In ancient Rome, lending was often secured by land, at least in the case of large loans to wealthy landowners. Naturally therefore, the credit and real estate markets were closely linked. These links could help propel large fortunes when times were good and could cause trouble when virtuous cycles gave way to spiraling losses, when falling land prices caused credit to evaporate and vice versa. This is what happened when political events caused a Roman financial panic two millennia ago.
Land and Lending
Compared to modern economies, land was far more significant in pre-industrial civilizations. Land was more valuable and ownership of it carried far more prestige than it does today. Land also opened the door to borrowing money since it was commonly used to secure loans, giving wealthy landowners in an economy like that of Roman Italy access to credit which they were often keen to use. Land and credit went hand-in-hand, especially in the most well-to-do circles of Roman society.
Land and credit were also birds of a feather; when the former became more valuable the latter became more accessible; when credit became more abundant, it served to enrich landowners further. This is what happened in the early days of the Roman Empire. After 30 BC, when the first emperor, Octavian Augustus, came to control the old royal treasures of Cleopatra’s Egypt, he increased spending on the Roman army, bought estates for discharged army veterans, reconstructed roads and temples, and saw to it that new aqueducts, baths, and other projects were built.
“He often showed generosity to all classes when occasion offered. For example, by bringing the royal treasures to Rome in his Alexandrian triumph he made ready money so abundant, that the rate of interest fell, and the value of real estate rose greatly” – Roman historian Suetonius on Octavian Augustus (AD 121)
Augustus also made loans to private borrowers able to put up assets, such as land, valued at twice the loan as collateral. Such spending and lending caused rising prices and falling interest rates. Falling interest rates and rising prices supported land values, enabling further borrowing. This virtuous cycle facilitated many new fortunes, especially in real estate. Recall of course the social power tied to land. Those who became rich in commerce were already eager to trade that wealth for land and the prestige that came with being a large landowner. Favorable economic conditions could only have made this even more alluring.
The prosperity was not to last. Interest rates rose in the early first century AD, likely caused by several decades of restrained minting of new coins as government expenditures in Italy dwindled during Augustus’s later years and during those of his successor. Imports that sent precious metal coins abroad also reduced the currency in circulation. By now, usury laws that had previously limited interest rates on loans to 1% per month were going unenforced. Rising interest rates and a shortage of coined money had caused land prices to fall and the lack of major works during this period of fiscal restraint meant that other industries were similarly in a period of decay.
Tiberius and the Senators
This reversal of fortunes characterized the years leading to the financial panic of AD 33. For better or for worse, knowledge of the crisis of AD 33 survives through the comments of relatively few ancient commentators, especially Tacitus. That any of the most well-known Roman historians, including Tacitus but also Suetonius and Cassius Dio, commented on the crisis is noteworthy; Roman historians were not usually interested in economics.
These writers may have had their own agendas but the scarcity of evidence makes refuting their accounts a difficult task; they are what we have to work with. According to the surviving accounts, the emperor Tiberius was aloof, governing Rome from Capri, but largely disinterested in politics. Known for fiscal rectitude, he was also the driving force behind the reduction in government spending that contributed to the falling money supply. Whereas he inherited just 100 million sesterces in treasure from Augustus, he would leave over 2.7 billion sesterces to his successor upon his own death.
The standard account of the crisis reports that senators back in Rome began to compete for power in the vacuum Tiberius left. In search of material with which to target their opponents, senators and other members of the political elites found previously unenforced laws with which many of their peers, and political rivals, were not in compliance. These included laws prohibiting lending at interest and laws requiring that landowning senatorial families hold most of their wealth in Italian land, rather than in loan portfolios. While uncertain, it is said these laws had been originally instituted by Julius Caesar as strictly a wartime measure to prevent the panicked liquidation of land in favor of hard money.
Despite being largely archaic by then, many were motivated to recommence enforcement of the old rules. To gain political advantage, aspiring politicians encouraged courts to enforce the previously disregarded laws in order to discredit their adversaries. Others saw it as a chance to improve their economic situations. Those who, because of the laws or otherwise, held most of their wealth in Italian property had suffered from falling land values; they may have seen renewed enforcement as a way to revive the market for local property. Tiberius gave offenders of the laws eighteen months to be in compliance but otherwise allowed this to go on.
“Meanwhile a great host of accusers assailed men who grew their money by lending it, contrary to the law of Caesar regulating the nature of loans and property ownership in Italy—a law long since neglected … [t]he senators, alarmed since from this guilt none was exempt, sought the Emperor’s indulgence—granted. The next year and a half were given for everyone to arrange their finances in accordance with the law” – Tacitus, Annals, 6.16
Of course, lending at higher rates of interest was a natural byproduct of the reduced money in circulation but this logic did not prevent the more steadfast enforcement of usury rules. Enforcement of the old laws triggered the renegotiation of loans. Finding their personal wealth was not held in legal form, bankers withdrew credit and landowners rebalanced their portfolios toward Italy. Tacitus also cited the confiscation of property by Tiberius, for reasons unrelated to the laws on credit or property, as a further cause of the crisis.
Credit went from being expensive to simply unavailable. Landowners withdrew money from banks. This in turn forced the lenders to call in their loans, demanding borrows repay amounts due and forcing many to liquidate their land holdings. The bankers could not raise liquidity fast enough; this was a run on the Roman banks. Prices fell further, including the value of land. Naturally, purchases of Italian land by wealthy landowners rebalancing their portfolios could have supported values but prospective buyers held out, waiting for credit to become available once more and expecting better deals as prices fell.
“The result was a money shortage, given the simultaneous disturbance to everyone’s debts and the fact that, with so many convictions and foreclosures, cash was detained in state and imperial treasuries … What had been devised as a remedy, selling and buying, turned into the opposite, since lenders had placed all their cash in land purchases. With depreciation following the glut of selling, the more someone owed the more he was subject to distraint. Many were toppled from riches.” – Tacitus, Annals, 6.17
In response to the crisis, a special banking commission was established. Through the commission, Tiberius made 100 million sesterces available to be lent out in three-year interest-free loans to landowners, secured by their land at a two-to-one ratio against the loan amount. The banking commission, comprised of five senators, acted on behalf of the Roman Treasury in disbursing this sum. Whether to restore the Roman economy or the position of his fellow elites, Tiberius’s intention did have economic consequences. Land prices stabilized and the credit of previously distressed borrowers were mended, restoring confidence and the provision of private credit.
The stimulus itself was not so costly as to threaten the public finances. The authorized 100 million sesterces in state assistance was a sum equal to perhaps one-quarter of annual public expenditures and this would eventually have to be repaid by recipients anyway. At the time of his death in AD 37, Tiberius had stored a treasury of 2.7 billion sesterces. This gave his successors, Caligula and Claudius, money with which to use in great works. They resumed large government expenditures, funding great projects like new aqueducts, harbors, and a partial draining of the Fucine Lake in central Italy.
The political circumstances that led to the Tiberian financial panic were peculiar and may be difficult to make sense of, especially when the reliability of ancient source material is not unquestionable. Nonetheless, the relationship between credit and real estate in the first century AD is hardly unrecognizable. Neither is the nature of the state’s response to the crisis or its effects. As with so much of Roman history, its economy and financial predicaments are one part expectedly foreign and one part surprisingly modern.
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1. Tacitus, Cornelius. Tacitus, Annals. Translated by Cynthia Damon, Penguin Books, 2012.
2. Elliott, Colin P. “The Crisis of A.D. 33: Past and Present.” Journal of Ancient History, vol. 3, no. 2, 2015, pp. 267–281.
3. Frank, Tenney. “The Financial Crisis of 33 A. D.” The American Journal of Philology, vol. 56, no. 4, 1935, pp. 336–341.
4. Smith, Stacey Vanek, et al. “The Roman Financial Crisis Of A.D. 33.” NPR: The Indicator from Planet Money, 30 Dec. 2019.
5. Temin, Peter. The Roman Market Economy. Princeton University Press, 2017.
6. Thornton, M. K., and R. L. Thornton. “The Financial Crisis of A. D. 33: A Keynesian Depression?” The Journal of Economic History, vol. 50, no. 3, 1990, pp. 655–662.