De Sotos 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 The benefits of property rights p. 6 p. 6

Chapter 2
The Roman state and formal property rights The social contract Shortcomings of the system p. 9 p. 9 p. 12

Chapter 3
Roman society and economic performance The orders Social mobility State participation Economic performance p. 14 p. 15 p. 16 p. 17 p. 17

Conclusion Bibliography

p. 20 p. 21

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.

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.

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

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 7

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 str angers 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.

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 ownersh Formal property ip. rights are therefore able to take a conflict of interest, and transform it into a well-oiled machine that benefits both parties.

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 10

empire. It also provided those special regions with the necessary coins to pay back the s rplus u 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 tha state borrowing t 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 general trend that arose in the 2nd century towards the widespread confiscation of property by the 12

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.

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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

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and 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. 616617). 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 peasant to work their s 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 of the population of the Roman Empire had a pretty varied diet, including olive oil, wine and even 15

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 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 16

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 ordin men could live a ary 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 f r wheat, but also created much o 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
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

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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 marketbased 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). 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 18

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 m achinery, 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 resemble those of a modern economy, albeit d 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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