I've been saying I'd post this argument from Professor John Haldon here for a while, so here it is. The argument can be found in the chapter on Byzantium inside Morris and Scheidel's "The Dynamics of Ancient Empires", published 2009. This isn't my own argument, and I could be convinced otherwise, but I think it's a very interesting contribution to the debate on the plausibility of later Byzantine (I'm defining this as post-Manzikert) survival and flourishing.
The Byzantine Empire was in both practical and (perhaps more importantly still) ideological terms the sole direct continuation of the Graeco-Roman civilisation that had dominated the Mediterranean world since at least the time of Alexander the Great. This inheritance gave the Byzantines a sophisticated economy and political society that, even at its nadir in the early eighth century, was highly resistant to collapse due to external shocks. Even as the world around it collapsed, the Eastern Roman Empire retained a basically monetary based economy and a political system focused on the person of the Emperor, all of which required a literary bureaucratic class. This largely prevented the rise, as elsewhere in the former Roman Empire, of independent-minded local leaders who could and did take authority into their own hands in defiance of the central political body. This internal cohesion stood the Byzantines in good stead when Islamic political unity splintered in the ninth century, allowing the Empire to go on a slow and methodical programme of conquest between the 860s and 1060s that more or less restored it to its traditional position of the Mediterranean world's leading power. Were it not for the run of bad luck suffered by the state between 1065 and 1085 there is no real reason to assume that this slow and sustained expansion would have ground to a halt.
The Romano-Byzantine state generally funded its activities by taxing land, and using the money gained to pay the wages of its soldiers and its elite administrators. This system worked very well, and was flexible enough to allow for the temporary substitution of soldiers' cash-based pay for rations-based pay in the later seventh and eighth centuries: the pay of officials always remained in cash, and the pay of the professional army gradually returned to cash between 750 and 950 too. For as long as the Roman Empire was the only game in town, either because of its own dominance in the period up to 600, or because of its relative isolation from the outside world thereafter, funding the state's activities through the land-tax made plenty of sense.
There were other taxes and tariffs used, largely to reinforce the strength of the central political system by focusing internal Byzantine economic activity upon the city of Constantinople. This was a natural continuation of older Roman practises to keep the capital city well supplied and peaceful, and a whole range of restrictions and regulations existed to make sure Constantinople was similarly well provisioned. This was undoubtedly an irritant to the mercantile classes of the Empire, but they were largely without political power due to the hostility of elite Byzantines towards commerce, a by-product of their classical heritage that emphasised the importance of the humble farmer and surviving off one's own resources.
All of this began to change from the eleventh century onwards. Byzantine political resurgence led to the Empire taking a more active role in the politics of Italy, where it of course had substantial territories of its own, bringing the Empire into active contact with the merchant city states that had once been its vassals but now stood as small powers in their own right. Like Byzantium, these city states were dominated by an aristocratic elite, but unlike their Byzantine counterparts, Italian elites did not have the benefit of vast landed estates to derive their wealth from. In Italy, it was important to have other sources of revenue, the most important of which was in commerce. The value of commerce in eleventh century Italy thus became fused in the mind of local elites with the civic benefit of their city state, and the city states as a whole took active steps to maximise revenue from this quarter. Unhappily for the Byzantines, this development coincided with a period of political instability ushered in by increasingly aggressive attacks by the Normans in the West and Turks in the East. Assistance was needed, and it came (from the Byzantine perspective) very cheaply from the Italian city states, who demanded only the lifting of trade tariffs, an easy concession for the Byzantine government to grant, given the relative unimportance of trade to the Imperial economy.
On the surface, this proved a winning formula. The regime of Aleksios Komnenos was able to stabilise the Byzantine Empire by fusing the interests of its landowning and bureaucratic classes and then go on to at least partially deal with its external enemies, defeating the Normans and stemming the flow of Turkish incursion. This was achieved in large part due to the assistance of the Italian city states, and later another force of "barbarian" helpers in the form of the Crusaders. All of this was perfectly consistent with the long established Roman use of foederati: foreign-born soldiers paid to fight the Empire's wars on its behalf.
Despite, however, the undoubted successes of the Komnenid Emperors, the Empire proved unable to fully regain the dominance it had enjoyed prior to the 1070s. Its traditional Cappadocian heartlands never again returned to its control despite energetic Byzantine campaigning, and the system of land taxes was therefore somewhat undermined, with even the wealthy territories in Cilicia and northern Syria that were recovered by John II and Manuel I never really being securely integrated into the tax-paying system of the Empire. In an attempt to make good this loss, the Komnenid Emperors tried to play the Italian states off against one another to claw back some of the revenues that had been lost in granting trade concessions, but these attempts were generally counterproductive and saw Italian influence continuing to grow, beginning to hollow out the Empire's internal markets. Byzantium's Aegean heart prospered over the twelfth century as trade boomed and Mediterranean economies became increasingly linked, but the Byzantine state saw comparatively little direct benefit from this.
Nonetheless, trade continued to remain marginal at best to the Byzantine worldview, and despite occasional flareups of anti-Western violence in the later twelfth century Emperors continued to grant more and more concessions to the Italian states, whose own preoccupations dealing with one another and the Holy Roman Emperors meant that keeping these concessions was vital to their national security. It was this situation that led to the disaster of the Fourth Crusade, when a combination of Byzantine bad luck, Italian practicality and Crusader intervention spelt the end of the Byzantine state as a serious force in Mediterranean politics.
The Greek successor states that emerged after 1204 kept all of Byzantium's rich cultural inheritance, but had very little of its size and strength: in many ways, they were now competing with the Italian states as equals, not from a position of very slowly eroding but still formidable strength as the Byzantine Empire of the twelfth century had been. In the circumstances, it is hardly surprising that the Greek successor states should have been bested again and again by the Italians, whose success they rarely fully comprehended due to their own ideological worldview. The hollowing out of internal trade within the Greek world left the successor states entirely dependent upon their land taxes for resources, which in the face of Turkish and Serbian attack became ever more difficult to gather. Attempts to deal with the Turks meant even more dependence upon the Italians, to whom the Greek states of the thirteenth and fourteenth century found themselves essentially mortgaged to. Any attempt to throw off the Italian yolk met with violent reprisal which the Greeks were no longer able to seriously resist, and which contributed still further to the ongoing weakness of their states in the face of Turkish expansion. The Greek states were essentially bankrupt debtors, only able to avoid their enemies by calling in yet more support from their thuggish creditors. It was a trap that would have required a huge amount of luck after 1204 to escape from, and even before that things were difficult.
TL: DR. The Byzantine Empire funded itself largely due to taxes on land: transactional/commercial taxes were unimportant due to ideological beliefs inherited from classical antiquity. After 1070, with Byzantine lands coming under serious threat at the same time as the Italian states were leading the way in the marketisation of the Mediterranean economy, this system was challenged and eventually overturned, with the Byzantines unable to properly come to terms with it. After 1204, with the Empire's strength torn apart, escape from economic reality became almost impossible without a complete ideological revolution which never came.
The Byzantine Empire was in both practical and (perhaps more importantly still) ideological terms the sole direct continuation of the Graeco-Roman civilisation that had dominated the Mediterranean world since at least the time of Alexander the Great. This inheritance gave the Byzantines a sophisticated economy and political society that, even at its nadir in the early eighth century, was highly resistant to collapse due to external shocks. Even as the world around it collapsed, the Eastern Roman Empire retained a basically monetary based economy and a political system focused on the person of the Emperor, all of which required a literary bureaucratic class. This largely prevented the rise, as elsewhere in the former Roman Empire, of independent-minded local leaders who could and did take authority into their own hands in defiance of the central political body. This internal cohesion stood the Byzantines in good stead when Islamic political unity splintered in the ninth century, allowing the Empire to go on a slow and methodical programme of conquest between the 860s and 1060s that more or less restored it to its traditional position of the Mediterranean world's leading power. Were it not for the run of bad luck suffered by the state between 1065 and 1085 there is no real reason to assume that this slow and sustained expansion would have ground to a halt.
The Romano-Byzantine state generally funded its activities by taxing land, and using the money gained to pay the wages of its soldiers and its elite administrators. This system worked very well, and was flexible enough to allow for the temporary substitution of soldiers' cash-based pay for rations-based pay in the later seventh and eighth centuries: the pay of officials always remained in cash, and the pay of the professional army gradually returned to cash between 750 and 950 too. For as long as the Roman Empire was the only game in town, either because of its own dominance in the period up to 600, or because of its relative isolation from the outside world thereafter, funding the state's activities through the land-tax made plenty of sense.
There were other taxes and tariffs used, largely to reinforce the strength of the central political system by focusing internal Byzantine economic activity upon the city of Constantinople. This was a natural continuation of older Roman practises to keep the capital city well supplied and peaceful, and a whole range of restrictions and regulations existed to make sure Constantinople was similarly well provisioned. This was undoubtedly an irritant to the mercantile classes of the Empire, but they were largely without political power due to the hostility of elite Byzantines towards commerce, a by-product of their classical heritage that emphasised the importance of the humble farmer and surviving off one's own resources.
All of this began to change from the eleventh century onwards. Byzantine political resurgence led to the Empire taking a more active role in the politics of Italy, where it of course had substantial territories of its own, bringing the Empire into active contact with the merchant city states that had once been its vassals but now stood as small powers in their own right. Like Byzantium, these city states were dominated by an aristocratic elite, but unlike their Byzantine counterparts, Italian elites did not have the benefit of vast landed estates to derive their wealth from. In Italy, it was important to have other sources of revenue, the most important of which was in commerce. The value of commerce in eleventh century Italy thus became fused in the mind of local elites with the civic benefit of their city state, and the city states as a whole took active steps to maximise revenue from this quarter. Unhappily for the Byzantines, this development coincided with a period of political instability ushered in by increasingly aggressive attacks by the Normans in the West and Turks in the East. Assistance was needed, and it came (from the Byzantine perspective) very cheaply from the Italian city states, who demanded only the lifting of trade tariffs, an easy concession for the Byzantine government to grant, given the relative unimportance of trade to the Imperial economy.
On the surface, this proved a winning formula. The regime of Aleksios Komnenos was able to stabilise the Byzantine Empire by fusing the interests of its landowning and bureaucratic classes and then go on to at least partially deal with its external enemies, defeating the Normans and stemming the flow of Turkish incursion. This was achieved in large part due to the assistance of the Italian city states, and later another force of "barbarian" helpers in the form of the Crusaders. All of this was perfectly consistent with the long established Roman use of foederati: foreign-born soldiers paid to fight the Empire's wars on its behalf.
Despite, however, the undoubted successes of the Komnenid Emperors, the Empire proved unable to fully regain the dominance it had enjoyed prior to the 1070s. Its traditional Cappadocian heartlands never again returned to its control despite energetic Byzantine campaigning, and the system of land taxes was therefore somewhat undermined, with even the wealthy territories in Cilicia and northern Syria that were recovered by John II and Manuel I never really being securely integrated into the tax-paying system of the Empire. In an attempt to make good this loss, the Komnenid Emperors tried to play the Italian states off against one another to claw back some of the revenues that had been lost in granting trade concessions, but these attempts were generally counterproductive and saw Italian influence continuing to grow, beginning to hollow out the Empire's internal markets. Byzantium's Aegean heart prospered over the twelfth century as trade boomed and Mediterranean economies became increasingly linked, but the Byzantine state saw comparatively little direct benefit from this.
Nonetheless, trade continued to remain marginal at best to the Byzantine worldview, and despite occasional flareups of anti-Western violence in the later twelfth century Emperors continued to grant more and more concessions to the Italian states, whose own preoccupations dealing with one another and the Holy Roman Emperors meant that keeping these concessions was vital to their national security. It was this situation that led to the disaster of the Fourth Crusade, when a combination of Byzantine bad luck, Italian practicality and Crusader intervention spelt the end of the Byzantine state as a serious force in Mediterranean politics.
The Greek successor states that emerged after 1204 kept all of Byzantium's rich cultural inheritance, but had very little of its size and strength: in many ways, they were now competing with the Italian states as equals, not from a position of very slowly eroding but still formidable strength as the Byzantine Empire of the twelfth century had been. In the circumstances, it is hardly surprising that the Greek successor states should have been bested again and again by the Italians, whose success they rarely fully comprehended due to their own ideological worldview. The hollowing out of internal trade within the Greek world left the successor states entirely dependent upon their land taxes for resources, which in the face of Turkish and Serbian attack became ever more difficult to gather. Attempts to deal with the Turks meant even more dependence upon the Italians, to whom the Greek states of the thirteenth and fourteenth century found themselves essentially mortgaged to. Any attempt to throw off the Italian yolk met with violent reprisal which the Greeks were no longer able to seriously resist, and which contributed still further to the ongoing weakness of their states in the face of Turkish expansion. The Greek states were essentially bankrupt debtors, only able to avoid their enemies by calling in yet more support from their thuggish creditors. It was a trap that would have required a huge amount of luck after 1204 to escape from, and even before that things were difficult.
TL: DR. The Byzantine Empire funded itself largely due to taxes on land: transactional/commercial taxes were unimportant due to ideological beliefs inherited from classical antiquity. After 1070, with Byzantine lands coming under serious threat at the same time as the Italian states were leading the way in the marketisation of the Mediterranean economy, this system was challenged and eventually overturned, with the Byzantines unable to properly come to terms with it. After 1204, with the Empire's strength torn apart, escape from economic reality became almost impossible without a complete ideological revolution which never came.