Financial Bubbles and Panics in Ancient Rome

The Roman economy was agrarian. Farmers made up the vast majority of the population, and most wealth was both produced from land and invested back into it. There was, of course, a thriving commercial sector and a few industries that produced goods on a proto-industrial scale. But these made up relatively minor parts of an economy that was always, by modern standards, underdeveloped. The Romans had no equivalent of stocks, bonds, or futures, which are all products of the early modern period. So are their diseases, the crises we call bubbles and panics. The Dutch tulip mania of the 1630s, a speculation-driven surge in the prices of tulip bulbs, is often called history's first bubble. But, as we'll see, some of the problems brought about by the investment strategies of the Roman elite raise interesting, if imprecise, parallels. We know much less than we would like about the crises of the Roman economy, not least because our sources tend to fixate on incidents caused or exacerbated by imperial action, like the repeated debasements of the currency in the 3rd century or Diocletian's price edict. The problems encountered by the Roman elite as they sought to invest their wealth are ill-attested. We do understand, however, their basic investment strategies. Like most premodern aristocrats, wealthy Romans kept the bulk of their wealth in property. The safest of all properties were country estates, normally worked by some combination of free tenants and slaves. Slaves were also an investment, especially when they were trained as craftsmen or notaries and could be hired out for profit. Rental properties, baths, warehouses, and, above all, apartments, were also lucrative, especially in the city of Rome. Either directly or through agents, the Roman elite invested in commercial ventures, especially lucrative trade in eastern luxuries. They also made loans, often at steep interest rates, to friends, clients, and business partners. The Roman elite, in short, had diversified portfolios. Like modern investors, they sought to maximize profits while minimizing risk. Their strategies for doing so, though less complex than those now available, sometimes produced modern-looking financial problems. We'll explore some of these after a brief word about this video's sponsor. In hard economic times, the wealthiest can afford to keep spending. And just as Roman senators commissioned mosaics during the barbarian invasions, the modern elite are still spending millions on art. You probably know that historic artworks are extremely valuable. But you may not know that art is an asset with near-zero correlation to traditional markets, which makes it a popular tool to help protect wealth. 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The fortunes of the Roman elite were vulnerable to fluctuations in the price of grain and other commodities, trade goods, and, above all, real estate. Land and property values were relatively stable, especially in and around the city of Rome, where constant demand at every level of the market kept rents high. Occasionally, however, political circumstances brought about the ancient equivalent of a housing crash. This first occurred in 82-81 BC, when Sulla had hundreds of his political opponents executed. The deaths of these men, and the sale of their property to Sulla's cronies at steeply reduced rates—Cicero mentions an estate worth 5 million denarii that was auctioned for 2,000—caused real estate values to plummet. An even greater housing crash took place a generation later, during the civil war between Pompey and Caesar. After Pompey abandoned Rome, fears—which generally proved groundless—that Caesar would cancel all debts or confiscate properties drove panicked sales of estates and mansions. The effects were felt all over Italy, as villa owners tried to anticipate the seizure of their assets by selling them to anyone who would buy. The Roman aristocracy's addiction to conspicuous consumption occasionally created might be called an equity bubble, in the sense that a commodity's price became wildly inflated thanks to pressure from elite consumers, and crashed when the fat evaporated. For a few breathless decades, the red mullet—a small and hitherto unassuming saltwater fish—came to be considered the most delectable of all delicacies. Its price swelled with its culinary stature. At a time when most men earned less than a thousand sestertii a year, a single four-pound mullet might go for 1,200. Larger specimens went for 6,000, 7,000, and 8,000 sestertii. In the reign of Tiberius, three large mullets sold for a whopping 30,000. A banquet that featured a dozen jumbo mullets might cost as much as a modest villa. Competing to display the largest available fish at their banquets, the Roman elite drove prices higher and higher. Since mullets were difficult to raise in fishponds, they became increasingly scarce, raising the price further. Eventually, mullets for the Roman market had to be brought from Corsica and Sicily. And then, perhaps simply because fish stocks were so depleted, the Roman elite's tastes changed, and mullet prices crashed. Although the Roman emperors did not have financial policies in the modern sense, they did what they could to ensure the basic stability of the economy. In 92 AD, for example, the emperor Domitian, worried about a glut on the wine market, banned the planting of new vineyards in Italy and ordered the destruction of half the vines in the provinces. The most modern-seeming imperial intervention in the Roman economy occurred in 33 AD. As mentioned earlier, Roman notables often derived part of their income from the interest on loans. To discourage excessive lending, Julius Caesar passed a law ordering creditors to invest a certain portion of their capital in Italian estates. When this statute, ignored for decades, was suddenly enforced during the reign of Tiberius, it sparked a crisis. The entire Roman aristocracy was found to be in violation of the law. As aristocrats scrambled to assemble the they needed to buy land, they called in their outstanding loans. Many of their debtors found themselves unable to pay and had their properties confiscated. The flood of confiscated properties caused land prices to plummet and encouraged aristocrats to wait until the last possible moment to buy estates in the hope that prices would fall further. While they waited and husbanded their resources, interest rates shot up as the few remaining creditors took advantage of a credit-starved economy. Finally, to prevent the crisis from deepening, Tiberius created a system of public banks under senatorial oversight, deposited 100 million sestertii in them, and authorized the banks to make three-year interest-free loans. This infusion of credit eased the crisis and encouraged private lenders to resume their activities. In short, though the Roman economy was immune to most of the shocks and downturns that afflict modern capitalism, the financial crises weathered by the Roman elite seem to confirm the old adage that, while history may not repeat itself, it often rhymes. Check out my two other YouTube channels, Scenic Routes to the Past and Tolden Stone Footnotes. If you enjoyed this video, please consider supporting Tolden Stone on Patreon. You might also enjoy my book, Naked Statues, Back Gladiators, and War Elephants. Thanks for watching.