World's first credit crunch?

27 November 2008

While politicians are juggling the UK’s finances to bring the country out of the credit crunch, new research shows they could have learnt from the financial situation of the Romans - more than two thousand years ago.

Oxford University researcher Philip Kay, a supernumerary Fellow at Wolfson College studying economic growth in second century BC Rome, has discovered what he believes could be the world’s first credit crunch, which took place in 88 BC.  In a lecture at Oxford University on Friday, Mr Kay will reveal how the Roman orator Cicero gave a speech in 66 BC in which he alluded to the credit crisis 22 years previously.

Monetary historian Philip Kay said: “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.

”In his speech, the De Imperio Cnaei Pompeii, Cicero argued that Pompey the Great should be given the military command against Mithradates VI, king of Pontus, a kingdom on the Black Sea coast of modern Turkey. He reminds his audience of the disasters which befell them 22 years earlier in 88 BC when the same Mithradates invaded the Roman province of Asia, situated on the western coast of what is now modern Turkey. According to Cicero, this invasion caused the loss of so much Roman money that credit was destroyed at Rome itself.

Cicero said: “For then, when very many people lost large fortunes in Asia, we know that there was a collapse of credit at Rome, because repayments were interrupted. It is indeed impossible for many individuals in a single state to lose their property and fortunes without involving still greater numbers in their ruin.

“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 the one inevitably undermines the other and causes its collapse.

”Mr Kay believes Cicero’s words are “remarkable in their contemporary tone”. He says: “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.

“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.”