Economist John Kenneth Galbraith once noted that the financial memory is limited to 20 or 30 years. Author Mark Twain once suggested that history might not repeat itself but certainly rhymes. Together, these two simple observations may help to explain why so many of our structural crises are simply echoes of previous human folly…
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First credit crunch traced back to Roman republic
Mark Brown, The Guardian, Friday 28 November 2008
Politicians searching for historical precedents for the current financial turmoil should start looking a bit further back after an Oxford University historian discovered what he believes is the world’s first credit crunch in 88BC. The good news is that Philip Kay knows how the Romans got themselves into financial bother. The bad news is no one knows how they got themselves out of it.
“The essential similarity between what happened 21 centuries ago and what is happening in today’s UK economy is that a massive increase in monetary liquidity culminated with problems in another country causing a credit crisis at home. In both cases distance and over-optimism obscured the risk,” said Kay, a supernumerary fellow at Wolfson College.
The monetary historian is giving a lecture today in which he will reveal how Cicero, the Roman orator, gave a speech in 66BC in which he alluded to the credit crunch. Cicero was arguing that Pompey the Great should be given military command against Mithridates VI, king of Pontus on the Black sea coast of what is now Turkey. He reminded his audience of events in 88BC, when the same Mithridates invaded the Roman province of Asia, on the western coast of Turkey. Cicero claimed the invasion caused the loss of so much Roman money that credit was destroyed in Rome itself.
The orator told his audience: “Defend the republic from this danger and believe me when I tell you – what you see for yourselves – that this system of monies, which operates at Rome in the Forum, is bound up in, and is linked with, those Asian monies; the loss of one inevitably undermines the other and causes its collapse.”
Kay said the words were “remarkable” for their contemporary tone. “Substitute US sub-prime for ‘the Asian monies’ and the UK banking system for ‘the system of monies which operates in the Roman Forum’ and it could have been written about the current credit crisis,” said Kay.
“In second-century and early first-century BC Rome, increased inflows of bullion combined with an expansion in the availability of credit to produce a massive growth in Rome’s money supply. This increase in the supply and availability of money in turn resulted both in a major increase in Roman economic activity and, eventually, in the credit crisis which Cicero describes.”
So how did they get themselves out of such a pickle? “There’s very little information about what happened over the next 20 years I’m afraid,” said Kay. “We just don’t know.”
Certainly historians know that Sulla became dictator of the Roman republic after the credit crunch, but Kay said the two events were unrelated.
Kay, who has a background in investment banking and fund management, will deliver his lecture in Oxford. The lecture is organised by the Oxford Roman Economy Project.