First Sovereign Debt Default 4th Century BC


QUESTION: Mr. Armstrong; I read this time its different by Rogoff. While it is interesting about sovereign defaults, he clearly does not go back into ancient times or more than a few hundred years. If anyone would know when the first such default took place it must be you. Any idea?

ANSWER: Yes. The first such default that is definitively recorded took place at least in the 4th century B.C., when ten out of thirteen Greek municipalities in the Attic Maritime Association defaulted on loans from the Delos Temple of Apollo.


You must understand that historically, most fiscal crises were resolved through either war where the loser’s debt evaporates as Germany after WWI or the Confederate States in USA as two examples, or by currency debasement by either inflation or devaluation. This is demonstrated by numerous city debasements or reduction in weight of gold and silver coinage. One of the earliest debasements was during 404BC in Athens in the war with Sparta. The silver coinage was reduced to bronze and silver plated.


Lydia, which is where coins were invented, reduced the weight of their Stater due to war with the Persians, Cyrus the Great. This is how money supply still increased even if it was gold or silver. It never matters what is money, economic forces always conspire to create the natural course of inflation (assets rise and money declines). There is a cycle as we are going through right now of the opposite trend deflation because no single trend can be sustained without change. Hold your arm straight up above your head. Now keep it there. You will run out of energy and your arm will feel tremendously heavy causing you to put it back down. Everything works that way yet people try to deny cycles. Nothing but nothing can be sustained without change – N O T H I N G!


We see debasement of the gold coinage of Byzantium going into the Great Monetary Crisis of 1092. Of course the Roman did the same thing as Athens and issued bronze coinage silver plated during the 3rd century AD.


There really were no such things as debt restructurings in ancient times. Restructuring are a much more modern era development. Restructuring actually began with the serial defaults in France, Spain, and Portugal in the mid-sixteenth centuries. Other European states began to follow their lead during the 17th century, which included Prussia in 1683. Nevertheless, the two chronic serial defaulters in history were France and Spain. The Spanish defaults destroyed Italian banking and then German banking which allowed for the Dutch to rise to the occasion of being the Financial Capitol of the World.

When you reach the 19th century, debt crises, defaults, and debt restructurings became a normal course of business. Once must question why in the world anyone would invest in government debt when they all default in the end. Restructurings take place either after a default or under the threat of default. This seems to be a serious new global investment and capital flows which have evolved post-1720 bubbles. So Rogoff focused on the frequency of sovereign debt defaults in the modern era whereas previously debts were simply just denied, wiped out by war, devaluations, or debasements. Hammurabi’s Code expressly regulates interest rates showing one would not due that unless they too experienced swings in the rates of interest. He tried to regulate it as well. – First Sovereign Debt Default 4th Century BC