Tuesday, July 10, 2018

Capitalism in the Roman Republic

Capitalism is an economic system in which wealth, and the means of producing wealth, are privately owned and controlled rather than state-owned and controlled. Through capitalism, the land, labor, and capital are owned, operated, and traded by private individuals or corporations and investments, distribution, income, production, pricing and supply of goods, commodities and services are determined by voluntary private decision in a market economy.

A division of labor has always existed in human society. As a population grows, demand for goods and services forces the development of new skills. Capitalists show up in societies as salesmen or entrepreneurs who are clever at buying and selling, so they take opportunities for profit when they present themselves.

To hear modern historians tell it, capitalism began with the Enlightenment in the late 16th century. The break from the Catholic Church and authoritarian monarchs allowed people to exert their individual rights and take control of their lives. This new freedom, allowed citizens to form their own businesses, go to market, and make a profit.

The focus for today’s scholars may be on this new-found freedom of the Enlightenment, but that was not the origin of capitalism.

When Rome began it was strictly an agrarian society. The only asset considered valuable was land. In Roman society, wealthy patricians controlled the land and those without wealth or land were the Plebeians. Patricians considered mercantilism beneath their dignity and refused to engage in such low enterprise. Cicero once referred to all salesmen as liars.

As Roman trade evolved, laws were passed that prohibited senators from investing in shipping. That left the Plebeians to control that market. The same story happened with the Roman civil service. As it grew, the new positions were given to the lower class, and the resulting economic environment fostered the growth of a new middle class (the Knights). The first “businessmen” were called Publicans. They were employed by the state to manage public contracts: to collect taxes, manage mining companies, and oversee road construction. Contracts were awarded to bidders at auction and their duration was five years.

During the Punic Wars Publicans built ships for the Roman Navy and equipped the Roman Army. In 215 BC, three Publican contractors were censured because they provided financing to Spanish tribes, who were Rome’s enemy at the time. They scuttled their ships and sued the Republic for reimbursement.

The Senate chose to utilize the Knights commercially, instead of creating a civil service, but the power of the Knights grew, and they were able to exert great influence as a class. In 169 BC, the censor Tiberius Gracchus cancelled all Publican contracts because of corruption, but the Knights rebelled and accused him of treason against the state. Tiberius was acquitted, but all Rome now understood the power of the middle class.

By the fall of the Republic there were hundreds of corporations selling shares to investors. Manufacturing and trades flourished: including furniture making, leatherwork, weaving, metalworking, stone working, and food processing.

Many of the business terms we are familiar with today were in use in Roman times, including insurance, banks making loans, individuals owning shares in companies, competition, hoarding commodities to influence prices, investments, lawsuits, and monetary speculation.

There is one major difference, worth noting, between capitalism in the time of Rome and the Enlightenment Period. There was no industrial revolution in Roman times because there were no machines available for mass production. Those machines gave the Enlightenment a black eye because they led to worker exploitation and harsh working conditions. As a direct result, socialism was developed as an alternative to the evil capitalistic model.

This story suggests that capitalism is the default behavior in human society. The combination of a large and diverse population and the need for skill differentiation to efficiently supply goods and services to people, generates a market model.