Will We Have to Wait for a 21st Century Peasants’ Revolt Before Seeing Any Real Change?

While everyone from Tony Blair to Nouriel Roubini is debating whether or not bankers should be hung, the Wall Street Journal and Bloomberg provide some fascinating historical context.

The journal’s Jason Zweig reports:

Financial criminals throughout history have been beaten, tortured and even put to death, with little evidence that severe punishments have consistently deterred people from misconduct that could make them rich.

The history of drastic punishment for financial crimes may be nearly as old as wealth itself.

The Code of Hammurabi, more than 3,700 years ago, stipulated that any Mesopotamian who violated the terms of a financial contract – including the futures contracts that were commonly used in commodities trading in Babylon – “shall be put to death as a thief.” The severe penalty doesn’t seem to have eradicated such cheating, however.

In medieval Catalonia, a banker who went bust wasn’t merely humiliated by town criers who declaimed his failure in public squares throughout the land; he had to live on nothing but bread and water until he paid off his depositors in full. If, after a year, he was unable to repay, he would be executed – as in the case of banker Francesch Castello, who was beheaded in 1360. Bankers who lied about their books could also be subject to the death penalty.

In Florence during the Renaissance, the Arte del Cambio – the guild of mercantile money-changers who facilitated the city’s international trade – made the cheating of clients punishable by torture. Rule 70 of the guild’s statutes stipulated that any member caught in unethical conduct could be disciplined on the rack “or other corrective instruments” at the headquarters of the guild.

But financial crimes weren’t merely punished; they were stigmatized. Dante’s Inferno is populated largely with financial sinners, each category with its own distinctive punishment: misers who roll giant weights pointlessly back and forth with their chests,thieves festooned with snakes and lizards, usurers draped with purses they can’t reach, even forecasters whose heads are wrenched around backward to symbolize their inability to see what is in front of them.

Counterfeiting and forgery, as the historian Marvin Becker noted in 1976, “were much less prevalent in Florence during the second half of the fourteenth century than in Tuscany during the twentieth century” and “the bankruptcy rate stood at approximately one-half [the modern rate].”

In England, counterfeiting was punishable by death starting in the 14th century, and altering the coinage was declared a form of high treason by 1562.

In the 17th century, the British state cracked down ferociously on counterfeiters and “coin-clippers” (who snipped shards of metal off coins, yielding scraps they could later melt down or resell). The offenders were thrown into London’s notorious Newgate prison. The lucky ones, after being dragged on planks through sewage-filled streets, were hanged. Others were smeared with tar from head to toe, tied or shackled to a stake, and then burned to death.

The British government was so determined to stamp out these financial crimes that it put Sir Isaac Newton on the case. Appointed as warden of the Royal Mint in 1696, Newton promptly began uncovering those who violated the financial laws of the nation with the same passion he brought to discovering the physical laws of the universe.

The great scientist was tireless and merciless. Newton went undercover, donning disguises to prowl through prisons, taverns and other dens of iniquity in search of financial fraud. He had suspects brought to the Mint, often by force, and interrogated them himself. In a year and a half, says historian Carl Wennerlind, Newton grilled 200 suspects, “employing means that sometimes bordered on torture.”

When one counterfeiter begged Newton to save him from the gallows – “O dear Sr no body can save me but you O God my God I shall be murderd unless you save me O I hope God will move your heart with mercy and pitty to do this thing for me” – Newton coldly refused.

The counterfeiter was hanged two weeks later.

Until at least the early 19th century, it remained commonplace for counterfeiters and forgers to be put to death; between 1792 and 1829, for example, notes Wennerlind, 618 people were convicted of counterfeiting British paper currency, and most of them were hanged. Many were women.

Bloomberg provides details of one “peasant revolt” stemming from a Libor-like currency manipulation scheme:

During the “Good Parliament” of 1376, public discontent over [manipulation of currency exchange rates similar to the current Libor scandal] came to a head. The Commons, represented by the speaker, Peter de la Mare, accused leading members of the royal court of abusing their position to profit from public funds.

A particular target was the London financier Richard Lyons ….

Initially the government bowed to public pressure. Lyons was imprisoned in the Tower of London and his properties and wealth were confiscated. Other leading courtiers implicated in these abuses, such as Latimer and the king’s mistress, Alice Perrers, were banished from court.

Once parliament had dissolved and the public outcry had died down, however, the king’s eldest son, John of Gaunt, acted to reverse the verdicts of the Good Parliament. Latimer and Perrers soon reappeared at the king’s side and Lyons was released from the Tower and recovered his wealth, while the “whistleblower” de la Mare was thrown in jail. The government also sought to appease the wealthy knights and merchants that dominated parliament by imposing a new, regressive form of taxation, a poll tax paid by everyone rather than a tax levied on goods. This effectively passed the burden of royal finance down to the peasantry.

It seemed as though everything had returned to business as normal and Lyons appeared to have gotten away with it. In 1381, however, simmering discontent over continuing suspicions of government corruption and the poll tax contributed to a massive popular uprising, the Peasants’ Revolt, during which leading government ministers, including Simon of Sudbury (the chancellor and archbishop of Canterbury) and Robert Hales (the treasurer) were executed by the rebels. This time, Lyons did not escape; he was singled out, dragged from his house and beheaded in the street.

If the King had followed the rule of law – and kept Lyons and the boys in jail – everything would have calmed down. The monarchy – just like the present-day government – chose to ignore the rule of law, and protect the thieves and punish the whistleblowers.

We have argued for years that the best way to avoid violence is to reinstate the rule of law.

The Bloomberg article – written by a professor of the history of finance and a professor of finance at the ICMA Centre, Henley Business School, University of Reading – ends on a similar note:

The question now is whether public outrage at the Libor scandal and other financial misdeeds [like these] will lead to fundamental reforms of the financial sector — such as the separation of retail and investment banking or legislation to regulate the “bonus culture” — or just more cosmetic changes that fail to address the structural issues.

Will we have to wait for a 21st century peasants’ revolt before seeing any real change?

Category: Think Tank

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6 Responses to “Will the Peasants Go Medieval On Bankers?”

  1. Greg0658 says:

    hum … yes the wash rinse repeat history probably will again

    I think the “Heretic” post and this have a similar theme .. experiments in population control so the game may play on

    been my lifes destiny to push for: more music less game
    but alas .. say it this way:
    Agent Smith “Did you know that the first Matrix was designed to be a perfect human world, where none suffered, where everyone would be happy? It was a disaster. No one would accept the program”
    http://en.wikiquote.org/wiki/The_Matrix#Agent_Smith

    ps – lots of stories to read this morning – “time time time what has become of me”

  2. Greg0658 says:

    ps – that line up there is ~ say it this way (been said many times many ways):
    its a line in a story – thats not real – its a simulation

    lets try the MatrixV.1 once before we rinse repeat

  3. dguillor says:

    The peasants would have to be awake to revolt. In the age of post-rationalism, we act on faith, and, unfortunately, it is faith in Republicans or Democrrats that holds sway.

  4. Blissex says:

    Sometimes I think that arguments like this are ridiculous. Because most USA (or UK etc.) voters do not care, for two reasons:

    * They know that they would be then same of they could.

    * They think that if they get a cut of the loot it is all fine.

    The major thing to keep in mind is that 70% of USA (and UK) voters are home-owners and 401k-owners, that is speculators and rentiers hoping to make a lot of effortless tax-free money from their properties, and until a few years ago they got huge regular tax-free capital gains.

    They regard themselves as having interests aligned with Wall Street and CEO billionaires, and that pervasive dishonest and corruption are wonderful if they mean stock prices and house prices go up.

    Two of my usual quotes from Newt Gingrich and Grover Norquist:

    http://classwebs.SPEA.Indiana.edu/bakerr/v600/a_new_look_at_environmental_poli.htm
    «If you have a society where almost every middle class person routinely fudges the law, that’s telling us something. We have laws that matter – murder, rape, and we have laws that don’t matter. Speed limits are an example. Why would you think that a regulatory, process-oriented bureaucratic model would work?
    The first thing that every good American says each morning is “What’s the angle?” “How can I get around it?” “What does my lawyer think?” “There must be a loophole!” Then he proceeds to work the angle, and the bureaucracy spends its time chasing that and writing new regs to stop him. America is the most incentive-driven society on the planet.
    »

    http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=11699
    «The 1930s rhetoric was bash business — only a handful of bankers thought that meant them.
    Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”.
    And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher.
    And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.
    »

  5. ricecake says:

    If you really don’t want to hung them, then for god’s shake please confiscate or seize or take back all their ill gotten gains to pay off the national debts. That means strip off them all – 100% of all their assets to pay into the country’s national debts.

  6. victor says:

    I still think that a Resolution Trust 2.0 would be a good start and we also need a Bill Seidman to run it and the right policy in place. As for ill gotten gains, it’ll be great to have claw back reg’s retroactively….