave their mark in the history of economics and their economic theories live on still today.
The Roman Empire was the epicenter of the world market during their reign over much of the civilized world. So why did the Romans fall? Much of their failure is due to there failing economy. The Romans made many mistakes but at the same time did make corrections but in the end their efforts were for not.
The beginning of the Roman Empire is marked by the appointment of its first emperor Augustus Caesar. Augustus was truly a classical school economist (if there had been a classical school at that time. Augustus first began a currency system moving the people from a barter economy to a more manageable money economy. The Printing of the first coins was done in copper and to give the currency it linked to a commodity. A head of cattle was used as the commodity to give value to the currency and thus the coin resembled the fact. The coin was in the shape of a cowhide complete with four legs protruding from the corners. The Mediteranian had been devastated by years of war and all neighboring economies were weak and combined with the growing Roman economy expansion was inevitable. Augustus decided that to build the economy up he would favor free trade and dismiss almost all taxes. During Augustus's reign there was only a modest duty on customs (estimated at 5 percent). Augustus also abolished several practices that were holding the economy back; such as Tax farming and regularization of taxes. Augustus almost had a fully "Lessiaz Faire" economy with the exception of Egypt, which will be discussed later.
Everything that Augustus did would seem quite beneficial by the Physiocrats almost 1700 years later. But not everything that Augustus implored was for the best. The large fluctuations of grain prices throughout the seasons made it difficult for citizens to maintain the supply that they needed. So, free food was given or at least free grained was dispersed to citizens. This practice was in place till the fall of the Roman Empire in 409 A.D. In the short run this worked well because the people were happy and thus produced more. The grain that was dispersed was only a fraction of the grain industry but yet it still hindered the industry from reaching the growth potential that it had. The Romans never did develop any theories on diminishing marginal utility and thus never realized that providing a good for free will only hinder an economy. This misallocation of resources is the reason why Egypt was not allowed the free trade of the other Roman provinces. The free grain was distributed to subdue the people and to gain support and to maintain the amounts of grain needed Rome had to have strict control over the production. Thus Egypt maintained its socialistic economy and mainly produced the amount of grain the government called for. Also Augustus developed a lager system of currency that contained more metals and slowly moved from being based on commodities to being based on rare metals mainly gold, silver, brass.
Shifting the currency to a multiple metallic economy caused many problems that...
References: Bailey, M.J. (1956) " The Welfare Cost of Inflationary Finance." Journal of Political Economy 64(2).
Bartlett, Bruce (1194)"How Excessive Government Killed Ancient Rome" The CATO Journal 14(2).
"A Few Different Economic Systems in History" Retrieved November 26, 2003, from http://myron.sjsu.edu/romeweb/economy/econsys.htm
Hopkins, K. (1980)"Taxes and Trade in the Roman Empire (200 B.C.-A.D. 400). "Journal of Roman Studies 70.
Thornton, M.K., and Thornton, R.L. (1990)"The Financial Crisis of A.D. 33: A Keynesian Depression?" Journal of Economic History 50(3).
Please join StudyMode to read the full document