The Collapse of the Roman Economy

It All Came Crashing Down

The collapse of the Roman Empire has been examined and debated by modern historians for centuries. Edward Gibbon was the first historian to tackle this monumental task when he wrote his six volume book, The History of the Decline and Fall of the Roman Empire, which was published between 1776 and 1788. Gibbon gave great detail to all aspects of Roman culture and periods of history, but he essentially argued that Romans were doomed when they turned from their pagan religion and embraced Christianity. Although the central thesis of Gibbon’s work has been discarded by most modern historians, his inquiry into the causes of Rome’s fall has indeed inspired legions of historians to offer their own synopses on the collapse of what many consider to be the world’s greatest empire. Often the numerous “barbarian” invasions of Roman territory and later Rome itself is pointed to as the ultimate reason for Rome’s collapse, but as the modern historian Arnold Toynbee (1889-1975) so eloquently argued, in the course of human history societies have rarely been the victims of homicides and are almost always the victims of suicides. Essentially, Toynbee argued that well before societies are conquered and/or destroyed by outsiders their decline was the result of a number of internal factors that weakened the said society and made it “ripe for the pickings.” In the case of ancient Rome a number of factors led to its decline, but perhaps the one thing that tied all those factors together was the collapse of its economy.

The Romans are known for many inventions and ideas that are still commonly used in modern society: concrete, plumbing/running water, and republican government are just three gifts the Romans gave to the modern world; but certain aspects of their economy also carried through to the modern world. Millions of people took part in the Roman economy, which was at a high point in the first century AD, through trade, speculation, and labor. To a Roman living in the first century AD it may have seemed as though Rome and its economy were indestructible, but within 200 years the economy took a nosedive that it could not recover from and ultimately helped to take down the Empire.

The Background of the Roman Economy

In order to understand how the Roman economy collapsed an examination of the structure and nuances of the economy, especially during its highpoint in the early Imperial period of the first century AD, is warranted. Although the Romans did not keep detailed financial records the way people do today, a number of different sources, such as accounts from ancient historians and various personal accounts, have helped modern historians and economists determine how the economy worked and eventually, how it collapsed. During the high point of the economy in the early Empire, Romans of all classes were able to acquire and build wealth in a number of ways and it has been suggested that the GDP was comparable to that of early modern Europe. As a pre-Capitalist system the Roman economy was fairly simple, with its currency and free markets being the back bone.


The Roman economy was currency based and the standard currency was the silver denarius. State controlled mints made denarii, which were then distributed by the emperors through a variety of ways such as loans and payments to the military. Similar to modern currencies, such as the dollar or the pound, Roman currency also had coins that were of lesser value, namely the bronze sesterce and the copper as. The divisions and conversions of Roman coins were fairly simple; four sestertii equaled one denarius and four asses equaled one sesterce. As the denarius went, so went the Roman economy – in difficult economic periods the denarius’ value was reduced, much like in modern economies. The denarius was the life blood of the Roman economy as it paid for the military and the numerous public works projects; but it is also important to remember that unlike today, the denarius was not fiat money. Besides the fact that Rome operated under a currency economy, another similarity it had to modern economies was the prevalence and for a period, the proliferation of trade and free-enterprise.

Although the Roman economy cannot be accurately termed a capitalist economy, it did employ aspects of free trade, enterprise, and private ownership that are similar to what we see in modern economies. Loans were a common method used by Romans to acquire money/capital in order to buy land or start businesses, which were usually shipping related. As what historians and economists term a “market economy,” Rome’s wealth was based largely on the luxuries and material goods that flowed through the capital city, which often came there as a result of the conquering legions; but it was merchants who brought the goods there with ships. During the early Empire, Rome’s port city, Ostia, was alive with merchant shippers who made fortunes bringing goods to and from Italy. The loans these merchants received were usually around 1% interest, which is of course low by today’s standards. Roman merchants could get their loans from a couple of different sources – wealthy members of the Patrician class often gave loans, but there was also a Roman banking system.


Like other aspects of the Roman economy, Roman banking was also fairly simple and straightforward. The Roman banking system can be traced back to the Greeks who used banks regularly to hold their gold deposits. After the idea of banking migrated to Rome it became a profession not unlike today’s profession of bankers. Roman bankers, known as argentarii, received deposits and gave loans. Most of the loans the argentarii gave were based on the standard 1% interest rate as discussed above and not all paid interest on deposits because even during the Imperial period Romans often looked at usury as a dishonest way to make money. Banking and merchant shipping were two of the most apparent aspects of the Roman economy, but the many roads the Romans built may have been the artery from which all the other vessels of the economy sprang.

Today, most people have heard the saying, “all roads lead to Rome” but few probably ponder its significance. Although the Romans did not invent roads, they were the first people to build some of theirs with concrete and they were also the first people to build such an extensive system, most of which did in fact lead to Rome. The Roman roads were built by the military beginning in the Republican Period and well into the Imperial Period for the purposes of facilitating easier transportation of the military units as well as long distance trade. The Roman roads were built with such expert engineering that many of them still stand today, although many sections have been replaced with modern freeways. The Roman roads were vital for overland trade caravans that needed to travel, sometimes long distances, in order to get their goods to a port where ships could then be used to transport the goods to Ostia. The Roman Roads helped to not only bring wealth to Rome, but also helped to make otherwise backwater locales, such as Palmyra, become wealthy and powerful. Truly, free trade was the life blood of the Roman economy, but as with any stable economy, a solid working/labor class helped move it along.

Most Romans participated in the economy either as consumers or as workers and/or members of the trades. Skilled workers, such as bakers, silversmiths, and wool workers, were an extremely important part of the Roman economy and formed associations known as collegiaCollegia were similar in many ways to modern unions, complete with political undertones, but differed in that religion also played a significant role. Since the Roman economy was currency/cash based, the workers were paid in denarii, with some being paid salaries while others were given daily wages.

The First Signs of Trouble

As with most economic collapses throughout history, the fall of the Roman economy was much less dramatic than many may think and instead was more of a long term problem whereby problems began to manifest and the political leaders either did not have the foresight, will, resources, or a combination of all three to effectively handle the situation. The first two centuries of the Roman Empire progressed fairly well: Rome’s borders expanded slightly, but more importantly wealth was still abundant. By the third century AD the Roman economy experienced its first major fissures in the form of inflation.

Before the third century Rome had experienced some economic problems, for instance a recession took place during the reign of Tiberius (AD 14-37), but the emperor assuaged further economic problems through a number of different policies that ultimately brought prosperity back to his people. In fact throughout most of the first and second centuries modern historians estimate that inflation was less than 1%, but two factors late in the second century helped produce an inflationary cycle from which Rome never seemed to recover. The first major event to hit the Roman Empire was a plague, known as the Antonine Plague. The plague was named for the family of the ruling emperor, Marcus Aurelius (161-180) and was brought back to Rome from legions stationed in the Near East. Modern scholars believe the disease was actually smallpox or measles and without modern medical knowledge the plague ravaged the population for years and ultimately affected the economy by driving up prices on commodities. Around the same time the plague hit Rome the denarius was losing its value, which was the primary factor for Rome’s inflation cycle of the third century.

The Snowball Effect

As the inflation of the third century AD gripped Rome, other fissures in the fragile economy began to manifest. Some of the economic problems were the direct result of the inflationary cycle, while others contributed to it, but all were mishandled and misunderstood by the later emperors who were seemingly powerless to stop the tide of economic disaster. The emperors Diocletian (284-306) and Constantine (306-337) enacted a number of measures meant to mitigate Rome’s economic woes, but their reforms were either too little too late, or were not followed through by their successors. As the inflationary cycle of the third century gave way to further economic problems, the devaluation of the denarius was at the core of the problem.

The Devaluation of the Denarius

The Roman inflationary cycle of the third century was brought on by a similar mindset that helped bring about modern inflationary cycles, such as that of Weimar Germany in 1923/24 – the excessive printing of money. The Romans did not have paper currency so it was not a matter of printing valueless paper and simply putting a government stamp on it, but the imperial mints began to produce denarii that were not entirely silver. The Roman leaders believed that by adding impurities to the silver coins that they would be able to stretch their dwindling silver reserves and also put much needed currency back into the economy; but their efforts ultimately had the opposite effect because once it was realized that impure denarii were in circulation then merchants quickly raised prices on commodities, which in turn led to increased prices on just about everything leading to more inflation. The leaders once again tried to fix the problem by temporarily abandoning silver currency, but because the denarius was such an integral part of the Roman economy and culture, the emperor Constantius II (337-361) reintroduced silver into the currency. Despite Constantius II’s efforts to put Rome back on the silver standard, the problem of inflation persisted. By AD 301 one Roman pound of gold was valued at 72,000 denarii, which is comparable to the inflationary cycle in Weimar Germany. Roman leaders believed they had to keep spending in order to keep the empire their ancestors so meticulously built.

In some ways the Romans who believed they had to keep spending to preserve their empire were correct – Rome had a lot of expenses to maintain, such as the aqueducts and roads that brought life and wealth to the city. One could argue that those were necessary expenses and good investments and probably only contributed very little to the inflationary and economic problems. Rome’s inflation problems went much deeper than currency, monetary, or infrastructure policies; the very essence of Roman power and expansion, which was once not just the source of pride for Romans, but also their wealth, began to cost more than it was worth. As the inflationary cycle continued and progressed the pay of the legionaries who fought for Rome’s borders, also increased at an exponential rate.

Military Expenditures and the Economy

By the early fourth century the halcyon days of Roman imperial dominance had begun to wane as the cost of maintaining a military mammoth outweighed any benefits of conquest. In fact, by the third century the days of conquest were over and the Romans military philosophy was more defensive as it guarded its northern borders from the Germans and in the east from the Parthians. In the days of the Republic and the early Empire, new Roman conquests kept fresh supplies of gold and silver flowing into Rome, which more than paid for the campaigns that captured the metals. Without new sources of gold and/or silver Roman leaders were forced to find new revenue streams to pay for their armies, which came in the form of heavy taxation. Taxes were nothing new to Romans as they had been a part of the culture since the Republican period, but by the third century they reached oppressive levels that stifled investment. The inflation and heavy taxes of the third century led to a period of nearly fifty years of anarchy.

From AD 235-284 Rome was plunged into a period of anarchy and civil war where the army capriciously chose and removed emperors at will. Nearly twenty emperors nominally ruled during this period, which saw an increasingly weakened economy and a precipitous decline in birthrates. Whether the decline in birthrates was the result of, or a reason for, the weakening of the Roman economy is open for debate, but no one will argue that it was positive. Fewer Romans born meant that the army – which was the primary recipient of government funds during the late Empire and Rome’s most powerful institution – began to take an increasingly foreign complexion. As the Romans fought to defend its northern borders against Germanic war bands, more and more of the legionaires were recruited from those same war bands. The dependence on the military no doubt contributed to Rome’s economic woes in the third century, but a decline in trade and commerce hurt the economy more than anything.

The Decline in Trade and Commerce in the Third Century

As demonstrated in part one of these reports, trade was the lifeblood of the Roman economy. Trade and commerce was the vehicle by which Romans of any class could make a living and with some skills and luck, even become wealthy. The wealth of the early Empire gave way to a trade recession that hit the empire in AD 200. Roman shipping records show that by 230 there were very few ship wrecks recorded as compared to several decades prior when the Roman economy was at its heights. Since no new maritime technology was invented in the decades between that would account for less wrecks, modern scholars argue that the data shows there was simply less merchant activity. Mercantile activity was not the only aspect of Roman commerce to suffer during the third century; Roman banking took a hit from which it did not recover.

As described in part one of these reports, Roman banking was never a very sophisticated or respected industry. Some Roman senators dabbled in banking as side projects and the number of full time bankers was never very high. For the most part Roman banks provided a community service more than anything as they gave low interest loans to would-be merchants in order to get their businesses off the ground. But modern economic historians argue that it was the simplicity of the Roman banking system that was at least partially its demise; Roman bankers were never able to discern the difference between real and nominal interest rates. Roman banks disappeared during the third century, which is also not coincidentally when merchant activity severely declined. With no banks to give low interest loans, fewer and fewer Romans were able to open new businesses and the Roman economy continued to march into oblivion.

Diocletian and Constantine’s Attempts to Save Rome and the Economy

If Diocletian and Constantine would have had the fortune of being born 100 years earlier they would have been associated with Rome’s golden age and perhaps remembered as two of the greatest emperors, but instead they presided over their nation’s decline and could not stop the eventual collapse despite their best efforts. In the end Diocletian and Constantine were politically driven men and so they tried to remedy Rome’s problems with political solutions, ignoring the economic problems not matter how evident they were. The first of the solutions sought by these men for Rome’s problems was the idea of a tetrarchy, which was first proposed by Diocletian but eventually affected by Constantine.

The tetrarchy was essentially the idea that Rome would be split into two halves – a west and an east. The plan was quite logical as it argued that Rome had grown too big and it therefore needed to be split into two administrative districts that were to be semi-autonomous. When Constantine carried the plan through in 316 he obviously did not see the long or short term effects that it would have on not just Rome, but the entire world. In the long term the idea effectively split Rome into two countries where the western section was centered in Italy, while the east was based in the new city of Constantinople. Eventually the split led to western and eastern Europe developing differently but both claiming to have Roman roots. The short term effect that the split had on Rome was to double the costs of the bureaucracy and further hurt the economy. The splitting of the Roman government was not the only short sighted economic policy that Diocletian pursued that eventually hurt the economy more often than it helped.

As the inflationary cycle continued into AD 300, Diocletian issued price controls in order to stem the tide. Price controls have been issued in a number of times in the modern period, notably in the United States under President Nixon, usually with little or even an adverse effect on the economy. Diocletian’s price controls were no different as the Roman economy continued to limp along he further compounded the situation by raising taxes. Eventually, as with many modern states that have attempted price controls, a black market emerged that challenged the conventional Roman market economy and contributed as much to its demise as any of the other factors enumerated in this report.

By the fourth century Rome’s once vast and powerful market economy was all but gone. Shipping was a ghost of what it once was, land caravan routes disappeared, and wealthy semi-autonomous cities such as Palmyra were swallowed by the desert sands. Property records from the fourth century show that land and property became concentrated in fewer hands. In the late Republic and early Imperial periods it was common for people of all classes, even slaves, to own land, but in the fourth century only the wealthiest and connected had that privilege. The once open Roman economy became closed to all except those who had or knew those with positions of power. The openness of Rome’s economy was definitely one of its strengths, but the low interest rates that were a hallmark of the early Empire also changed in the fourth century.

In the fourth century the low interest rates of 1% were long a thing of the past. As discussed above, nearly all the banks were closed by the fourth century and the few individuals who were willing to lend money only did so at astronomical rates. The result was that most people were unwilling to take out loans on businesses and those who did for property and real estate were often unable to make the payments. By the late fourth century wholesale evictions of delinquent debtors were carried out throughout Roman territory with the results often being violent disturbances and urban riots. As Diocletian saw the economy, and Rome, crumble around him he knew that corruption was at the core.

The exponential increase in interest rates and the concentration of real estate in the hands of politically connected individuals were problems that Diocletian rightfully saw stemmed from corruption. Ever a stoic, Diocletian believed that if he could eliminate corruption then Rome would once more become a virtuous and by extension, wealthy society. Bribes were common place and by the fourth century they were about the only way a man could achieve political office, so Diocletian created an inspectorate to root and eliminate all such forms of corruption. Despite being a good idea, it, like many of Diocletian’s ideas, failed as the inspectorate became a corrupt police force that merely made the bribe process more efficient. Diocletian and Constantine saw the writing on the wall, but despite their best efforts there was little they could do to stop the Roman economy from collapsing.

The Results of the Roman Economic Collapse

In the end Rome’s economic collapse was not sudden, but more of a centuries long slow burn. The final blow came when the Visigoth chieftain Alaric and his army sieged and held Rome ransom in AD 408. When the Senate paid Alaric all of the alienable property in Rome – which included gold, silver, artworks, and slaves – the Roman government was effectively bankrupted from which it could never return. The year 476 is generally seen as the official end of the Roman Empire, but the influence of the Roman economy carried on, in many ways, for centuries. The market economy that was first introduced in Rome reemerged during the medieval period in Western Europe and the gold solidus, which was introduced during the reign of Constantine, was used throughout the Middle Ages. Truly the Romans created one of the greatest economies in the world but a series of mistakes and lack of economic planning ultimately helped to bring it and the Empire down.