The Business Panic of 33 ACE

October 11, 2008 at 4:47 pm Leave a comment

Students of history are smiling. My thanks to Steve Finn for this post.

Lest we think that the current situation is something new.

In 33 AD, there was a small outbreak reported in Judea, which was resolved by the crucifixion of a malcontent. The much larger news was a credit crunch which wiped out many wealthy people. There was a run on the banks and lenders, foreclosures and auctions were rampant, and many people went bankrupt.

The basic problem was that too much credit was extended to too many people, and when the collateral requirements were enforced by the Senate (some Senators being among the primary guilty parties), a credit crunch ensued. It’s not exactly clear what the initial cause was, but as more and more people demanded return of their capital, the overextended credit system began to unravel. It was finally resolved when Tiberius took $4,000,000 from the treasury and loaned it at 0% interest for 3 years to those who had land as collateral. This allowed private lenders to rebuild and reestablish themselves, and the credit crunch gradually resolved itself.

The Business Panic of 33 A.D.
published in New York, 1910

Of the year 33 A.D. it may possibly have been recorded in the diaries of certain Roman business men, that there was a disturbance in the remote province of Judaea a tumult quickly quelled by the energy of his excellency Pontius Pilate, the governor, who seized and crucified one Christus, the chief malcontent, and two bandits, his accomplices. It is more probable, however, that they only remembered this year as marking one of the severest panics which ever shook the foundations of Roman credit.

As with most panics, the causes of this were not obvious. About a year before, the firm of Seuthes & Son of Alexandria, lost three richly laden spice ships on the Bed Sea in a hurricane. Their ventures in the Ethiopian caravan trade also were unprofitable, ostrich feathers and ivory having lately fallen in value. It soon began to be rumored that they might be obliged to suspend. A little later the well known purple house of Malchus & Company (centered at Tyre, but with factories at Antioch and Ephesus) suddenly became bankrupt ; a strike among their Phoenician workmen, and the embezzlements of a trusted freedman manager being the direct causes of the disaster. Presently it became evident that the great Roman banking house of Quintus Maximus & Lucius Vibo had loaned largely to both Seuthes and Malchus. The depositors, fearing for their money, commenced a run on the bank, and distrust spread because men, experienced on the Via Sacra (the first century Wall Street), said that the still larger house of the Brothers Pettius was also involved with Maximus & Vibo. The two threatened establishments might still have escaped disaster had they been able to realize on their other securities. Unfortunately the Pettii had placed much of their depositors’ capital in loans among the noblemen of the Belgae in North Gaul. In quiet times such investments commanded very profitable interest; but an outbreak among that semi-civilized people caused the government to decree a temporary suspension of processes for debt. The Pettii were therefore left with inadequate resources. Maximus & Vibo closed their doors first; but that same afternoon the Pettii did likewise. Grave rumors obtained that, owing to the interlacing of credits, many other banks were affected. Still the crisis might have been localized, had not a new and more serious factor been introduced.

In a laudable desire to support the Italian agricultural interest then in a most declining way the Senate, with the assent of Tiberius, the emperor, had ordered one third of every senator’s fortune to be invested in lands within Italy. Failure to comply with the ordinance invited prosecution and heavy penalties. The time allowed for readjustment had almost expired, when many rich senators awoke to the fact that they had not made the required relocation of their fortunes. To find capital to buy land, it was necessary for them to call in all their private loans and deposits at the bankers. Publius Spinther, a wealthy nobleman, particularly was obliged to notify Balbus & Ollius, his bankers, that they must find the 30,000,000 sesterces he had deposited with them two years before. Two days later Balbus & Ollius had closed their doors, and their bankruptcy was being entered before the praetor. The same day a notice in the Ada Diurna, the official gazette posted daily in the Forum, told how the great Corinthian bank of Leucippus’ Sons had gone into insolvency. A few days later it was heard that a strong banking house in Carthage had suspended. After this all the surviving banks on the Via Sacra announced that they must have timely notice before paying their depositors. The safe arrival of the corn fleet from Alexandria caused the situation at the capital to brighten temporarily; but immediately afterward came news that two banks in Lyons were “rearranging their accounts,” as the euphemism ran; likewise another in Byzantium. From the provincial towns of Italy and the farming districts, where creditors had long allowed their loans to run at profitable interest, but were now suddenly calling in their principals, came cries of keen distress and tidings of bankruptcy after bankruptcy. After this nothing seemed able to check the panic at Rome. One bank closed after another. The legal 12% rate of interest was set at nought by any man lucky enough to possess ready money. The praetor’s court was crowded with creditors demanding the auctioning of the debtor’s houses, slaves, warehouse stock, or furniture. The auctions themselves were thinly attended, for who could buy? Valuable villas and racing studs were knocked down for trifles. Caught in the disaster, many men of excellent credit and seemingly ample fortune were reduced to beggary. The calamity seemed spreading over the Empire, and threatening a stoppage of all commerce and industry, when Gracchus, the praetor, before whom the majority of the cases in bankruptcy came, at his wits’ end to decide between the hosts of desperate debtors and equally desperate creditors, resorted to the Senate-house; whence, after a hurried debate, the Conscript Fathers dispatched a fast messenger with a full statement of the danger to their lord and master Tiberius, in his retreat at Capri.

While the Caesar’s reply was awaited, the business world of the capital held its breath. Four days after the dispatch from the Senate, an imperial courier came pricking back from Campania. The Senate assembled in the Curia with incredible celerity. A vast throng slaves and millionaires elbowing together filled the Forum outside, while the Emperor’s letter was read, first to the Senate, then from the open Rostrum to the waiting people. Tiberius had solved the problem with his usual calm, good sense. The obnoxious decrees were for the time to be suspended; 100,000,000 ses. were to be taken from the imperial treasury and distributed among reliable bankers, to be loaned to the neediest debtors; no interest to be collected for three years; but security was to be offered of double value in real property. The law being relaxed, and the most pressing cases cared for by the government loan, private lenders began. to take courage and offer money at reasonable rates. Dispatches from Alexandria, Carthage and Corinth indicated that the panic had been stayed in those financial centers. The moneyed world of the Via Sacra began to resume its wonted aspect. A few banking houses and individuals never recovered from their losses, but the majority escaped permanent suspension and so the panic of the “Consulship of Galba and Sulla,” i.e. of 33 A.D., passed into half-forgotten history.

Such a little expanded from Tacitus and Suetonius is the tale of the great panic under the third Caesar. A narrative like this would have no verisimilitude unless placed in a society extending over seas and continents, with a great internal and foreign commerce, rapid means of communication, complex and vast credit transactions, an elaborate system of banking; in other words, with conditions not unlike many of those of the twentieth century. Great was the Roman Empire in its military glory, its system of law and administration, its preservation of the artistic and intellectual heritage from Greece, its elimination of clan patriotism and local prejudices but it was also great, in that it fostered the development of an economic life such as has not come again to the world until very recent times. It is of this Roman commerce, communication, banking, credit, and of a society largely founded on such a “money basis,” that we propose to write.

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