If you answered Finance to the question then it was a smart choice! After my last post on the Financial Crisis of the Roman Empire in 33 AD many people asked me about when did such things as banks and financial companies start. Actually perhaps the weirdest thing is that Financial Services have been with us since the beginning of History or perhaps even since our earliest Proto-History. Historians often define the beginning of history with the invention of writing, since it allowed to register events and lives in a more accurate way. Objects such as weapons or tools exist for pre-historical times, but they only provide clues to how those men lived their lives and not about who they were, how they spoke, how they thought.
We tend to think the most ancient writings are religious works like the Bible (which started being written in the 7th century B.C.) or epic poems such as the Iliad and the Odyssey (which date from the 8th century B.C.). Some Hindu traditions claim their ancient writings like the Bhagavad Gita are more than 5000 years old, but modern historians think that the most ancient elements of the Gita come from the 8th or 9th centuries B.C. and that its final form was only completed from the 5th to 2nd centuries B.C. The Bible, the Iliad/Odyssey and the Bhagavad Gita do represent very old works which are still popular and widely read today. However, the most ancient writings are much less glamorous than stories of gods and heroes.
Writing appeared for the first time around 3100 BC in Ancient Sumeria or Mesopotamia, a region that is a part of modern Irak. As portrayed in the book by famous archaeologist Samuel Noah Kramer “History begins at Sumer”, the most ancient pieces of writing we have are about accounting and financial transactions, things such as how much was produced of each agricultural product, how much was stored and how much was traded. Ancient writers were basically doing basic accounting and registering loans such as “person A owes so much agricultural products to person B and this must be paid before date C”. The Sumerian stone tablet above from the Walters Art Museum registers a transfer of land and is one of the oldest examples of a phonetic writing system. Over time these writers added more signs to represent cities and gods in order to give a more sacred feeling to their financial contracts. In fact the first times religion is mentioned in writing it appears as sort of a financial penalty "the person who breaks the contract or does not pay will be cursed by god and demon so-so".
Perhaps some 400 or 500 years before writing appeared there was some form of proto-writing or pictograph drawings in Ancient Sumeria. And these pictograms were also about Accounting and Finance! Imagine the toy blocks that our children use before they know how to read. Some of these blocks may have the shapes of houses or of animals such as birds and cows, but children place them in a way that tells a story. In some sense the ancient business men had such a system before writing appeared! These men used small clay objects or tokens for counting agricultural and manufactured goods. But after a few centuries these ancient business men realized they could simply draw these images and clay objects were unnecessary, so pictographs replaced the clay tokens! Also, these business men found out it wasn’t necessary to draw an object or an animal such as a pig five times, since you could just draw one pig and then add five lines to mark it was the same object repeated as a certain numbers. And that was how math and arithmetic began. Writing appeared around 3100-3000 BC and it differs from pictographic proto-writing because it represents phonetic sounds and words instead of being a mere list of objects.
It is hard to know when Religion and Poetry started. Perhaps the oldest example of both comes from Sumerian mythology and the Epic of Gilgamesh, which is believed to have been written around 2000 BC. Above I show the image of a Babylonian table from 1800 BC with part of this epic, which is considered the oldest work of literature. It is the story of an abusive king Gilgamesh who overtaxes its people and molests the young women. Gilgamesh then finds a friend sent by the gods, Enkidu, and they live several adventures together. After Enkidu dies, Gilgamesh departs on a quest for Eternal Life. It is a fascinating story just like the Odyssey or the Genesis, therefore I will not spoil its reading with more details.
Well, I am an Economist and one who is interested in both financial topics and poetry. In fact many of the greatest poets and writers were merchants like Marco Polo or economists/accountants like Fernando Pessoa and Cavafy. Now how do I imagine that Religion and Poetry were born? I suppose one day an ancient Mesopotamian business man was tired of writing about properties, loans and finance. All these are valuable things, but ones that can be replaced. Then perhaps he thought about writing about things that cannot be counted and that are irreplaceable: the Sun, the Moon, the Constellations of Gods and Heroes. This bored business man then wrote of feelings such as love and friendship, which cannot be enforced by financial contracts. And that is how I imagine Religion and Poetry were born!
Saturday, January 23, 2016
Thursday, January 14, 2016
A large part of the world has been in a financial crisis since 2008, therefore it is quite opportune to remember the events of what for many historians was the First Financial Crisis in our history. During the reign of the second Roman emperor Tiberius a big financial crisis shook the elites across the empire from its provinces in Asia and Africa to the financial center in Rome. At the time the Empire had an international economy where cereals, olive oil, preserved fish, and precious metals were constantly traded between Rome and its provinces. The financial center where many banks and companies opened their doors was in Rome’s Via Sacra, which was the Wall Street of the empire. Below I show an image of Rome’s Via Sacra.
This crisis followed a pattern very similar to our own: 1) austerity policies that reduced Government Expenditures and Money-Lending implied a reduction in the supply of money and in the liquidity and profitability of businesses, 2) bankers and business men reacted by paying off their loans too quickly and had to sell their properties at fire-sales, 3) the austerity, low money supply and fire-sales of real estate caused a massive deflation, 4) some big business men in Egypt, Lebanon and Turkey were reported to be in dire problems and their two banks in the Roman Via Sacra closed doors, and, finally, 5) due to the suspicion that many banks had interweaving credits among themselves these events led to a widespread contagion across the financial system. This wiki article plus this and this academic papers explain this financial crisis in detail, with ancient historian Tacitus as a main source.
To solve these problems Emperor Tiberius had to: 1) create large amounts of loans for bankers at a 0% interest rate against good real-estate collateral just like the FED and the ECB did in recent years with their 0% interest rates, balance sheet expansion and quantitative easing, and 2) the imperial loans did not charge any interest for three years, which is very much like the current maturity easing policies with the FED and ECB promising to keep interest rates low for as long as it takes for the economic recovery to start.
Here I show a Roman coin of Tiberius with his mother Livia, wife of the first emperor Augustus on the other side. It is worth noting that Tiberius was a son of Livia from a previous marriage and had been adopted by Augustus in the absence of male children of his own. You can see more coins of Tiberius reign in this link or here.
Saturday, January 9, 2016
The Beginning of History: A Naked Woman, The First Coin and a King who believed himself to be Fortunate
In July of 2015 I visited Turkey for two weeks, enjoying the historical ruins of that magnificent country. Although I visited the standard attractions in Istanbul, Ephesus and Cappadocia, the best day of my travel was a place isolated from the larger urban centers. One hot summer morning I took a bus and stopped in the middle of a road in order to walk some 3 kms to ancient Sardis. After a long walk which passes through a small town we reach the Temple of Artemisia, one of the most beloved goddesses of the ancient Hellenic peoples and their West Asian neighboring civilizations. This temple has been reconstructed only with stones found in site, therefore we can have an authentic feeling of what it was like in older times. The photos below are from my visit to the temple, with one including me. As you see these isolated ruins do not have any tourists besides me, being are ideal for those who wish to escape the crowds.
Now these ruins introduce us to the very first few pages of the earliest history book, “The Histories” of Herodotus! I received such a book as a birthday gift from my twin brother some 10 years ago and its lessons were not wasted on me. The Histories is a fantastic book in three dimensions at the very least: 1) it is a serious History treatise in which the author separates facts and sources from mere tale, legend and hearsay, posing well-grounded comments on what is known with more certainty and what is more doubtful; 2) it includes an anthropological and ethnographic narrative of the ancient peoples of Herodotus time (5th century BC) and their customs; and 3) a geographical description of the eastern Mediterranean world and its natural phenomena such as the flood of the Nile, the Ukrainian/Caucasian steppes and the river Danube. Therefore Herodotus is the founder of three sciences: History, Anthropology and Geography.
Furthermore, Herodotus wrote with great flair and style. This man did not receive government grants or visit universities full of boring academics. He was a serious scholar and yet one who travelled from town to town reading excerpts of his book and living from the support of ordinary people. Therefore instead of using a dry language Herodotus wrote the most profound tales with a beauty many novelists and poets today could envy!
Well, the beginning of Herodotus’ work is truly just like the title of my post. His story starts with the oldest kings of whom he knew accurate facts. In the 8th century BC Candaules was king of Lidia, a region in west Asia. The Lidians were a people known by their civilized culture and beautiful horses, worshipping gods similar to their Greek neighbors. Candaules tells his friend Gyges that his queen is the most beautiful woman in the world. The king hides Gyges behind the entrance to the royal quarters, so that his friend can spy on the naked queen after her bath and ascertain the truth of his words. Unfortunately, the Queen realizes there was a second man who escaped the room and in the following day orders Gyges to her presence. Since no man was allowed to see the queen in a state of nakedness and the previous event represented a shame for her honor, the Queen poses two options to Gyges: either kill himself or kill her husband, becoming himself her new spouse and king. Gyges begs not to choose between two terrible acts, but the Queen is adamant and Gyges ends up killing his friend Candaules and becoming the new king. The Lidian people is scandalized and a group of citizens goes to Delphi to consult the oracle. Apollo’s priest answers that Gyges shall be King of Lidia, but at the end of five generations the vengeance of the god will fall on the house of Gyges.
Gyges, his children, grandchildren and great-grandchildren become great rulers, conquering many of the neighboring cities and kingdoms. Furthermore, the Lidians open mines of gold and silver, becoming the first people to make coins! Although the world had currency instruments such as written tablets before then, it was indeed the Lidians who invented those small metal circles we all carry in our pockets. Their coins were neither of pure silver or gold, but of a mixed alloy called electrum. I show an ancient Lidian coin with their traditional lion in front. You can see pics of Lidian coins here or here or here, with all heads showing lions or a lion and bull pair.
No one remembers a curse after 150 years. Croesus, a descendant of Gyges, is now King and even wealthier than his predecessors, being the first king to issue gold coins! Below I show photos of the ruins of a gold mine (left) and an electrum factory (right) from my visit to Sardis.
Croesus’ fame and power reach far and wide over the East Mediterranean sea. He receives the famous philosopher Solon, a mysterious wise man who laid down the constitutional laws of ancient Athens. The king asks his wise guest whether he is or not the most fortunate man in the world, but Solon answers that fortune may come and go and that men is at the mercy of unpredictable disasters. Indeed one man may know such a disaster at the end of his life that the event wipes away his fondest memories. Unpersuaded by his guest, Croesus lets Solon go. Several years later Croesus loses his only male son in a boar hunt.
Afterwards Lidia faces an invasion from a new eastern empire, Persia. Croesus seeks Apollo’s advice, receiving an apparently auspicious answer “By initiating the war you will end a great empire”. Croesus, after a battle ending in a tie, retreats to Lidia, but he is followed by the Persians who take over his kingdom and reach his capital, Sardis, where Croesus is preparing to immolate himself in a funeral pyre. Cyrus, the Persian King, orders that Croesus must be saved from the flames, but over the following days his prisoner only repeats the words “Solon, Solon, Solon”. After calming Croesus and hearing his story, Cyrus understands that Fortune is ever changing and turns Croesus into one of his most trusted advisers.
After the Persians came the Macedonians and then the Romans, who moved the city one mile away from its original site. Above is my photo of the Imperial Temple of the ancient roman Sardis.