Are We Seeing The End Of Our Past?

There is a fascinating post by the economist Mark Koyama over on Medium that explores the question of whether economies can actually be self-sustaining or whether they are eventually doomed to stagnate and contract or even die. The immediate question that Koyama grapples with is why ancient Rome did not develop a sustainable economy in the same way the that the world has seen out modern economy develop since the dawn of the industrial revolution 300 years ago.

Koyama cites a book by Aldo Schiavone called the End of the Past. In it Schiavone points out just how dominant and far-reaching the Roman economy was. First century AD Rome was bigger than any European city in 1700 and economist Peter Temin believes the economy of the entire Roman empire of that period probably matched Europe’s in the early 1700s. But there were clearly differences between the two. Koyama paraphrases Schiavone, saying, “Observe that Roman history leaves no traces of great mercantile companies like the Bardi, the Peruzzi or the Medici. There are no records of commercial manuals of the sort that are abundant from Renaissance Italy; no evidence of ‘class-struggle’ as we have from late medieval Europe; and no political economy or ‘economics’, that is, no attempts to systematize one’s thoughts and insights concerning the commercial world. The ancient world, in this view, only superficially resembled that of early modern Europe. Seen from this perspective, the latter contained the potential for sustained growth; the former did not.”

Schiavone attributes this to two important elements of the Roman economy, slavery and the dominance of a aristocratic, rentier class. Again Koyama summarizing Schiavone, “ultimately the economic stagnation of the ancient world was due to a peculiar equilibrium that centered around slavery…the ancient reliance on slaves as human automatons — machines with souls — removed or at least weakened, the incentive to develop machines for productive purposes…The relevance of slavery colored ancient attitudes towards almost all forms of manual work or craftsmanship. The dominant cultural meme was as follows: since such work was usually done by the unfree, it must be lowly, dirty and demeaning…Thus this attitude also manifest itself in the distain the ancients had for practical mechanics: Similar condescension was shown to small businessmen and to most trade (only truly large-scale trade was free from this taint). The ancient world does not seem to have produced self-reproducing mercantile elites. Plausible this was in part because of the cultural dominance of the landowning aristocracy.” Koyama calls this the “easy assumptions of aristocratic superiority”.

In other words, slavery created an environment where the technical capabilities, which the Romans clearly had based on the incredible public works that we still see, were never put into use in improving agriculture or small craft businesses. The merchant class was respected but it was seen as a means to an end, to becoming part of the landed gentry, a rentier class, that was supported by slave labor.

Now, there is clearly an open question of whether slave labor was instrumental in helping to launch and create the Industrial Revolution. But there is no question that the democratizing influence of the late Renaissance and the Reformation led to the acceptance of what we now consider the basis of modern market economics and helped drive lay the groundwork for the Industrial Revolution and create our modern economy.  Dierdre McCloskey calls this the acceptance of the norms and tenets of the bourgeois mentality. The acceptance of those principles never happened in Rome and may account for its inability to sustain itself.

But there is another point of view expressed by Bas van Bavel that looks at economies throughout history and concludes that they always end in decline. The initial “liberalization” creates mobility and easier exchange of land, capital, and labor and improves the lives of the average person. But there eventually emerges an essentially plutocratic class that accumulates the majority of the capital, wealth, and power, largely on the backs of wage labor. That power translates to political power which begins the process of stagnation as the elites essentially attempt to “lock in” their advantages. Polarization increases and the welfare of the average citizen declines. The stagnation and sclerosis reduces innovation and eventually leads to economic decline.

Which brings us to where we are today. Global inequality is at levels not seen in a century or more. There is a distinct global plutocratic class that uses offshore entities to hide its enormous and often ill-gotten wealth and to conduct business largely hidden from public view.  Most of the 20th century’s dictatorships have not become democratized but have morphed into illiberal democracies that serve an entrenched oligarchy.  The opening up of China and India created a vast pool of wage labor that could be exploited to further enhance the wealth and power of this global plutocratic class.

And now, the tax bill that looks Republicans are trying to ram through Congress will just further entrench the American plutocrats. The repeal of the Alternative Minimum Tax and the estate tax will create a huge windfall for the already well off and create our own version of a landed gentry of dynastic power. The reduction of the corporate tax along will further empower the shareholder, rentier class. Meanwhile, that very class will ensure that the exploding deficit will require cuts to services for the wage labor class. There is virtually nothing in this tax bill that does anything to grow the economy or support small business, the supposed engine of growth. It is simply designed to make the already wealthy and powerful even more wealthy and powerful.

Just as in Rome and as van Bavel predicts, the elimination of the wage labor class via automation will further entrench the wealthy elites. And with virtually no labor costs to eliminate, the need for innovation will decline and economic stagnation will set in. In the US, wages have been stagnant for over 40 years. Productivity has been below normal for well over a decade. New company formation is also at historic lows. The barriers to entry in certain markets now are almost insuperable. In some industries, the elites have already locked in their advantage. Polarization is at an all-time high. It certainly seems that stagnation and sclerosis is already setting in.

Maybe I’m just getting old and see the world collapsing just as my parents and their parents before them did. But I do get a sense that this time is different. There is certainly less optimism for the future. And I would also note that the Roman economy really blossomed between about 100 BC and 250 AD, a run of around 350 years. The modern economy that we know now started in the 1700s and has only been running for around 300 years. The efficiency of modern transportation gives our world economy a slightly larger reach than the Roman empire. But there is nothing that says it won’t end the same way.

Obviously, the whole issue regarding the Roman economy and how market economies in general sustain themselves is an enormous subject in its own right and certainly nothing that can be encapsulated in a single post. And I’ve obviously summarized some important works in just a few sentences.  But Koyama’s post certainly prompted some reflection on our current state. It’s something worth thinking about.