The Rise and Fall of the Aerarium: Lessons in Public Finance from the Roman Empire

The Rise and Fall of the Aerarium: Lessons in Public Finance from the Roman Empire

by Eli R. Khazzam, Editor-in-Chief, Global Knowledge Gateway | July 22, 2014 |

The notion of public sector finance—of treasuries, taxes, and distribution of public resources—is not a product of the modern age. The ancient Romans also struggled with developing efficient systems for government to raise revenue and manage expenditures. Is there anything we can learn from their example to help us think about the problems governments have today regarding sovereign debt and the ability to finance the needs of society?

Ancient Rome: From Republic to Empire

In the era of the Roman Republic, the fiscal affairs of government were in the hands of the Senate. The state treasury was known as the aerarium, which was divided into two parts: the common treasury and the sacred treasury. The common treasury was designated for deposits from regular taxes and drawn upon for state expenditures. The sacred treasury was reserved only for times of extreme crisis.

However, in the transition from Republic to Empire, the treasury structure changed. By the time of Julius Caesar, the sacred treasury was being used for the deposit of booty brought in from conquests throughout Europe and the Mediterranean. Then, when Augustus assumed power, he divided the aerarium into a common treasury and a fiscus. The common treasury was controlled by the Senate and designated for raising income and providing expenditures for jurisdictions already inside the Empire, while the fiscus was used for monies from lands conquered by the Emperor’s armies outside of the Empire’s borders. The fiscus essentially became the emperor’s private treasury. Augustus eventually established a third treasury, the pension-like aerarium militare, which was designated for providing rewards for soldiers upon dismissal from services.

As time progressed and power was further consolidated in the hands of the emperors, the separate treasuries were combined into one. This was due in part to the emperors’ cravings for greater control and perhaps the perceived necessity of centralizing the administrative functions of the Empire. The integration of the treasuries also coincided with the enormous economic burdens that were falling upon Roman civilization: the need to protect its borders; provide grain and basic resources for its inhabitants; and to maintain its vast infrastructure of roads, aqueducts, and other structures necessary for the movement of goods. In the hands of often greedy and extravagant emperors, much of the treasury was depleted and the Empire could not raise enough taxes to cover its expenditures. The treasury was being depleted as the Empire had to pay tributary to different groups of barbarians just to keep them from invading its borders. Ultimately, the Empire collapsed as it was not able to sustain itself economically.

Fast Forward to Modern Civilization

Modern civilization is more conscious than our Roman counterparts. Societies do have expectations of good governance in the public sector. They expect diligent decision making and the efficient use of resources. They expect citizen engagement, public scrutiny, and oversight of those charged with fiscal responsibility. In the end, they expect accountability and better outcomes for the public at large.

What basic lessons can we take away from the Roman aerarium? In the 21st Century, the complexity of modern civilization has forced many governments to assume overwhelming costs: military, infrastructural, and social. The ever-increasing public debt that many sovereign nations have assumed reflects a growing disproportion between government’s capacity to raise revenue and meet its obligations for the distribution of public goods (e.g., defense, roads, schools, social services, etc.). We can neither seem to reduce these obligations nor compensate for them with alternative or additional revenue streams.

Worse yet, when nations come under stress (e.g., from wars, natural disasters, and other catastrophes), many public expenditures cannot keep pace with government’s capacity to raise revenue. In times of crisis, presidents and prime ministers, often make emergency decisions that involve the marshalling of vast resources. But what happens when governments no longer have the ability to do so? Shouldn’t we be far more fiscally disciplined about our long-term prosperity and security? How do we, as a vast modern civilization, save money for the future? The rise and fall of the Roman aerarium may contain lessons for both the problem and solution.

What are your thoughts? 

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