The Economy of Ancient Rome

Arnold Kling responds here to my earlier post about the extent of market exchange in ancient Rome. He makes two good points:

1. He is sceptical of how people in the past reported numbers and hence wants to know what the evidence is for the size of cities like Rome;
2. He doubts whether or not trade between Rome and Egypt was voluntary rather than coerced.

I think Arnold is right to emphasize a distinction between transactions that are based on voluntary exchange and production for market and between exchanges that involve distributing booty.  This is something historians often miss. Furthermore my example of the city of Rome was slightly unfortunate to the extent that the city was full of rent-seekers, and during the late Republic and Early Empire benefited greatly from the loot seized through conquest. It is also true that the trade with Egypt was a bad example as it was largely organized by the state since the emperors had to guarantee that there would be bread in Rome.  Nevertheless, I think that all of my main points still stand. My response to point 1 will be posted separately. Below the fold I discuss where I disagree with Arnold.

Trade and comparative advantage.  You don't need big difference in geography or in environmental conditions to get trade, if the comparative advantages develop endogenously.  This is a point made by James Buchanan and Yong Yoon in their paper on Smith and Ricardo and trade.  Furthermore, Roman transport links were as good as any that existed in Europe until the late 18th or even the 19th centuries.  In particular trade between North Africa and Italy was much cheaper in Roman times than it would be until the advent of the stream since the Mediterranean sea was a Roman lake, policed by the imperial navy.  As I noted earlier, the archaeological evidence is inconsistent with a plunder story since goods were being distributed all over the empire.  Regions acquired comparative advantage as a result of the falling transactions costs occasioned by the empire.

Why did the Romans import grain from Egypt rather than elsewhere?  Exogenous and endogenous comparative advantage. Due to the flooding of the Nile delta, Egyptian agriculture was extremely productive and as one of the comments on Arnold's original post notes, provided a predicable source of grain imports. This specialization allowed other parts of the empire to concentrate on producing other goods for market. 

On numeracy, personally I don't find the age heaping evidence particularly convincing. We know for a fact that some people were extremely numerate in the ancient world (i.e. Archimedes, Euclid etc.). And it seems very likely that merchants, traders, and government bureaucrats - individuals who had a reason to know about numbers were highly numerate. The organization of the Roman army alone suggests a numerate society.   

Lastly I don't quite understand Arnold's point about financial contracts.  I don't see what use a commercial partnership or a bill of exchange is outside of a market economy, where it is possible for entrepreneurs to exploit arbitrage opportunities.  In a plunder based society, there may be incentives to develop complex arrangements to redistrbite income but surely these would not resemble commercial financial instruments?