This article is Part 1 of our series on the world’s major financial crises.
The financial crisis of 33 AD, which rocked the Roman Empire, had them all: overleveraged financial institutions, external shocks, a run on the banks, and a lack of credit. The ancient-to-modern comparison may now be finished by adding a first-century iteration of quantitative easing.
When writing about the premodern era, contemporary historians have not given much attention to the financial crises in the Roman Republic in 33 A.D. Although historians have discussed the tulip crisis in Holland in the seventeenth century, the Mississippi Bubble in France, and the South Sea Bubble in England, these are significant but uncommon outliers.
We still only have a partial explanation for why these loans became harder to come by: Land prices dropped, making it more difficult for borrowers to recoup their debt. A law was introduced requiring senators to invest 2/3 of their wealth in properties on the Italian peninsula in an effort to stimulate the real estate market. Julius Caesar had previously instituted this law, which had subsequently been abandoned. Its reinstatement had disastrous effects on the credit market since senators had to demand that borrowers repay their debts.
The Roman Republic had a financial and economic crisis in 33 CE, during the reign of Emperor Tiberius. The true problem was a sudden lack of money and a contraction of credit that put some of Rome’s most respected citizens in danger of bankruptcy.
Money circulation was already at a low level because Tiberius had a propensity for hoarding money rather than spending it. For instance, he reduced Augustus’ extravagant policy of public construction and, wherever possible, avoided expensive military wars. After defeating the German commander Arminius in the Battle of Idistaviso, he withdrew the army from Germany across the Rhine.
The main crisis was sparked when a law that required creditors to put some of their money into Italian lands was reinstated.
One of the objectives of this policy was to distinguish Italy as a special region within the empire by appealing to the widely held belief among Rome’s elite that Italian agriculture had formed the basis of the Roman state and continued to play a significant role in the Roman Empire.
The Roman courts started enforcing Caesar’s legislation in 33 CE and prosecuting several people who disobeyed it. It was decided to provide lenders with an eighteen-month grace period to adjust their holdings in order to conform with the legislation when the situation was explained to the Roman Senate and Emperor Tiberius.
As a result of this direction, lenders called a sizable number of loans early, which caused the money supply to drop quickly. Moneylenders were required to buy a greater proportion of Italian agricultural land as part of a recreation of Caesar’s law in an effort to alleviate the crisis, but this only served to worsen it as the sudden need for cash led to more loans being called in addition to real estate being sold at fire sales to pay for those loans. Rome and other regions of the empire witnessed the failure of several banks, which resulted in an increase in interest rates. Those with cash decided to put off purchases as prices dropped quickly in an effort to secure even cheaper costs.
Another major factor was the sinking of three ships traveling from Egypt. They were transporting spice shipments that had been acquired for resale by Seuthe and Son, a banking institution in Egypt. Unfortunately for them, the ships sank in the Red Sea during a cyclone. The impact was felt immediately on Rome’s Via Sacra, the equivalent of Wall Street in the ancient world. As a result of loans to Seuthe and Son, financial institutions in the capital have now collapsed. They called in loans one by one as they closed up shop, increasing the pressure on cash.
Liquidity was in extremely short supply. Rumors of instability aggravated the problem, which is spreading quickly. a lack of trust between banks. Money was saved up. Trade and the financial realms of the empire were frozen. The relevant quaestor, basically the finance minister, forwarded the issue to the Senate, which was notorious for being inefficient—forwarded it to Tiberius in Capri. His reaction was unequivocal: a significant infusion of imperial cash into the Roman financial system was to be used to alleviate the liquidity issue. The first example of quantitative easing in human history The imperial treasury issued 100 million sestertii into the banking system at a zero percent interest rate.
Additionally, collateral for these loans was accepted at twice the market rate, which stabilized the property market and brought confidence back to the credit market.
Tiberius’s quick response, which increased liquidity and boosted trust in the financial markets, allowed the crisis to pass swiftly. Within four years, he passed away and left Caligula a fully stocked Treasury. However, Caligula had no trouble spending money—but that is a different tale.
Main Source: Thornton, M. K., & Thornton, R. L. (1990). The Financial Crisis of A.D. 33: A Keynesian Depression? The Journal of Economic History, 50(3), 655-662. https://doi.org/10.2307/2122822