Advice From Antiquity: Economic Lessons From Ancient Greece

History is the obvious testing ground for the competing theories. But most historical tests of core ideas in political economy have, until recently, focused on the last several hundred years of primarily European history. Limiting the sample for studying the relationship between politics and economic growth to modern states is problematic, however, because factors other than institutional innovation, such as the exploitation of the New World and technological advances, have influenced modern economies. Perhaps ironically, the road to a solution leads back to Greece—indeed, all the way back to ancient Greece, the history of which offers a detailed “out of sample” demonstration of how good institutions promote economic development.

Greece’s fiscal and economic crisis has sharpened debates among economists, political scientists, and policymakers about political institutions and economic growth. Do good institutions—democracy and the rule of law—promote growth? Or are good institutions only made possible by the prior development of a thriving economy? Major decisions about Greece’s future are likely to turn out quite differently, depending on how policymakers answer this question.

History is the obvious testing ground for the competing theories. But most historical tests of core ideas in political economy have, until recently, focused on the last several hundred years of primarily European history. Limiting the sample for studying the relationship between politics and economic growth to modern states is problematic, however, because factors other than institutional innovation, such as the exploitation of the New World and technological advances, have influenced modern economies. Perhaps ironically, the road to a solution leads back to Greece—indeed, all the way back to ancient Greece, the history of which offers a detailed “out of sample” demonstration of how good institutions promote economic development.

THE GREEK MIRACLE

Thanks to a recent monumental data collection by the Copenhagen Polis Center, and to advances in field and lab archaeology, we now have the evidence to track major trends in the demography and economy of the ancient Greek city-states (poleis). As we now know, by the time of Plato and Aristotle in the fourth century BCE, there were over 1,000 more or less independent Greek poleis. They varied tremendously in size and power. Larger states sought to dominate their neighbors and smaller states organized into federal leagues. But there was never anything approaching a central government of “Greece.” Greek states competed fiercely with one another, and with their imperial neighbors, notably Persia. Wars were frequent and bloody. But in the midst of conflict came new forms of social cooperation and a sustained era of rapid economic growth.

The total population of Greek speakers rose from some 330,000 persons in 1000 BCE to 8-10 million by the fourth century BCE. In the same period, average per capita consumption appears to have roughly doubled across the Greek world, and it probably tripled in Athens, the most advanced and among the most democratic of the city-states. The aggregate growth rate was low compared to high-performing modern states, but the rate was blistering compared to other pre-modern civilizations. By Aristotle’s day, in the fourth century BCE, close to a third of Greeks lived in towns of 5,000 persons or more; that figure would not be reached again in Europe until the seventeenth century. Average house size also increased dramatically. In the age of Homer, Greeks typically lived in small and poorly built huts. By Aristotle’s time, they lived in two-story homes comparable in size to modern American suburban residences. The economy was increasingly monetized, with state-issued silver coins of standard weight and purity provided as a ready means of exchange. Judging by the numbers of coins known to archaeologists, the money supply increased sharply between the sixth to the fourth centuries BCE. Trade in commodities (including slaves), manufactured goods, and luxury goods boomed within the Greek world and between the Greeks and their neighbors.

Wars were frequent and bloody. But in the midst of conflict came new forms of social cooperation and a sustained era of rapid economic growth.

Among the remarkable features of the ancient economy of democratic Athens was the relatively low level of income inequality. Athens was home to many foreign “guest workers” and Athenians employed large numbers of slaves. But even taking slaves and foreigners into account, the distribution of Athenian income was much less unequal than in most premodern societies. Athenian wages for non-skilled laborers were high—comparable to the wages being paid in the most advanced economy of early modern Europe, Holland during its seventeenth century Golden Age. Athens’ Inequality Extraction Ratio, a measure based on estimating the maximum feasible level of inequality for a given society, devised by a team led by Branko Milanovic (former lead research economist at the World Bank), is lower than that for any other premodern economy for which data is available. Although we do not have data to measure the Inequality Extraction Ratio for other ancient Greek states, nutritional evidence gleaned from the scientific study of bones and studies of comparative house sizes are consistent with a historically low level of inequality. As Milanovic and other economists have long pointed out, there is a strong correlation between relatively low inequality and robust and sustained economic growth. 

The mounting evidence for the remarkably strong performance of the ancient Greek economy helps to explain what is sometimes called the “Greek Miracle”—the cultural explosion of Greek literature, visual and performing arts, and science that laid the foundations for Rome, the Renaissance, and the Enlightenment. We can now recognize the classical Greek world as a powerful example of what the historical sociologist Jack Goldstone has called “efflorescence”, that is, the conjunction of a sustained period of unusually high economic growth with an explosion of rich cultural activity. Ancient Greece is far from unique in having experienced a premodern efflorescence, but its efflorescence was distinctive in its intensity, duration, and long-term impact on world history. 

So what made the impressive growth of the ancient Greek economy possible? The basic answer is good institutions. Greek city-states were governed by a range of regimes, but, by the fourth century BCE, the typical Greek city-state was, by world historical standards, very democratic. In Athens, and hundreds of other Greek states, most native adult males were participatory citizens, who set policy in citizen councils and assemblies, judged legal cases as jurors on people’s courts, and were elected or chosen by lot to serve as public officials.

Moreover, contrary to the still-common image of Greek democracy as mob rule, we can now trace, at least in well-documented Athens, how the legislative authority of the people was tempered by democratically-enacted codes of fundamental laws. By the time Plato was writing the Republic, in the early fourth century BCE, every day-to-day policy decision made by the Athenian council and assembly was required to conform to a body of written constitutional law. And that law was taken seriously; politicians who sought to introduce measures that contradicted it risked losing the right to propose legislation. The laws effectively protected the property, dignity, and bodies of citizens, and to some degree non-citizens as well, against exploitation by over-reaching magistrates or powerful individuals.

THE RISE AND FALL OF GOOD INSTITUTIONS

The comparatively fair and open political institutions of the Greek city-states had their origins in the so-called Dark Age that followed the sudden collapse of the Bronze Age civilization around 1100 BCE. Bronze Age Greek society had been modeled on the advanced civilizations of western Asia. “God-like” kings controlled palace-centered economies in which most of the surplus was extracted by an elite hierarchy. When what the archaeologist Eric Cline has called a “perfect storm” of climate change, disease, volcanoes, and mass migrations wiped out the palaces, the population of Greece dropped precipitously. Survivors of the collapse lived for generations in small, poor settlements. The social organization of those settlements was egalitarian by necessity. There was virtually no surplus to be hoarded or redistributed. 

Two 1st-3rd century AD. terracotta statues are on display at the entrance of the new Acropolis museum in Athens, June 17, 2009.
Yiorgos Karahalis / Reuters

Two 1st-3rd century AD. terracotta statues are on display at the entrance of the new Acropolis museum in Athens, June 17, 2009. 

Between the eighth and sixth centuries BCE, Greece emerged from the Dark Age. Populations recovered and small settlements coalesced into city-states. The residents of some regions successfully resisted attempts by local elites to recreate the hierarchical forms of authority that had dominated in the Bronze Age, and which remained the norm in most of the ancient world. These Greek citizen-centered communities proved to be very successful compared to their more hierarchical neighbors. Citizen-centered states were able to mobilize more fighting men. But equally important, states that protected the property and persons of their residents from exploitation gave residents reason to invest in themselves. They developed new economic specializations (in Athens, for example, in olives and pottery rather than in grain), which gave them a relative advantage in market exchanges. As citizen-centered communities gained ground relative to their more hierarchical neighbors, good institutions proved highly adaptive: democracy and formal law were adopted by more Greek states. More and more specialization followed, as did laws aimed at lowering transaction costs by equalizing access to information and dispute resolution. As a result, the extended ecology of Greek states flourished. 

People who lived among the Greeks and traded with them increasingly adopted Greek cultural norms. Taking advantage of the mobility of specialized Greek talent, such as military engineers and experts in state finance, Philip II, King of Macedon, and his son Alexander the Great, gathered the technical resources they needed to build a military machine capable of taking over much of the Greek world—and then the entire Persian empire.

The explosive rise of Macedon ended the era in which Greek city-states were the primary drivers of history in the Eastern Mediterranean. But the rise of Macedon did not lead to the collapse of the Greek economy. Protected by massive stone walls and armies of well-trained citizen soldiers, the Greek cities proved a hard target for the warlords who succeeded Alexander. The result was that the products of Greek culture were preserved for posterity—and ultimately, for us.

The coming of Rome eventually spelled the end of the strong civic institutions that had created the vibrant Greek economy. Greece did not regain the population and consumption levels of the age of Aristotle until the twentieth century. And now, in the twenty-first century, it remains an open question whether Greece (or the rest of Europe) can find a way back to the kind of democratic and legal institutions that could promote a modern efflorescence to rival that of Greek antiquity. Here’s hoping.

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