Balance: The Economics of Great Powers from Ancient Rome to Modern America
Goodman, John C., Business Economics
By Glenn Hubbard and Tim Kane. 2013. Simon & Schuster. Pp. 368. $28 hardcover.
Business Economics (2013) 48, 263-264. doi: 10.1057/be.2013.24
This is a book with a herculean goal: to explain why great civilizations rise and fall. It continues an impressive tradition. Oswald Spenger's The Decline of the West started the trend in 1918, followed by Arnold Toynbee, Paul Kennedy and, most recently, Daron Acemoglu and James Robinson in Why Nations Fail.
Hubbard, the dean of Columbia Business School, and Kane, chief economist of the Hudson Institute, see the history of empires--Roman, Chinese, Spanish, Turkish, Japanese, British, and American--in economic terms. The rise of great powers is typically fostered by good economic policies, and their fall is hastened by bad ones.
For example, Rome did not perish from too many territorial conquests (contra Kennedy) or from the triumph of Christianity (contra Edward Gibbon), but from the debasement of its currency, the nationalization of the Mediterranean grain trade, and the growth and expansion of a costly welfare state.
In 100 A.D., Rome had better paved streets, better sewage disposal, a better water supply, and better fire protection than the capitals of Europe in 1800, the authors tell us. It had a population of 1 million, a figure not reached again until London in the nineteenth century. The reason for Rome's rise: good institutions, including a professional army, a federalist governing structure, investment in infrastructure, property rights, relatively free markets, free international trade. the use of money and a stable legal system.
In the early period, a typical Roman coin had 95 percent silver or more. But by the middle of the third century, the Roman denarius had only 2 percent sliver. To combat the inevitable inflation, Diocletian instituted price controls. To combat the unintended consequences of that, he seized control of all the major industries, imposed high taxes, and nationalized the shipping trade. His successors weren't much better:
Each new emperor tended to forgive all private debts of citizens that were due the state. Aurelian went so far as to haul out the public records of all such debts and have them set afire. Think about the incentive effects. Lesson one: rack up debt and never pay while the emperor lives. Lesson two: kill the emperor often.
And the lesson for readers:
"The decline of Rome ... shows, as does history from ancient empires to modem Europe, that the existential threat to great civilizations is less barbarians at the gate than the self-inflicted imbalance within."
The downfall of Imperial Spain was hastened by land confiscations, antigrowth property tights, economic incentives that encouraged such "unproductive careers" as soldiering and the priesthood, and the expulsion of hundreds of thousands of commercially innovative Jews. The Ottoman Empire's demise was rooted in an overly centralized government and a rent-seeking bureaucratic class.
The Ming dynasty could have ruled the world in the fifteenth century had it not abruptly reversed economic course. …