The Bailout of 33 AD
We like to think of economic crises as inventions of modern capitalism with a debt cycle that creates a system of over leveraging and deleveraging which can create and destroy a lot of wealth in a short period of time. Yet this has happened multiple times in the distant past and one of the first recorded economic downturns happened in the Roman Empire in 33 AD under the rule of Emperor Tiberius. Some government mismanagement and a large amount of greed led to the collapse of the Roman financial system and shook the core of the Roman Empire and led to the bailout of many of Rome’s wealthiest citizens.
The Importance of Land in Roman Society
The financial crisis of 33AD was ultimately one about the value of Agricultural Land and so it is important to talk about how the Romans viewed land.
Before the Industrial Revolution, it was whoever owned the most land that was the most powerful, and as the Roman Empire existed before the Industrial Revolution farmland was of the utmost importance to the Roman economy and the Roman ethos. Agriculture was the biggest part of the Roman economy with over 90% of Romans employed in farming. In order to expand the empire, Augustus used the promise of the conquered land to fuel the Roman Legionaries. Roman senators would write treatises on farming and even created laws to forbid themselves from owning large transport ships so that they wouldn’t be tempted away from the farm core of Roman Society. In this environment, it is quite easy to see that owning agricultural land was not only one of the most financially important things but socially important things as well.
The Banking System of Rome
Today the bank serves almost everyone. Almost everyone has a bank account and can get access to credit unless their situation is absolutely terrible. This was not the case for the banks of Ancient Rome. In Rome, the banking houses served the interest of the people who were already wealthy. These banks were very personal in their dealings and dealt with people who already had wealth or really good social connections. This means that basically only the wealthy had access to credit within the Roman economy which made all the functions of the bank and the depositors of the banks very closely linked.
The reason that the banks exclusively dealt with the elites and few non-elites was that security in the ancient world usually meant land and there were very few people willing to put up their land in exchange for credit which created a system where mostly only wealthy citizens could use these banks. If the banks failed then the wealthy would lose a lot of their access to credit and their security. These banks also made money by investing in different projects such as trading ships, caravans, and other commercial projects which is how senators got past the pesky “nothing outside of agriculture” rule.
While the system was strong, a big enough push could completely crumple it, and that’s exactly what happened.
The Years Before the Crisis
The crisis was decades in the making. The beginnings of the crisis can date back to Emperor Augustus and his intense public spending. The reason behind this intense public spending was that Augustus was the second emperor of Rome. Augustus reigned for 45 years and during this reign he consolidated his power and became the absolute authority in the empire. Seeing the fate that had befallen his predecessor (Caesar) when he tried to grab power Augustus spent large sums of money to ensure that he had the support of the people and the army. He did this by giving the veterans who had fought in the army land of their own to cultivate, building large public works to increase the quality of life and spread the glory of Rome, and by handing out bread to nearly everybody in the city of Rome.
As his years as the princep senator (the “first senator” is what he liked to call himself so that he wasn’t accused of trying to be a king) went on, his public spending started to slow down which laid the foundation for the crisis to come.
The reason that this laid the foundations for the crisis was that because of this massive central spending the interest rate dropped from twelve to four percent which meant that the people with access to credit could now use this credit to purchase things for agricultural land and other things such as fineries and other investments at a cheaper rate. This meant that more and more money started to flow out of the Italian Peninsula and into other areas of the empire as it started to expand. And at a time when money meant actual coins, it meant that the amount of cash flowing through the Italian Peninsula was significantly less.
This continued further when Tiberius became emperor as he was even tighter with the treasury and the public spending in Rome further lessened and lowered the money supply on the peninsula. The lower money supply didn’t really lead to many problems yet as this had happened over a course of many years so there wasn’t as large a shock to the system to send it into a death spiral.
A Little Drama
The other half of what led to the crisis was a piece of drama that could have won an Emmy.
The main character of this drama was Lucius Aelius Sejanus. Sejanus was an ambitious soldier who had worked his way to being the leader of the Praetorian guards, and an elite group of soldiers in the army and bodyguards to the emperor. Over time he became a friend and close confidant of Emperor Tiberius. Yet the title of Praetorian Prefect was not enough for him and he wanted more.
Tiberius was a distant emperor, he did not like the politics of Rome and was only in his position because of his birth into the right family. He had a son Drusus Julius Caesar who was married to a woman named Livilla. While married to Drusus it seems that Livilla had fallen for Sejanus who had begun to seduce her as he began his plot to overthrow the emperor according to the Roman historian Tacitus.
In 23 AD Tacitus believes that Sejanus with the help of Livilla slowly poisoned Drusus so it seemed that he had died of natural causes. This is highly plausible as there was a feud between Sejanus and Drusus over the influence that Sejanus had over the senate class and Tiberius. And this rivalry might have heated up to the point where Sejanus wanted to eliminate a political rival.
Once this had happened Sejanus was closer than ever to becoming the heir to the Emperor. In 25 AD he asked to marry Livilla but Tiberius refused perhaps becoming suspicious.
In 26 AD Tiberius, done with the politics of Rome, decided to leave the city and move to the Island of Capri leaving a power vacuum in the city. While Tiberius had moved the seat of power hadn’t and most of the powers that be were in Rome. Sejanus capitalized on this by using his position to keep people from seeing the emperor on the island and by 31 AD he effectively became emperor in everything but name.
But Tiberius wasn’t an idiot, he was watching his power slip away he was going to do something about it. In 30 AD he abruptly lifted his objection from marrying Livilla but Sejanus went with Livilla’s daughter instead.
Tiberius had done this to give Sejanus a false sense of security and prepare to gain political support. While Sejanus believed that it was only a matter a time before he was going to become the heir to the empire Tiberius began to send out letters to senators. At first, the letters were full of praise for Sejanus but soon they changed.
In 31 AD Tiberius called Sejanus to the senate. While Sejanus believed that he was about to become co-emperor, Tiberius had secretly shifted the powers of the Praetorian Prefect to someone else. With Sejanus suspecting nothing Tiberius called the Praetorian Guard, the same one that he had been in charge of, to arrest him. There was chaos in the senate with people allied to the senate getting as far away as fast as they could. And with this swift action, Tiberius’s rule of terror had begun.
Sejanus didn’t become a quasi emperor without any help, he had allies and Tiberius needed to weed them out. One by one Sejanus’s family was found and executed, Livilla was killed for her husband Drusus’s assassination, and the senators that had helped Sejanus and allied with him were executed.
While this might have been great for Tiberius it wasn’t that great for everybody else. Because as more and more of the land was taken from the traitors and sold the price of land and the money in circulation began to fall even more. As the land prices fell agriculture went on the decline and a credit crisis began due to the lack of money in circulation. At this point, things were manageable but could easily get out of hand, and with a little bit of government assistance, that is exactly what happened.
In order to combat this brewing crisis, Tiberius ordered that each senator have one-third of their wealth in Italian Land in an attempt to prop up land prices. It was found that no senators were within this requirement and they had 18 months to comply or execution. In addition to these orders, in 33 AD there were restrictions placed on the creditors where two-thirds of every loan should be invested in Italian land and it was decreed that two-thirds of every loan should be paid off. This legislation which was intended to help raise land prices and secure loans caused a market where there were just sellers and no buyers.
A Couple Bad Investments
Now, this might already look bad but what really put the nail in the coffin was another situation brewing across the Mediterranean. During 32 AD the firm Seuthus & Son of Alexandria lost three ships full of spices to a hurricane and had failed on their investments into ostrich feathers and ivory as their value had gone down. After this disastrous year, they had to suspend their activities. At the same time, a copper mining firm went into bankruptcy after their Phonecian miners went on strike and a manager had embezzled vast amounts from them.
These two firms were fairly large and had taken out large loans from the Roman bank of Quintus Maximus & Lucius Vibo. As depositors began to fear that their money was no longer safe they began a run on the bank which caused fear to spread on the Via Sacra (The Wall Street of Rome). Soon it came out that a larger banking house Brothers Pettius had loaned money to Quintus Maximus & Lucius Vibo’s banking house.
The Brothers did have other streams of income but it just so happened the Brothers Pettius had given large loans that would have paid hefty dividends to noblemen in Northern Gaul. In any other time, this would have been enough to secure them from the losses of the loan to Quintus & Lucius but these were not normal times. There were invasions from the North by barbarians and the government had decided to suspend loan payments until after they’d dealt with this issue. This didn’t fare well for the Brothers as they now could not recoup their losses.
Quintus & Lucius were the first to close their doors and the Brothers closed theirs in the afternoon. There was now widespread fear on the Via Sacra that other banks had loaned money to other banks and that the credit had become intertwined. It was during this time that Tiberius decreed that a third of the senate’s assets should be in Italian Lands, and the senate decreed that two-thirds of loans should be paid off.
The Credit Crunch
As the banks struggled to pay off their loans, the depositors now wanted their principal back so that they could buy land in Italy. This created the perfect storm that would provide a strong enough push for the system to come crumbling down. In one instance a senator found that the firm was asked to give him back his principal of thirty million sesterces had closed its doors two days earlier.
All over the empire banking houses had gone bankrupt and the entire Roman credit system had begun a free-fall with no end in sight. Many of these bankruptcy’s ended up in court and assets would be up for auction but nobody was there to buy, this only further drove down the value of these assets with many instances of the debt being more than the asset itself.
With the economy and the credit system in free-fall, many senators were losing their fortunes and their positions in society. The rates at the banks left were only giving out loans at unreasonably high rates that the senators couldn’t afford to buy land with credit.
While this chaos might have been bad for the average Roman, it was an especially terrible situation to be a Roman senator. On one hand, you had the value of your assets drop, no credit available, and nobody was there to buy the assets that you did own. To make matters worse you were watching your peers lose everything that had been in their families for decades, maybe even centuries and you could see what fate had in store for you. While you were watching this unfold you knew that if you didn’t figure something out soon there was a possible execution awaiting you.
Ironically the only thing that could help this situation was how terrible it was getting. With the praetor’s court (a court official in charge of bankruptcy hearings) completely packed in Rome and this situation spreading all over the empire, the praetor of Rome sent a message to Capri for Tiberius to do something.
How Tiberius Stopped the Crisis
With the crisis now in full effect, Tiberius had to end it or risk losing his head as the man in charge. This is when Tiberius’s tight purse came in handy as the Imperial Treasury had filled up over time. He did something that we wouldn’t do for another two thousand years, quantitative easing. He gave out interest-free loans of 100 million sesterces to the neediest debtors that didn’t need to be paid back until three years later to the senators so that they wouldn’t be forced to sell the land at distressed prices as many of their counterparts had, essentially bailing them out and reminding the Senators and wealthy citizens of Rome who had sympathized with Sejanus who was on top. After the dust had settled the senators got to maintain their privileged positions, Tiberius tightened his power, and many banks and institutions lay in the rubble with the credit system decimated.
This bailout is equivalent to about two billion dollars today. This might not sound significant but is considering that the entire empire had a GDP of twenty five billion dollars at its peak it was an incredibly large amount.
And that is how Tiberius stopped the crisis, with a bailout of the one percent of Roman society, something that wouldn’t be replicated for another two thousand years.
Charles Bartlett, “The Financial Crisis, Then and Now: Ancient Rome and 2008 CE.” Epicenter, 10 Dec. 2018
Justice Clark. “Echoing the Roman Financial Crisis of 33 A.D.” TradeSmith Daily, 24 Sept. 2020, tradesmithdaily.com/educational/echoing-the-roman-financial-crisis-of-33-a-d/.
“The Roman Financial Crisis Of A.D. 33.” NPR, NPR, 30 Dec. 2019, www.npr.org/transcripts/792386687.
Puplava, James. “33 AD: There’s Nothing New Under The Sun.” Seeking Alpha, Seeking Alpha, 17 Feb. 2019, seekingalpha.com/article/4241726–33-ad-nothing-new-under-sun.
Frank, Tenney. “The Financial Crisis of 33 A. D.” The American Journal of Philology, vol. 56, no. 4, 1935, pp. 336–341. JSTOR, www.jstor.org/stable/289972.