NCPA - National Center for Policy Analysis

When the Market Was Down in Babylon

January 21, 2002

According to economic historian Peter Temin of the Massachusetts Institute of Technology, ancient Babylonian trading markets were as volatile as our own. This was largely due to the actions of political elites. Upon the death of Alexander the Great, two of his generals fought for power, triggering two decades of economic instability. Three thousand surviving price records reveal the economic upheaval in the years that followed.

Temin suggests that the generals, by using Alexander's treasure to fund armies, increased government spending, causing inflation. The destruction of crops and the need to feed troops would also have driven up prices.

  • Prices of agricultural goods in the city fluctuated widely.
  • In the ensuing years, the price of agricultural commodities rose sharply.
  • The ancient markets remained volatile for about 20 years until one of the generals was firmly in charge.
  • Prices then remained stable until attacks from Persia initiated a prolonged period of conflict and steadily rising prices.

Temin found that prices followed what is known as a "random walk," which is also a feature of contemporary stock markets. This is "very powerful evidence" of markets at work. The inflation and price fluctuations had sharp repercussions for ordinary peoples' lives, says Temin.

Source: John Whitfield, "Ancient Traders Suffered Boom and Bust," Nature Science Update, January 7, 2002: Peter Temin, "Price Behavior in Ancient Babylon. Explorations in Economic History," Nature, January 7, 2002.


Browse more articles on Economic Issues