ISET Economist Blog

Economic Reasons for the Breakup of Georgia
Friday, 09 May, 2014

In the 15th century, the Kingdom of Georgia started a painful process of disintegration from which it did not recover until the modern era, and ultimately, Georgia’s breakup at the end of the medieval age accounts for the regrettable fact that the country could not maintain its status as an independent nation (Florian Biermann and I discussed the cataclysmic Treaty of Georgievsk in our article about King Erekle II).

George VIII. was the last king to rule a united Georgia for about 20 years, starting from 1446. During this period, the country’s unity was already crumbling in the wake of a series of truly dramatic events. In 1463, King George VIII was defeated in the Battle of Chikhori and the Kingdom of Imereti, led by Bagrat VI., declared its independence from Georgia. Two years later, George VIII. tried to punish Prince Kvarkvare Jakeli, the disobedient ruler of the principality of Samtskhe, but Kvarkvare unexpectedly turned the tables when he captured and imprisoned George. Bagrat VI. took advantage of this weakening of his adversary, invading Kartly in 1466 and declaring himself King of Georgia. This was not the outcome Kvarkvare had envisioned, as instead of the weak George, he now had to deal with Bagrat as the new self-declared King of Georgia. Kvarkvare released George VIII. from prison, hoping that he would regain power, but George was not able to return the throne from Bagrat. After messing around for some time, George retreated to Kakheti and formed a separate kingdom. Bagrat remained the ruler in Imereti and Kartli, and finally, in 1490, the Georgian Kingdom had fallen apart into the Kingdoms of Kartli, Kakheti, Imereti, and Samtskhe, and did not reunite anymore.

Internal quarrels and disintegration were not unusual in feudal societies, where the members of the aristocracy were constantly fighting for dominance. What is surprising, though, is the fact that Georgia had such a hard time reuniting. Several subsequent Georgian rulers tried to bring back the glory and the territory of the past but did not succeed. Even when facing the common threats of the Ottoman Empire and Iran, the Georgian leaders did not overcome their differences. This is rather remarkable. When in 1683, the Ottoman army stood at the gates of Vienna, it was not left to the Habsburg rulers to prevent Europe from becoming a Muslim continent. Rather, a European coalition led by the Polish King Jan Sobieski threw them back. Yet Georgian rulers, in a continuously hostile neighborhood, failed to unite and jointly pursue their common interests. What are the reasons?


David Friedman, the anarcho-capitalist son of Nobel Prize laureate Milton Friedman, likes to explain everything with economic forces working in the background. His 1977 article “A Theory of the Size and Shape of Nations” (The Journal of Political Economy 85, pp. 59-77) is based on the assumption that rulers and governments are interested in maximizing their tax revenues and in little else. In the medieval ages, there were only two substantial sources of taxes, namely agriculture, and trade. While agricultural output and taxes depended on the amount of land, trade taxes depended on the control of trade routes. There is another important difference, however, between both sources of tax income.

Assume that several entities share different parts of a trade route. If one of them raises its taxes, it will negatively affect the revenues of the other entities along that route as well. Trade on the whole route will become less profitable, there will be less trade, and everybody will suffer. In such a situation of “negative externalities” (the technical term used in economic theory), it can be shown that players have an incentive to set tax rates too high compared to what would maximize total tax revenues. In other words, the countries could gain by uniting and lowering the taxes. If, on the other hand, there are competing trade routes, the rulers will engage in competition for trade volume and set their tax rates below what would maximize total tax revenue. Again, joint tax income could increase if the countries would unite.

Regarding agricultural taxation, there is no such incentive for rulers to unite. There are even reasons to believe that agricultural tax collection yields what economists call “diseconomies of scale”, namely an increased efficiency when it is done in smaller units. The collection of agricultural taxes in large areas requires considerable bureaucratic capacities and the ability of tax collectors to communicate with one another.  This is necessary for recording which taxes were paid by whom, making sure tax regulations are obeyed, and preventing double taxation. In medieval ages, bureaucracy was not well developed and communication was cumbersome, and the easiest possibility to circumvent these problems was to form smaller units. Moreover, one might add (though Friedman, fixated on strictly economic reasons, does not mention it) that when rulers do not face economic disadvantages from being independent, they may have a natural tendency to form small units where they can “rule the roost”.

From these arguments follows that countries primarily generating their tax revenues from agriculture have incentives to split up, while countries that depend on trade route taxing have incentives to unite. Friedman applies his theory to the nations of Europe from Roman to modern times and, in line with his predictions, finds that the East-West Mediterranean trade gave rise to the Roman Empire and its roman-germanic successors. Then, in the 7th and 8th centuries, the Arab conquest in the East locked those trade routes, causing the emergence of small, independent feudal domains in the Mediterranean area. Likewise, the regions of Central and Eastern Europe, lacking access to the sea, were focused on agriculture and, consistent with his theory, subdivided into many small entities throughout most of the medieval age. The trade economies of France, Spain, and England, on the other hand, were united in big, coherent kingdoms.


Georgia is located on the Silk Road, an important East-West trade corridor, and major trade routes were going through its territory. Florian Biermann and I have touched on the traditional importance of trade for Georgia in our article on David the Builder.

When in 1490, the Georgian Kingdom fell apart into Kartli, Kakheti, Imereti, and Samtskhe, 37 years earlier Constantinople had fallen. The end of the Byzantine Empire and the Ottoman’s control of the Bosphorus made trade between Asia and Europe through Georgia much more difficult. In 1461, the Ottomans also captured Trabzon, closing the remaining land trade routes in the South, and in 1475 the Ottomans conquered the northern Black Sea coast and isolated Georgia from Europe almost entirely. The Black Sea became an “Ottoman lake”, the Caucasus corridor was shut down, and the trade routes to Europe disappeared.

According to Friedman, this situation should have led to the formation of smaller entities. If one subscribes to his theory, the Georgian rulers were simply reacting to economic incentives when they split up the kingdom. Maybe it was not the absence of a second “David the Builder” that prevented unification, but hard economic constraints that could not be overcome, making it impossible to create the united Georgian Kingdom again.

The views and analysis in this article belong solely to the author(s) and do not necessarily reflect the views of the international School of Economics at TSU (ISET) or ISET Policty Institute.