Quantitative Easing in the Times of the Roman Empire

http://www.michellemoran.com/books/cleopatra/selenesworld/tiberius/tiberius1.jpg

Emperor Tiberius (42 BC – 37 AD)

As you can see, the method of “stimulating” the economy by printing tons of money is as old as the Roman Empire. Let’s take a look on how Emperor Tiberius managed the financial panic of 33 AD.

Via Business Insider

[...] As with many financial panics, this one began when unexpected events in one part of the Roman world spread to the rest of the Empire. To quote Otto Lightner from his History of Business Depressions, “The important firm of Seuthes and Son, of Alexandria, was facing difficulties because of the loss of three richly laden ships in a Red Sea storm, followed by a fall in the value of ostrich feather and ivory. About the same time the great house of Malchus and Co. of Tyre with branches at Antioch and Ephesus, suddenly became bankrupt as a result of a strike among their Phoenician workmen and the embezzlements of a freedman manager.

Oh, those damn union workers…

These failures affected the Roman banking house, Quintus Maximus and Lucious Vibo. A run commenced on their bank and spread to other banking houses that were said to be involved, particularly Brothers Pittius.

“The Via Sacra was the Wall Street of Rome and this thoroughfare was teeming with excited merchants. These two firms looked to other bankers for aid, as is done today. Unfortunately, rebellion had occurred among the semi civilized people of North Gaul, where a great deal of Roman capital had been invested, and a moratorium had been declared by the governments on account of the distributed conditions. Other bankers, fearing the suspended conditions, refused to aid the first two houses and this augmented the crisis.”

At the same time, agriculture had been on the decline for several years, and Tiberius required that one-third of every senator’s fortune be invested in Italian land.  The senators had 18 months to make this adjustment, but by the time the period was up, many senators had failed to make the proper adjustment.  This deadline occurred at the same time as the events above occurred, placing a further squeeze on the financial sector.

When Publius Spencer, a wealthy noblemen, requested 30 million sesterces from his banker Balbus Ollius, the firm was unable to fulfill his request and closed its doors.  Over the next few days, prominent banks in Corinth, Carthage, Lyons and Byzantium announced they had to “rearrange their accounts,” i.e. they had failed. This led to a bank panic and the closure of several banks along the Via Sacra in Rome.  The confluence of these seemingly unrelated events led to a financial panic.

Could this be the first written record of a Banking Holiday?

To protect themselves, banks began calling in some of their loans. When debtors could not meet the demands of their creditors, they were forced to sell their homes and possessions, and with money unavailable even at the legal limit of 12%, prices of real estate and other goods collapsed since there were so few buyers.  A full scale panic followed. The panic occurred not only in Rome, but throughout the Empire.  If anyone thinks that it is only in recent times that financial markets have been so fully integrated that the failure of the Creditanstalt in 1931 or Lehman in 2008 could precipitate a panic, they clearly have not read their history. 

Well, as you can see, “there is nothing new under the sun.” 

By their nature, financial markets have always been integrated, and failure in one part can create the domino effect which created the Great Depression and was witnessed in 2008.

Tiberius had retired from Rome. Although a great general, some felt Tiberius never wanted to be emperor, and he became reclusive in his later years. It took time to contact him and get a response.

Couldn’t have anyone sent him a text? The article continues:

Several days later, he sent a letter to Rome with measures to alleviate the crisis. The decrees which had precipitated the problem were suspended. 100 million sesterces were to be taken from the imperial treasury and distributed among reliable bankers, to be loaned to the neediest debtors.  (A loaf of bread sold for half a sestertius and soldiers earned around 1000 sesterces, so if you take an average soldier’s salary of around $20,000, you could say that one sestertius was equal to about $20 today.) The 100 million sesterces was equivalent to around $2 billion.

No interest was to be collected for three years; but security was to be offered at double value in real property.  This enabled many people to avoid selling their estates at low prices, stopping the fall in prices and ensuring that the lack of liquidity never occurred. Though a few banks never recovered from the panic, most continued business as usual, and the financial panic ended as quickly as it began.

History always repeat itself

If you think about Tiberius’s response, it is little different from what Bagehot would have recommended in Lombard Street, written in1873, or what Bernanke did in 2008. Just as Bernanke expanded the balance sheet of the Fed,  Tiberius increased liquidity by a huge amount, an early version of the TARP.  Tiberius lowered interest rates to zero for three years to alleviate any additional pain, again, little different from the quantitative easing the Fed has carried out to keep both short- and long-term interest rates low.

The financial crisis of 33 AD also illustrates how integrated all parts of the Roman Empire were since it involved not only Rome, but Egypt, Greece and France.  The financial panic took place over a period of a few weeks, one collapse precipitating the other, just as problems at Lehman, AIG and Morgan Stanley quickly led to problems in other parts of the financial sector and the real economy. The financial crisis was resolved with Tiberius’s measures, and the downward spiral was stopped.

Too bad Tiberius’s successor was his son, Caligula. And you know how that story ended: List of crazy things Caligula did

This is the link to Otto C. Lightner’s classic book “The History of Business Depressions.”

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