• The Invisible Hand

Revelations from Rome: The First Ever Financial Crisis

Financial crises are not just a recent occurance; they can be traced back 2000 years. It is remarkable how similar a crisis in 33AD Rome can be to the global financial crash of 2008.

Like the 2008 crash, the 33AD financial crash was caused by longer term trends in addition to a sudden shock. Emperor Augustus, who preceeded Tiberius embarked on huge public expenditure projects. He wanted to increase land ownership for citizens. To do this he extended credit which became riskier and riskier. Like the 2008 crash, the crisis had its origins in the land and property market. Furthermore, like 2008 land and estate prices rose rapidly only to come crashing down. This bears a remarkable resemblance to the policies of Thatcher, Reagan and Bush Snr to encourage home ownership which led to the housing bubble.


While this did briefly benefit wealthy landowners, the next Emperor, Tiberius, wanted to control this and the rapidly expanding money supply, so he resorted to austerity policies. This involved ordering all loans to be paid off immediately, so debtors lost land and property prices plummeted. Massive deflation caused the market to collapse and levels of default were high.


A bank run began as the Quintus Maximus and Lucious Vibo banking house threatened collapse due to the high number of defaults. These characteristics are very similar to 2008, where bank runs did occur particularly with Northern Rock in the UK. The problems only became worse as more banks began calling for their loans to avoid these bank runs.

The financial system of Ancient Rome was very complex for their time. Consequently, the financial risk spread throughout the Roman Empire, just as the global financial crash did in 2008.


However, one key differences in the causes of these crises was that the global financial crisis was not caused by a tightening of fiscal policy and instead naturally manifested out of excessive financial risk. Meanwhile, the crisis of 33AD was caused by austerity which made debt harder to pay and eventually the financial risk materialised. This teaches us a good lesson, however, about the dangers of excessive financial risk.


We tend to think of economics in the past as being less interventionist, but Tiberius actually implemented some fairly radical and ultimately successful policies to fix the crisis. He lowered interest rates and created large amounts of loans at the 0% level which had the same effect as QE did in the 2008 crisis. Imperial loans also did not charge interest for three years. This helped restore confidence in the financial system and encouraged borrowing so stimulated land and property prices. A similar response was enacted in 2008, but the effect was slower. It is interesting that 2000 years ago, the government realised that interest rates needed to be lower and the government should provide assistance, while in the 1930s the US government used completely the wrong policies which lengthened the crisis.


Although both crises had devastating impacts on incomes and employment, the crisis of 33AD ended much quicker and in the long-term most banks continued as usual. Meanwhile we are still facing the consequences of the 2008 crisis today.




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This is the final instalment from the Revelations of Rome series. The other two sections can be found here: https://www.economics-exchange.com/home/revelations-from-rome-overview-of-the-ancient-roman-economy and https://www.economics-exchange.com/home/revelations-from-rome-role-of-government.

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