The calculus of conquests: the decline and fall of the returns to Roman expansion.

• Author: Coats, R. Morris
• Position: Essay

During the Republican period, Rome expanded from a small city-state to a massive empire that circumscribed the Mediterranean. Upon achieving this dominance, civil wars erupted, ending with the establishment of an emperor, and the new emperor instituted sweeping changes that curtailed the incentives for additional conquests. Can public-choice economics help to explain the institutional evolution of Roman history? Perhaps the first to recognize the role that increasing costs and declining benefits played in shaping Roman history was Edward Gibbon ([1776] 1984). He, however, undoubtedly drew his analysis from the statements of Caesar Augustus himself, who likened conquests to fishing with a golden fishhook, where the expected payoff had to be measured against the risk (Starr 1982, 19).

In The Decline and Fall of the Roman Empire, Gibbon wrote:

The seven first centuries were filled with a rapid succession of triumphs; but it was reserved for Augustus to relinquish the ambitious design of subduing the whole earth, and to introduce a spirit of moderation into the public councils. Inclined to peace by his temper and situation, it was easy for him to discover that Rome, in her present exalted situation, had much less to hope than to fear from the chance of arms; and that, in the prosecution of remote wars, the undertaking became every day more difficult, the event more doubtful, and the possession more precarious, and less beneficial. ([1776] 1984, 1, emphasis added)

Gibbon presented a marginal economic analysis of territorial expansion, a theory of the "optimal" level of conquests, a century before the establishment of marginal analysis in economics.

Almost all necessary ingredients of a modern economic theory of conquests are included here in Gibbon's description, with rising marginal costs of conquests, falling marginal benefits, and even falling probabilities of success. (1) The rising marginal costs and the falling marginal benefits arose primarily from the world's natural heterogeneity and the logistical problems of conquest and control at greater distances from the home base. The potential conquests were at different distances from Rome, had different amounts and types of wealth to be taken, and had varying degrees of military capability. With wars fought for gain, the first countries to be invaded were those with great wealth, those nearby, and those that were relatively weak. Once these countries were defeated, the remaining countries were obviously less profitable.

Although Gibbon's calculus of conquests presents an excellent explanation of the end of Rome's expansion, he falls short in two important respects. He does not elaborate on the ways in which the costs and benefits were perceived within a single mind--that is, he does not elaborate in regard to who in particular reaped the benefits and bore the costs. He also does not mention how some losses and gains fell on innocent third parties to the decision and hence were not perceived within a single mind. As Ronald Wintrobe notes, the marginal payoff to political leaders may diverge substantially from that of the general population, with the political leaders in the position as a residual claimant who pays the citizen-soldier a sufficient sum to obtain the soldier's voluntary service (1998, 84).

Using more recent research and modern economic tools, we can fill the missing gaps in Gibbon's analysis. In this article, we analyze the institutional structure and describe the decision-making process and the assignment of benefits and costs from warfare. We show that during the republican period the costs and benefits of conquests for the politician-generals diverged from those of the general Roman citizens and those of the wider regional population. The familiar approach of analyzing social as opposed to private costs and benefits helps to explain Roman expansion and the very costly transitional civil wars.

After the gains from additional conquests declined during the first century B.C., Rome endured numerous bloody civil wars that decimated the aristocracy. Mancur Olson (1993) and Martin Mcguire (in Mcguire and Olson 1996) have suggested that modern authoritarian states have emerged when leaders of groups of roving bandits impose constraints on their followers in order to establish dictatorial rule and maximize the present value of future tax revenue.

The rulers nonetheless often face constraints that prevent their simple maximization of the present value of the expected tax stream. Margeret Levi explains how transactions costs, agency costs, and compliance costs can restrict tax exploiters' options (1988, 10-47). (2) Gordon Tullock (1974, 1987) discusses how rulers might respond to the dangers of coup d'etats. Wintrobe has described "the dictator's dilemma" as the "set of circumstances in which there are gains from exchange (between the dictator and his subjects) but in which promises or obligations are not enforceable." He argues that the distribution of political rents to a dictator's subjects helps him overcome his dilemma in much the same way that the wage premiums associated with "efficiency wages" help employers enforce agreements with workers to do good jobs (1998, 84, 25-33). Of course, punishment or repression also serves the same purpose.

In certain circumstances, dictators may permit political rent seeking in order to cultivate a following of loyal supporters, but political rent seeking can become a two-edged sword because it also permits potential rivals to grow. When the dictator becomes the richest private citizen, he may rely on his ability to purchase a disproportionate number of troops privately and pay them an efficiency wage to ensure their loyalty instead of relying on political rents to sustain supporters among potential rivals. Augustus, following his victory at Actium, paid off his loyal troops with cash bonuses and private land grants (Frank 1940, 2-4, 14-15), instituted tax cuts by curbing tax-farming abuses, and protected private-property rights. These actions enriched supporters and potential rivals (senators) alike, but it also redirected efforts away from politics and toward commercial pursuits, which do not involve raising private armies or the kinds of political connections and skills needed to overthrow the ruler.

The Roman Method of Warfare and the Incentives from the Institutional Structure

Institutions and Warfare

In ancient times, the rules of warfare were quite simple: "To the victors belong the spoils." Defeated foes' movable property as well as thousands of captives became spoils of war that belonged to the conquering generals, who typically shared liberally with their troops. Hundreds of thousands of prisoners were sold in Italian slave markets. The Roman Senate administered the conquered territories and the remaining inhabitants on behalf of the republic. In practice, the Senate farmed out tax collections from the foreign provinces, and both the tax collectors and Roman officials engaged in wholesale extortion (Levy 1967, 60-65).

Roman institutions determined the disposition of spoils and rewarded the abilities that enabled Rome to excel in warfare. Conquering generals had sole discretion over the disposition of the movable booty, but the discipline of continuous dealings induced them to distribute most proceeds from battle to the troops, much as customers tip waiters and employers use profit-sharing plans in modern business enterprises (Shatzman 1972). Each participant in a victorious campaign earned a share of the booty, and extra shares rewarded acts of bravery and military prowess in battle. The Senate gained title to the immovable property in the conquered provinces and farmed out tax collection. Ordinary noncombatant citizens received passive income in the form of pre-election bribes from spoils-seeking candidates for public office, which amounted to rental fees paid to common citizen-shareholders for the right to lead the legions in battle.

Rome's Constitution gave its legions an important advantage over its neighbors' troops: it established the Roman military as an ongoing concern with a corporate-like structure that included voting rights based on contributed capita. The bulk of the military spoils were shared among generals, the legions in the field, and the quasi-shareholding voters in the form of electoral bribery. Roman politicians competed by bribing voters for the right to extract spoils and heavy taxes from noncitizens. Roman institutions ensured an expectation of de facto property rights for generals and soldiers to share in the spoils of war. These institutions outlived any monarch or foreign neighbor.

Historian Karl Loewenstein attributes Roman military prowess to the ordinary troops' skills and discipline. "What made Rome the military nation par excellence were the famed Roman legions. What made Rome militarily invincible was the discipline, the stamina, the better training and equipment of the legions under the command of lower-rank hoary professionals, regardless of whether they consisted, as they did for many centuries, of the sturdy farmer-soldiers or, later, of dedicated professional mercenaries. Rome's battles were won by the infantry" (1973, 60). Roman armies frequently defeated much larger forces because of their superior organization, training, and discipline.

Table 1 displays the Roman corporate military machine's amazing success. Tenney Frank (1933) compiled some very rough estimates of the Roman budgets from 200 to 167 B.C. (3) These figures show that military activity brought in about 72 percent of the Roman state's revenue during this period. In 167 B.C., the tax on Roman citizens was abolished, and military activity was responsible thereafter for an even larger share of Rome's revenues. (Even these impressive revenues omit the greater part of booty that was not returned to the Senate but shared by victorious generals and their troops.) Frank's figures also indicate...