De Soto’s Thesis and the

Roman Empire

Ferry van Asperen

Bram van Besouw

Coordinator:

J. L. van Zanden

Contents

Introduction p. 4

Chapter 1

Testing De Soto’s hypotheses p. 6

The benefits of property rights p. 6

Chapter 2

The Roman state and formal property rights p. 9

The social contract p. 9

Shortcomings of the system p. 12

Chapter 3

Roman society and economic performance p. 14

The orders p. 15

Social mobility p. 16

State participation p. 17

Economic performance p. 17

Conclusion p. 20

Bibliography p. 21

2

Introduction

In “The Mystery of Capital: Why Capitalism Triumphs in the West and fails everywhere else” De

Soto contrasts the success in development and wealth creation between The West and the Third

World. His point of comparison is not, as you might expect, the difference in the amount of material

goods or the amount of foreign currency or gold reserves. In fact, he concludes that Third World

countries are quite wealthy in their own right. His point of comparison between The West and the

Third World is the success at which governments were able to establish “public memory systems”.

According to De Soto’s thesis such systems effectively safeguard public awareness by

transforming intangible relations such as the relationship between an owner and his property into

something tangible and unambiguous. By leveraging such a system of public record keeping The

West invented “capital” and used this invention to unlock the vast potentials of productive capacity

that lay slumbering before.

De Soto’s analogy to this phenomenon is that of a mountain lake, which at first is only available

as potential energy. Only by recognizing this potential and by constructing a dam are we able to tap

the vast resource of tangible kinetic energy that was “locked away” beforehand (De Soto, 2000, p.

48). According to De Soto the same holds for the shanty towns in developing countries. By

establishing reliable, accessible and fair systems of public record keeping Third World countries will

be able to activate the unused wealth of the poor in the same way a dam activates the kinetic energy

that’s stored in a mountain lake.

In this paper we plan on testing this thesis. Not by comparing the success of The West to the

Third World, but by comparing The West to its own history. By comparing the modern capitalistic

West to the glory days of the Roman Empire, the years of the Principate (27 BC till 235 AD), we want

to find out if De Soto’s thesis is able to explain economic performance in the Empire. Given that the

Roman Empire can be seen as the gold standard of its time in terms of civilization, and because our

contemporary legal framework in many ways derives from Roman law, we think of this as a fair

comparison.

Finding evidence in support for De Soto’s thesis during the Roman Empire would imply that the

Empire experienced economic growth per capita. This is a logical conclusion resulting from the

economic benefits that would follow a good and accessible system of property rights. The question

we will therefore seek to answer is “How was the Roman Empire able to benefit economically from

an extensive system of registration and property rights?” We will focus on the period 27 BC - 235 AD

and measure economic performance mostly on income growth.

3

To get to answer such a comprehensive question there will be several steps to take. In the first

chapter De Soto’s thesis will be explained and used to build a framework on which it can be tested.

The extensive Roman law will be the subject of the second chapter. The first two chapters are crucial

for understanding and limiting Roman law to the important parts for testing De Soto’s thesis.

In the third chapter the Roman society will be explained. De Soto pays much attention to social

differences creating inaccessible property systems, a ‘bell jar’ in which only the upper class can

participate. This bell jar creates large differences in economic opportunities between people and

limits the economic potential of the society as a whole. In the conclusion we will seek to answer the

research question stated above.

4

Chapter 1

Testing De Soto’s thesis

Throughout The Mystery of Capital De Soto makes a clear distinction between money and assets

on the one hand, and capital on the other hand. This is the distinction between tangible and visible

attributes on the one hand, and the intangible and invisible surplus value that these attributes can

create on the other hand. According to De Soto it is the concept of representation that allows us to

make this distinction. When we represent a physical object we assign symbolic values to the various

properties of this object. Doing so makes the objects “mind friendly”. It allows us to talk about,

identify, compare and count objects.

Representations of objects also remain distinct from the physicals objects they represent,

because they exist as systems of thought. Representations can therefore outlast the physical objects

they describe. In fact, the ability to conduct economic historical research depends in important ways

on the ability of representations to outlast their physical counter parts. Testing De Soto’s thesis

would be impossible without the preservation of written sources, which are essentially

representations.

There is also another way in which representations are crucial to our ability to test De Soto’s

thesis to an historic context: they are time agnostic. By this we mean that even though all

representational systems were discovered at specific times in history, their validity as systems of

thought is supposed to be timeless. In the context of De Soto’s thesis this allows us to compare

Roman law to modern systems of formal property rights, even though those modern systems did not

arise until the late 18th century (De Soto, 2000). It will also allow us to engage in counterfactuals to

try and determine the surplus value that formal property systems really produce.

The benefits of property rights

De Soto recognizes six beneficial effects that formal property systems have on productivity and

trade (De Soto, 2000, pp. 39-61). All beneficial effects are ultimately created by the use of property

rights as an instrument of thought that enables the representation of assets in such a way that

people’s minds can work on them to create surplus value (De Soto, 2000, p. 218). We will use the

following six beneficial effects to test his thesis:

1. Fixing the economic potential of assets.

According to De Soto capital is born by representing, in writing, the most economically and

socially useful qualities about the asset (De Soto, 2000, p. 49). This is distinct from merely writing

5

down physical properties of an asset, as it presupposes a social-economic context in which the assets

can be put to use. Through the use of categories that are meaningful in a social-economic context the

asset becomes “mind friendly” in a way that allows us to immediately grasp the economic potential

of that asset. In a way it changes how we look at physical objects by forcing us to think about them

using social and economic concepts. A house, for example, is no longer seen as just a shelter.

Although it remains a shelter, it also becomes an asset that can potentially be rented out or used as

collateral for a business loan. By applying concepts in this way we activate the economic potentiality

of objects that beforehand could only be called ‘dead assets’.

2. Integrating dispersed information into one system.

This effect relates to the formalization and standardization of property systems. Although the

use of concepts fixes the economic potential of an asset, the concepts themselves may not be fixed.

What properties are written down and who counts as property holder may differ. When the concepts

themselves aren’t fixed this creates ambiguity, and therefore uncertainty about the economic

potential of the assets. This situation can occur when various competing legal or extra-legal property

systems are in place. Only by integrating various property systems in a unified formal system can

opportunities to create surplus value be easily examined. This increases people’s ability to evaluate

and exchange assets and thereby increases the productivity of assets.

3. Making people accountable.

The integration of different local property systems into one formal property system changes the

social context in which assets are held. Whereas before the recognition of a property claim only

existed within local communities, the formalization of property under impersonal systems of law

profoundly changed the way in which people are held accountable. De Soto describes this as having

mixed effects. Formal property systems allow people to track individuals outside of their immediate

communities and their history of honoring contracts. On the other hand it makes people accountable

in a way that removes their ability to remain anonymous members of the masses.

4. Making assets fungible.

The ability to describe assets in standardized formal categories allows for greater degrees of

freedom in the transfer and recombination of those assets. According to De Soto this degree of

freedom is what sets assets free of their “rigid, physical states” (De Soto, 2000, p. 56). Using

representations of assets to conduct business makes those assets fungible in a positive sense. It

allows the share of ownership to be easily transferred, diluted or increased. Representations also

allow for easily movable stand-ins for physicals assets, greater measurability of the asset’s attributes

6

and other practical advantages. This reduces transaction costs and, most importantly, it allows

entrepreneurs and owners to explore hypothetical situations in order to find more profitable ways to

put their assets to use.

5. Networking people.

The greater accountability under formal property systems allows greater degrees of networking

people. The introducing of formal risk establishes a system of trust under which people outside of

the immediate community can be reliably approached to conduct business. Credit records, verifiable

identities and objective property records are examples of innovations that decrease risk in exchange,

as well as reliability and networkability.

6. Protecting transactions.

The protection of transactions under formal laws greatly increases people’s ability to exchange

large quantities of assets. Since economic potentials are often only realized by transacting, the

proper protection of transactions is the oil that allows the capitalist machine run smoothly. De Soto

states that Roman law focuses on ownership rather than transactions, and therefore decreased the

ability of people to have their assets lead a parallel life as capital (De Soto, 2000, p. 62).

As mentioned already, compliance to De Soto’s conditions for a good and accessible system of

property rights implies, a priori, strong economic performance. When people have access to good

property rights, this enhances trade, because transactions with strangers become possible. This

creates larger markets. Next to that, people are able to use and trade assets as capital. They can also

use assets as collateral, because the properties of the asset are clear and the creditor can enforce the

loan by law. Al these factors stimulate entrepreneurship, capitalism and therefore the economy as a

whole.

7

Chapter 2.

The Roman state and formal property rights

At the height of its power the Roman empire managed to field large standing armies, control far

flung regions in the Middle East and Western Europe and support a capital city with a population of

over one million. When we take this knowledge into consideration, it can be known a priori that the

Empire must have realized at least some of the beneficial effects that De Soto ascribes to property

rights. Without the ability to integrate dispersed information for instance, the Romans would never

have been able to successfully locate and gather sufficient resources to support a large army or

support the sizable population living within the confines of the capital city. What this chapter seeks

to answer therefore, is not if the beneficial effects that De Soto describes existed at all, but to what

extent they can be attributed to the establishment of formal property rights. We will do this by

investigating the Roman institutional framework, primarily by seeking out examples that either fit

well or contrast strongly to De Soto’s paradigm.

The social contract

One of the things that De Soto did not mention explicitly, but that’s implicit to his paradigm, is

that property rights not only function to make economic potentials “mind friendly” to individuals, but

also to the state. The ability to categorize the potential value of assets, the integration of this

information into a standardized knowledge base and the ability to identify and track down individuals

benefits the public sector just as much as it benefits the private economy. Without the ability to

categorize the potential value of an asset or the ability to locate that asset the state would be unable

to successfully determine which resources are available to be extracted from the economy through

taxation.

One could say that if the state were an individual, its formal property rights would be its eyes

and ears. This therefore means that the necessity to tax goes hand in hand with the provision of

formal property rights to the private sector. De Soto does seem to pick up on this to some extent in

his usage of the term ‘social contract’. Although he doesn’t define the term in The Mystery of Capital,

he does seem to grasp that it implies a consensus, or a balance that’s struck between conflicting

interests of the public and private sectors. In going with this usage of ‘social contract’ we can thereby

come to see formal property rights as a balance that’s reached between the conflicting needs of the

state to tax and of private individuals to maintain and protect their ownership. Formal property

rights are therefore able to take a conflict of interest, and transform it into a well-oiled machine that

benefits both parties.

8

One example from Roman times that shows this relationship of mutual benefit very well is the

responsibility that cities took in the organization of a fair and transparent market for slaves and

cattle. A common problem in any market, but especially in markets where complex products are

traded, is that of information asymmetry. Slaves are a very complex product and the seller of a slave

has a large knowledge advantage over any potential buyer. The seller, having been the slave’s

previous owner, would know the slave’s work attitude and his propensity to run away. Both of these

factors are very important determinants of a slave’s value. This information asymmetry has the risk

of impairing the general market value of slaves as buyers will general bid less in order to ensure that

they are compensated for their risk of buying a bad slave. Perhaps this price impairment is mitigated

when slaves are traded amongst a group of traders that know each other well, and that would be

able to hold each other accountable by informal means such as a refusal to trade. This would

considerably reduce the size of market however, as traveling traders or participants who engage in

one off transactions that can’t be held accountable in this way would be effectively barred from

getting a fair price.

The Roman invention that counteracted this problem of information asymmetry in the slave and

cattle markets was an institution of magistrates known as the Curule Aediles (Frier & Kehoe, 2007,

pp. 119-122). This institution enforced the seller’s liability to effectively disclose important

information such as the slave’s nationality and the existence of non-evident diseases and other

shortcomings. By mitigating the buyer’s risk of buying a lemon this institution of magistrates was able

to effectively reduce transaction costs. A buyer might still experience great costs in tracking down

and suing a seller, but the possibility of doing so was enough to inspire a general confidence in the

transparency of the market. The result is that slaves and cattle fetched higher prices and more buyers

and sellers would be able to participate than would otherwise be the case. This increases the general

attractiveness of a market, which in turn will increase a government’s tax revenue in direct and

indirect ways. Municipalities throughout the Roman Empire therefore copied this institutional model.

It also shows that the Romans did enforce the protection of transactions, although the general

system of property laws may still have been biased towards the protection of ownership rather than

transactions as De Soto indicated.

A similar example of shared benefits between the Roman state and the private economy can be

found in the “taxes and trade model” of the Roman imperial economy devised by Hopkins. Although

this model is slightly controversial it “framed scholarly discussion in the last twenty years” according

to Lo Cascio (2007, p. 621). According to Hopkins’ model the Roman state vigorously promoted long

distance market exchanges of staples in the Mediterranean region. By taxing regions that ran trade

surpluses and spending it in regions that ran deficits the state promoted the flow of staples to

regions in which it held special interests, such as the city of Rome or the frontier regions of the

9

empire. It also provided those special regions with the necessary coins to pay back the surplus

regions each tax cycle, which maintained the status quo. This model is controversial because there is

no quantifiable evidence to back it. A similar tendency can be seen in the redistributive mechanism

of modern states however, and if true, this mechanism would have promoted economic integration

and a system of interdependent markets throughout the Roman Empire (Lo Cascio, 2007, p. 622).

We do know with certainty that a complete reorganization took place at the beginning of the

Principate (Lo Cascio, 2007, p. 631). Uniform criteria of measuring the value of agricultural land and

assessing the wealth of subjects were extended first to the provinces under direct control of the

emperor, and also later to provinces controlled by the senate. Tax farmers and other private

individuals that were part of the tax enforcement system, were replaced by public functionaries.

The payment of taxes in cash rather than payment in kind was also directly connected to the

introduction of regular censuses and the extension of uniform criteria to the provinces. These

changes likely resulted in a tax system that was leaner and meaner, where less tax revenues were

lost due to frictions and where a greater amount of information about who owned what was known

and available to the public. This must have held great benefits for the private economy as the tax

burden would be reduced and the payment of taxes in cash increased the money supply, which in

turn provides a greater ability to monetize generally illiquid assets such as agricultural land. There are

even some indications that the Roman state maintained a rudimentary form of monetary policy (Lo

Cascio, 2007, pp. 629-631).

By readjusting the face value of different metal denominations the state may have sought to

supply the economy with adequate means of supply. Taking into consideration that state borrowing

was practically unknown (Duncan-Jones, 2004, p. 3), and the issuance of coins was the primary

means by which the Roman state could run budget deficits, we think it’s highly likely that there

existed some form of monetary policy very similar to the conduct predicted by Hopkins’ model. In

this model the state regulated the liquidity in the economy, either through targeted spending, or

through the removal of liquidity through targeted taxation. The Roman state would otherwise have

had a very difficult time in maintaining a stable purchasing power of its currency and, consequently,

for the state to finance itself.

Greater monetization and the extension of uniform criteria of measurement and value

assessment are likely to have promoted the economic integration of the empire, which reinforces

Hopkins’ model. There were exceptions however to this trend of extending uniform criteria to the

provinces. Lo Casco writes that regional features sometimes survived and the collection of some new

taxes under Augustus were farmed out to private individuals (Lo Cascio, 2007).

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Shortcomings of the system

Although the Romans did very well in the establishment of institutions and laws that would in

theory promote greater economic integration, lower transaction cost and a great degree of

standardization and unification of dispersed information, there are some paradigm examples in

which the Romans were not able to achieve this. One of those cases concerns the legal shortcomings

in the way firms could be set up. Most importantly there was no legal distinction between a firm and

its shareholders. Firms were always construed as societas, or partnerships in which the risk and

liabilities would be burdened directly by the partners. A valuable innovation in modern property law

came with the invention of a juristic personality by which a legal entity could engage in business and

accept liabilities.

This innovation allowed for the continued existence of a firm regardless of the involvement of

the original founders. A Roman societas would, for instance, be dissolved upon the death or

withdrawal of one if it’s founders. This means that the potential of future revenues, the reinvestment

of retained profits and the formal and informal understandings that existed would dissolve along

with the societas. It also makes the owner’s stakes less “fungible”. Fixing the legal identity of a firm to

the personal identity of its founders renders impossible the issuance of new shares or the partial sale

of a stake.

A lack in the distinction between personhood and legal identity also increases the potential

liabilities to the founders, and therefore their risk. Their debtors, for instance, would be able to hold

them personally accountable for any unpaid debts accrued in the dealings of the societas. Both

shareholders and lenders did respond rationally to this risk however. In shipping, traders would form

societas that were large and diversified enough to burden the risk of shipwrecks (Morley, 2007, p.

588). Their lenders would devise contracts that made their debts callable in the event the borrower

undertook a venture outside of the safe shipping season. There is also evidence in the form of a clay

tablets that show that some debts were highly fungible assets. Some lenders would combine

different contracts and partition them into investable products, which even allowed freedman, which

usually had little capital, to invest in them. Although this would be a prime example of the beneficial

effects of ‘fungible’ assets that De Soto writes about, there is little evidence that this practice was

widespread (Morley, 2007, p. 588).

A last area where the Romans failed to innovate touches directly on the issue of a social

contract. Lo Casco writes that the role of the emperor was inherently ambiguous as he was expected

to act as a private individual under the rule of law, yet at the same time he was expected to set the

rules (Lo Cascio, 2007, p. 641). This lack of distinction in public and private personhood provides a

strong incentive for personal enrichment by means of the state. Such an incentive would explain the

11

general trend that arose in the 2nd century towards the widespread confiscation of property by the

imperial state. When property rights can be arbitrarily redefined to benefit the emperor and his

friends, it puts the whole concept of property rights on loose footing.

12

Chapter 3

Roman society and economic performance

When Augustus rose to sole power in 27 BC, decades of civil war had undermined the society of

the new Roman Empire. Augustus restored the old structure of social orders and even made a

stricter division between the orders (Garnsey & Saller, 1987, p. 107). There has been much debate

among scholars about the social structure and the economic consequences this structure brought

about. In his classical work “The Ancient Economy” Finley describes the Roman society as a very

complex and hierarchical society. He argues that this hierarchy is based on social consensus and not

so much on juridical segregation (Finley, 1973).

According to Finley, the Roman society was a typical pre-capitalist society where profit

maximization and increasing production were not common use. Hard work was even deemed

immoral which meant that the higher social groups did not participate in production. Instead the

Romans valued the possession of land as measure of wealth but had servants produce on it, meaning

that the Roman society was a slave society. The lower social groups had to work in order to survive,

but according to Finley, they also did not work to produce a surplus for the market and lived at

subsistence level (Finley, 1973).

Finley draws heavily on the surviving work from ancient sources. Evidence from Roman times is

thin and one has to work with the evidence given. The ancient sources used by Finley provide a clear

bias as the Roman elite is strongly overrepresented. Almost all ancient writers whose writings have

survived belonged to the Roman elite, something Finley agrees with (Finley, 1973, pp. 23-26). The

conclusion that the elite disapproved with hard work could be correctly established, but extending it

by stating that the Roman economy was unproductive and stagnant seems to be a to extensive

conclusion provided the evidence of the ancient writers.

Though weakly grounded, the general statement Finley made seems to have been followed by

many other scholars (Temin, 2004, pp. 513-514). Garnsey and Saller (1987, pp. 43-63) defend Finley’s

thesis, calling the Roman economy underdeveloped. In their opinion, the economy is halted by the

unproductive stance of the elite, low technological standards and the domination of agriculture in

the economy. Commerce and manufacture only play marginal roles.

But how big were these elite groups in proportion to the Roman population? And how is it

possible that there is no production in a city with an estimated population between 750.000 to a

million citizens, like Rome (Garnsey & Saller, 1987 p. 83; Kehoe, 2007, p. 543)? The citizens must have

been provided with food from the countryside. This in turn must have raised demand for tools and

13

other manufactures. In order to answer these questions it is essential to understand the basics of the

structure of the Roman society.

The orders

During the early years of the Empire, the Roman elite consisted of three different groups. The

wealthiest and most influential group of about 600 men and their families was the senatorial order.

One had to be of descent birth, proved to behave according to high moral standards and had to

possess at least a million sesterces. These men were the landowners and the richest men in the

empire. They possessed large quantities of land, normally scattered over the empire, but lived in

Rome. Their main occupation was politics (Garnsey & Saller, 1987, pp. 65-71).

The second group was the equestrian order. This was also a group with high status and they had

to meet the same requirements, except they had to possess assets worth 400.000 sesterces. They

were more numerous than the senatorial order, but also part of the non-working elites and involved

in politics. They occupied the slightly less important political positions. The decurions formed the

third elite group. The requirements on descent and wealth (100.000 sesterces) were less stringent,

but were still only accessible for a very small part of the Roman society. The decurions were also

involved in politics, but on a local level (Garnsey & Saller, 1987, pp. 114; Jongman, 2007, pp. 616-

617).

The three elite groups formed only a tiny fraction of the population of the Roman Empire. The

major part consisted of ordinary people, slaves and freedmen. There is much debate about the

position of the normal men, the free men. There is also a big difference between the free men living

on the countryside or in the city. Peasants were not always registered in municipal accounts on land

division. The difference between tenants and peasants is also not always clear, but important for this

paper.

One can assume that it was not always possible for peasants to be completely independent from

the surrounding rich landowners. The peasant may have had to work the land for a rich landowner

for more earnings, for example during bad harvests, but could also have had to rely on the elites for

protection. Or it could have been the other way around, landowners forcing peasants to work their

lands for them, in which case peasants could not rely on property rights. These considerations show

that it is difficult to construct a good picture of the position of peasants as a result of the lack of real

evidence.

Citizens of Rome were provided with wheat by the emperor. During the early years of the

Empire (the first century and part of the second) they were treated pretty well by law. There is

evidence that the ordinary man lived a decent live. Archaeological findings indicate that a large part

14

of the population of the Roman Empire had a pretty varied diet, including olive oil, wine and even

meat. People in the Mediterranean world during the first century were also larger compared with

their ancestors and descendants. This indicates that many Romans lived well above subsistence level,

something that was not achieved in Europe again before pre-modern times. They had access to

property rights and could hold slaves (Jongman, 2007).

The position of slaves is something entirely different. Slaves were regarded as animals and

property of the owner. Many slaves lived and died under inhumane circumstances. But Roman

slavery was different than medieval slavery (Finley, 1973, pp. 62-94). The division between slaves and

free men was less sharp and slaves could also be treated fairly well. In some cases slaves were

allowed to run businesses for their owners or to raise a family. There are also accounts of slaves that

were freed (and thus became freedmen) and became rich and saw their children accede to the

higher social circles.

Social mobility

The social structure installed by Augustus proved to be very stable (Garnsey & Saller, 1987, p.

107). This is surprising because such a big part of the population is excluded from the higher orders.

This part was so large that it can be regarded impossible to maintain this social structure by force and

coercion. Maintaining it with force would also immediately undermine the classification ‘stable’.

Another possibility is that the social structure gave enough space for individual performance and

improvement of one’s situation. From the highest two orders, the senatorial and equestrian, it is

known that there was a lot of change between and inside these groups. It was normal that a

senatorial family would descent to the equestrian order in a few generations. The reverse movement

was also very common.

The third order was logically the way up to the equestrian order, but also possible (although not

often) to enter for the ordinary men. The decurions were local politicians, but when there a town or

city was short of decurions it also appointed wealthy free men as politicians.

The army provided an opportunity to rise from free men to the elite. Legionaires earned 1200

sesterces a year and were rewarded with a piece of land when released from military duty.

Centurions (officers) were normally drawn from the legionaires. They were even raised to the

decurion order. But differences in wealth were extremely large in the Roman society. Wealth was in

land, as it was mostly an agricultural society, and therefore in families. The differences were normally

too large to earn in a lifetime, except for some people who were extremely lucky or talented.

During second century the social structure system of orders changed in more general division

between honestiores and humiliores. Garnsey and Saller (1987, pp. 110-112) relate the arrival of this

15

new social structure to the fact that a large part of the Empires population had gained Roman

citizenship during the first and second century. The differences between Romans and provincials

therefore became opaque. Before law implemented this new social division there was already a

trend towards it. Honestiores were the three elite groups who kept the same rights. The humiliores

were free men, freedmen and slaves. For the free, ordinary men this meant that his rights

deteriorated compared to the elites. The social structure wherein the ordinary men could live a

decent an independent live during the first century this changed into a system of oppression and

coercion by a small elite group.

State participation

Calculations by scholars show that the state budget was low compared to GDP, some 10 percent.

The senatorial order together had a much higher income. The imperial budget was raised by taxes

and spent on maintaining the army, supplying Rome with wheat and on public works. The state thus

focused on maintaining the empire and peace. The only other industry in which the government

participated actively was the minting of coins and mining of metals for that purpose (Lo Cascio, 2007,

pp. 619-625).

The supply of free grain created an imperfect market for wheat, but also created much

commerce. The state was not capable of organizing the total supply for Rome on its own and bought

wheat from peasants and hired shippers to move the wheat. Next to that, it only supplied wheat,

only in Rome and not for everyone. So it left enough for the market. Rome was the tax centre of the

Empire and the rents of the landowners (senatorial and equestrian order) were spent in there. This

money created an enormous demand that was only for a small part met by the state (Jongman, 2007,

pp. 529-569).

The Antonine Plague in 165-175 AD (Temin, 2004, p. 519) seems to mark the starting point of

swift expansion of state control over land and property (Lo Cascio, 2007, p. 646). The army lay

starving and the economy was disrupted. The tax-base of the state dried up and the imperial

government was not able to provide wheat for Rome. After that experience the state confiscated

much private property to take a more prominent position in the economy. This development

approximately coincides with the change in social structure mentioned above, deteriorating the

property rights of the ordinary men. The Imperial government confiscated land from both elite and

ordinary people, but the elite also established a more oppressive position and forced the ordinary

men into dependency.

Economic performance

16

The property rights for free men were well established in the first century. Large cities, the very

rich elite and relative peace must have stimulated demand in the Roman Empire. Evidence of

archaeological findings of amphora’s and shipwrecks show that olive oil, wine, pottery, building

materials, utensils, weaponry and slaves were found all over the Empire (Morley, 2007, pp. 571-577).

This indicates strong commercial activity and on a consumer demand for a wide range of products.

According to De Soto’s thesis this should have fuelled economic growth and entrepreneurship.

The elite were risk averse landowners and not interested in economic growth, but were involved

in most of the economic activity. They had the capital to buy large property and make serious

investments, like buying mines and large pieces of land. As landowners they also controlled the

production of raw materials that were used to produce many common goods in the Roman Empire.

Although not actively participating in industry and commerce they shared in much of the profit, by

leasing property and selling their raw materials.

This division of labour between Romans was a debated one. As stated before, Finley described

the Roman society as a slave society where the elite deemed work as immoral and forced other

people to work their property for them. But in many cases slaves functioned actually as esteemed

managers of the businesses owned by the elite (Frier & Kehoe, 2007, pp. 130-134). When the rich

hired labour to work their land or to produce in their workshops, they had to pay market-based

wages, which indicates that free men where free to chose a job. This is at least the case for the early

Roman Empire (Temin, 2004, pp. 518-521)

Peasants and tenants could earn a decent living in farming. The yield in agriculture was slightly

lower than in medieval times. There was also technological progress, for example new olive pressing

systems were developed, but the progress was slow and did not spread rapidly over the Empire. The

difference between tenancy and ownership were thin, as most peasants were not completely

independent of the rich landowners. They needed safety, credit for investment and help when

harvests were bad, all of which could be provided by the elite. There is evidence that peasants

worked together and pooled their money for small investments. There is also evidence that peasants

“produced cash crops for the local market” (Garnsey & Saller, 1987, pp. 76) indicating that they could

create a surplus production and earn money with it. And next to that, they peasants also clearly tried

to achieve such profits. This contrasts Finley’s conclusion that there was no urge for high productivity

and profit.

The demand mentioned above and the agricultural activity should also have stimulated urban

commerce and manufacturing. There is evidence for dying regions in cities with workshops for

industrial production (Kehoe, 2007, p. 565). Ordinary citizens participated in these industries,

individually or hired by someone of the higher orders to work for them in their workshops, earning

market-based wages (Temin, 2004, pp. 518-521).

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This al resembles the working of a modern economy, only lacking modern transportation and

communication. But Roman law provided a major obstacle, as it did not allow the founding of a

limited liability corporation (see also Chapter 2). Therefore merchants and manufacturers could not

bring together enough capital for large investments, without resorting to the elite. Only the state and

the elite were wealthy enough to buy ships, mines and workshops with the newest machinery, for

example. But these landowners did not participate actively in the production and were not even

looking for it.

This hampered the forming of a wealthy group of merchants and manufacturers that could

compete with the agricultural elite. This also hampered technological progress. But evidence shows

that the Roman Empire experienced a long period of profound real economic growth during the first

century (even from the late years of the Republic). A large part of the population lived well above

subsistence level, earning a wage or creating a profit significantly higher than minimum required

wheat to feed the family. The thought that the Roman Empire was bound to the Malthusian trap is

thus outdated.

Evidence has also shown that this economic growth changed into economic decline during the

second century (Jongman, 2007, p. 612). This coincides with the above-mentioned Antonine Plague,

followed by the states expansion, and the change to a new, more oppressive, social structure. These

developments deteriorated property rights and thereby the economic possibilities for ordinary men.

The Roman Empire in the late second century became a society in which the state and the elite

sought to control all power and wealth, leaving the economy destroyed.

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Conclusion

We’ve found paradigm examples for each of the six beneficial effects of property rights

identified by De Soto. At minimum, those examples show that the Roman state was tacitly aware of

the benefits that property rights bring about, both for the private economy and for its own tax

revenues. In all likeliness, the Roman state was actively involved in the promotion of the economic

integration of the empire by extending a uniform system of measurement and value assessment.

There are even indications that it sought to accomplish this through a form of monetary policy. In

many ways the workings of the Roman economy resembled those of a modern economy, albeit

without modern means of transportation or communication. This resulted in economic growth per

capita, and in opportunities for a large part of the population.

The social structure of the Roman Empire however shows the importance of the idea of property

rights being rooted in a social contract. Without taking into account the balance of power between

the state and different social classes, the beneficial effects of property rights lack coherence.

Whereas each individual beneficial effect can be demonstrated to have existed at some time as the

result of a specific law or institution, it would be unreasonable to consider those effects without a

reference to social context. This supports De Soto’s thesis well. Although beneficial effects were

realized for specific groups of people in specific locations, this doesn’t appear to be the case for the

total population. This lopsidedness in social structure eventually resulted in a general trend towards

the confiscation of property by the state and greater coerciveness. Again, this shows the importance

of incorporating social context when testing the beneficial effects of specific property laws and

institutions.

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