I've been reading some Roman history, stimulated by my recent visit to the Eternal City. (See my video "Economic Lesson from Ancient Rome.") I recently found an interesting passage in Will Durant's classic Caesar and Christ: A History of Roman Civilization and Christianity from the beginnings to A.D. 325, which is Part III of his and Ariel Durant's The Story of Civilization..
The famous “panic” of A.D. 33 illustrates the development and complex interdependence of banks and commerce in the Empire. Augustus had coined and spent money lavishly, on the theory that its increased circulation, low interest rates, and rising prices would stimulate business. They did; but as the process could not go on forever, a reaction set in as early as 10 B.C., when this flush minting ceased. Tiberius rebounded to the opposite theory that the most economical economy is the best. He severely limited the governmental expenditures, sharply restricted new issues of currency, and hoarded 2,700,000,000 sesterces in the Treasury.
The resulting dearth of circulating medium was made worse by the drain of money eastward in exchange for luxuries. Prices fell, interest rates rose, creditors foreclosed on debtors, debtors sued usurers, and money-lending almost ceased. The Senate tried to check the export of capital by requiring a high percentage of every senator’s fortune to be invested in Italian land; senators thereupon called in loans and foreclosed mortgages to raise cash, and the crisis rose. When the senator Publius Spinther notified the bank of Balbus and Ollius that he must withdraw 30,000,000 sesterces to comply with the new law, the firm announced its bankruptcy.
At the same time the failure of an Alexandrian firm, Seuthes and Son due to their loss of three ships laden with costly spices and the collapse of the great dyeing concern of Malchus at Tyre, led to rumors that the Roman banking house of Maximus and Vibo would be broken by their extensive loans to these firms. When its depositors began a “run” on this bank it shut its doors, and later on that day a larger bank, of the Brothers Pettius, also suspended payment. Almost simultaneously came news that great banking establishments had failed in Lyons, Carthage, Corinth, and Byzantium. One after another the banks of Rome closed. Money could be borrowed only at rates far above the legal limit. Tiberius finally met the crisis by suspending the land-investment act and distributing 100,000,000 sesterces to the banks, to be lent without interest for three years on the security of realty. Private lenders were thereby constrained to lower their interest rates, money came out of hiding, and confidence slowly re-turned.
Very interesting, do you know what are the original sources of these informations?
Posted by: Emmanuel Florac | December 10, 2010 at 04:05 AM
Having recently read the same excellent book I thought I would add Will Durant's observation on the ultimate collapse of the empire. With a few substitutions to reflect our current times, it could be said the U.S. is treading down a similar path.
“The precarious dependence upon provincial grains; the collapse of the slave supply and the latifundia; the deterioration of transport and the perils of trade; the loss of provincial markets to provincial competition; the inability of Italian industry to export the equivalent of Italian imports, and the consequent drain of precious metals to the east; the destructive war between rich and poor; the rising cost of armies, doles, public works, and expanding bureaucracy, and a parasitic court; the depreciation of the currency; the discouragement of ability and the absorption of investment capital by confiscatory taxation; the emigration of capital and labor; the straight jacket of serfdom placed upon agriculture, and the caste forced upon industry: all these conspired to sap the material bases of Italian life, until at last the power of Rome was a political ghost surviving its economic death.”
Posted by: Darwaza | December 10, 2010 at 12:12 PM
"absorption of investment capital by confiscatory taxation"
seems the u.s. is taking quite the opposite path to this one.
Posted by: edwardmolasses | December 11, 2010 at 09:51 AM
And the croud gathered in CIRCUS Maximus cried for more blood. Like we are glued to our TV sets thirsting for more blood more gore. The rulers jail and silence the dissidents ( wikileaks)
Posted by: justanotherinsect | December 11, 2010 at 06:09 PM
Thank you for this! After reading Extraordinary Popular Delusions and the Madness of Crowds, I had wondered about earlier financial insanity.
The Romans had the combination of sizable GDP, the rule of law (mostly) and civil stability to allow the unrealistic expectations inherent in a bubble. I'm not sure that anyone else did until the Dutch in the late 1500s.
Posted by: Jack Parsons | December 15, 2010 at 02:19 AM
Bill, That is certainly an instructive history lesson. The discussion on Bloomberg yesterday was distinguishing solvency and liquidity. That is, ultimately, liquidity cannot solve a problem that is based in insolvency. However, more seems to be going on here, and the movement towards excess is a clear element. I have just blogged about the GAAP US debt of $71 trillion. Even in nominal terms we were up from $4 trillion 10 years ago to $9 trillion 2 years ago, to $14 trillion today, and, of course, more coming for as far as the eye can see. Nothing will stop our current excesses until we CAN'T do it anymore! Perhaps it is time for Mr. Bernanke to cut the symbolic wedge from the coinage, or to make the bill 10% smaller - or 99% smaller, to be historically accurate. Only a devalued dollar will fund the current and anticipated future expenditures. We have forgotten the "why" of austerity, that is for sure!
Posted by: Laurence Hunt | December 16, 2010 at 08:06 AM