In order to evaluate the sophistication of the Roman financial market, we need to know if there were credit intermediaries, that is, institutions that mediated between borrowers and lenders, obviating direct contact between them. The most popular credit intermediaries in many societies are banks, and it is fortunate that ancient historians and modern economists employ the same definition of a bank. Cohen (1992, 9) opened his discussion of Athenian banking by quoting the legal definition in use in the United States today. This same definition can be found in a recent textbook on financial markets and institutions, which states: “Banks are financial institutions that accept deposits and make loans” (Mishkin 2010, 7). The text explains that, “banks obtain funds by borrowing and by issuing other liabilities such as deposits. They then use these funds to acquire assets such as securities and loans” (Mishkin 2010, 225). Deposits are bank borrowing for which banks furnish services in place of paying interest, either in part or in full. Demand deposits, which are totally liquid, typically do not pay any interest today. Savings deposits, which are available only with a delay, pay a low interest rate, and time deposits, available at a predetermined time, typically pay more.
This definition has been used by ancient historians investigating the financial markets. Bogaert (1968) defined banks, typically individual bankers identified as trapezitai or argentarii, as accepting deposits and making loans. Andreau (1987a, 17) expanded this definition slightly by adding a third function: “Banking is a commercial business involving receiving deposits from clients to whom the banker provides cashier services and lends available funds to third parties with whom the bank acts as a creditor.” By adding cashier services, Andreau appears to be saying that ancient banks must have dealt with the day-to-day needs of their clients for cash even if most deposits were not available on demand, that there were financial arrangements like demand deposits in addition to other, less available, deposits.
Andreau in The Cambridge Ancient History minimized the role of ancient banks, asking and answering, “Should the ancient bank be compared to that of the nineteenth century, or even to that of the eighteenth? If the question is put this way, then the reply is clearly negative” (Andreau 2000, 775–76). A more accurate reply to Andreau’s question, rephrased to focus on the eighteenth century, should be a qualified yes. Andreau contrasted the agrarian economy of Rome against the industrial economy of the nineteenth century. He also noted the variety of financial conditions around the Roman Empire, but he implicitly assumed that all of modern Europe was the same. In this chapter, I compare the early Roman Empire with preindustrial Europe and stress the range of financial structures that existed even among even the most advanced agrarian economies of the eighteenth century.
Loans between individuals are an important part of any financial system, but they do not by themselves show the existence of a sophisticated web of financial transactions. For example, the presence of interest-bearing loans informs us only about one way of raising funds for someone seeking to start or expand a business activity. Money from family and friends has been a resource throughout the ages, while selling equities (stocks) has become frequent only in the twentieth century. Financial analysts organize the variety of ways to raise money by recognizing a hierarchy of financial sources of business activities.
I present a theory of financial intermediation in this chapter to describe the hierarchy of financial sources and its relation to the functioning of the economy as a whole. This facilitates an abstract evaluation of the Roman evidence, but not a historical one. I survey briefly the history of financial intermediation in preindustrial Western Europe to provide a standard against which to evaluate the Roman evidence. I then describe the nature of financial arrangements in the early Roman Empire in terms of this hierarchy. The issue turns out to be not whether financial markets in Rome resembled those in other advanced agricultural economies, but rather which eighteenth-century European economy did it resemble most closely.
The opening sentence of an essay in a Harvard Business School volume about the functions of a financial system today sets the stage: “Financial systems facilitate pooling, or the aggregation of household wealth to fund indivisible or efficient-scale enterprises” (Sirri and Tufano 1995, 81). The authors go on to explain, “Without pooling aggregate wealth to fund enterprises, firm size would be constrained by the wealth under the control of a single household. Pooling relieves society of this limitation, bridging firms’ capital needs and households’ investing needs” (Sirri and Tufano 1995, 88).
The economic problem of funding economic activity was raised to prominence by John Maynard Keynes when he observed that in industrial systems, savers were not necessarily investors. One group of people had accumulated resources by not consuming all their income, or by being the children of people who had been abstemious. Another group had ideas, projects, or business enterprises for which they needed resources. The problem of a capitalist system was to bring them together. In Keynesian economics, mass unemployment is the result of an aggregate mismatch between the amount that savers want to save and investors want to invest. While macroeconomics has progressed speedily since Keynes wrote in the 1930s, this insight has remained central to policy planning in industrial societies.
Keynesian unemployment does not exist in mostly agricultural societies because large savers typically are large investors. Large landowners often have incomes that exceed even their large consumption, and they have projects of land improvement or transport enhancement that can absorb the extra resources. There is no need for financial intermediation in such a system because there is no need to intermediate between distinct savers and investors. Of course, there may be mismatches between savers and investors in such an economy, if a landlord is particularly profligate in his consumption or if a poor landowner sits on a bend in the river where canalization would make transport easier. These mismatches would not lead to Keynesian unemployment; they would make the economy function less efficiently than if a financial system could eliminate or reduce the mismatches.
Most economic organizations in history operated somewhere between the conditions of modern life and this purely agrarian case. In order to assess the financial systems of historical economies, we need an index of financial sophistication that can be used to evaluate any specific society. A suitable measure can be constructed from modern discussions of the sources of capital for modern businesses summarized in table 8.1. The table lists a hierarchy of sources of capital for investment in the first column. The second and third columns distinguish sources by the type of the obligations between the parties involved. Debt capital consists of loans, where the lender gets the assurance of a known rate of return, and the borrower has the right to keep any earnings over the cost of his loans. Equity capital participates in the ownership of the investment. The investor shares the risk of the operator who is doing the work, and he has the possibility of earning far more than a lender—and also of earning less. The operator shares his risk with the investor, and the extent to which the risk is shared depends on the legal context in which this transaction takes place. This distinction corresponds to the difference between bonds and stocks today.
The entries in the first row of table 8.1 list the sources of capital for autarkic farms or businesses. They find their resources within the organization, that is, from internal sources. The owners of the farm or business can loan money among themselves for individual projects or they can share the results of their joint earnings from old investments to take shares in new projects. In each case resources are found within the enterprise to make an investment; the difference is in the allocation of risk and reward among the people involved. This source of capital is still used today, even in our sophisticated economy. Businesses today are hardly autarkic, but they often find that internally generated resources are cheaper than those obtained through one of the other types. Retained earnings are an important source of capital even for very large firms.
TABLE 8.1.
Sources of capital for private investments
Type |
Debt Capital |
Equity Capital |
Internal sources |
Loans from owners |
Retained earnings |
Informal external |
Loans from family |
Investments by |
Financial |
Lending by financial |
Some joint-stock |
Public markets |
Bond issues |
Stock issues |
Source: Adapted from Sirri and Tufano (1995), 98.
The informal external sources of capital described in the second row are those used in societies without highly developed financial systems, although they also are used today as components of a finely tuned and articulated financial system. This source anticipates getting capital from outside the farm or firm desiring to make an investment, but still within the circle of family and friends of the owners. Owners can borrow from their relatives and friends because they are known to their relatives and friends. If a person borrows from a member of his local or religious community, he is far more likely to repay the loan than he would be to a stranger, particularly if the legal system is not very good at finding and punishing people who renege on their financial obligations (Mathias 1999). Potential investors who lack rich relatives or associates who know them are forced to go out into the wider world and attempt to borrow from strangers. This in general will be almost impossible, for strangers will not be able to judge whether the aspiring investor is creditworthy or a con man. In some contexts, lenders may be so suspicious of aspiring borrowers that even a creditworthy borrower will be unable to distinguish himself from con men, and there will be no loans at all. In the language of economics, the investor has asymmetric knowledge. He knows if the investment is good, but the putative lender does not. This is an example of the asymmetric information described in chapter 5.
There are two institutions in which this problem of asymmetric information can be attenuated. Merchants are engaged in many repetitive transactions with each other, during which they are able to gather information about each other. The merchant who pays his bills on time quite possibly is the one who will repay a loan on time. A responsible merchant gains a reputation for honoring his obligations, and a good reputation may substitute for a family connection or personal friendship in providing enough assurance to a lender to justify making a loan (Greif 1994). In addition, brokers who bring lenders and borrowers together solve a variety of information problems. They find people who want to borrow and bring them into contact with people who want to lend. They also may investigate aspiring borrowers to make sure that they are responsible and to reduce the extent of asymmetric information.
The same problems of information arise when investors contemplate sharing the risk with strangers, that is, raising equity capital instead of debt capital. The problems are more severe for equity than for debt because the equity purchaser assumes more risk than the lender. People therefore typically only make equity investments with people that they know. Neither reputations nor brokers are strong enough to overcome the problems of asymmetric information when equity investment is involved. In economies with few financial intermediaries, there is more loan activity than equity investments.
The entries in the third row of table 8.1 introduce financial intermediaries and pooling institutions for the first time. Financial intermediaries collect funds from people with resources they have saved, pool them together into a single fund, and then make loans from this pooled fund of resources. Individuals lend money to banks by depositing money in them, and the banks then lend their accumulated funds to other individuals. There is no direct connection between the final borrowers and lenders; they communicate only with the financial intermediary. The presence of this intermediary, which we can call a bank for its simplest manifestation, solves a lot of the information problems present in the conditions of the preceding row. The bank solves the problem of finding borrowers and lenders because they each know to go to the bank to place their excess purchasing power or to borrow. It also assumes the risk of not being paid back by a borrower. The lender need not worry, unless the bank operates with such bad judgment that it has so many failed loans that it fails itself. The bank has the responsibility for evaluating potential borrowers, and banks typically develop expertise or staffs to make these kinds of decisions.
Banks reduce the risks from asymmetric information, but they cannot eliminate them entirely. The same restriction to known groups seen in informal lending appears among banks. Merchant banks, to cite an important example, loaned to the merchant community. They relied on the expectation of continued patronage and the ease of communication within the merchant community the same way informal lenders did (Neal 1990). Banks in rural New England in the early nineteenth century loaned within their local communities, and even their own families, for similar reasons (Lamoreaux 1994).
Financial intermediaries that provide equity investments are harder to characterize than banks. In the modern world, intermediaries that provide equity capital on an individual basis are known as venture capitalists. In earlier economies, some joint-stock companies acted in this way. They served as financial intermediaries if they engaged in varied activities, that is, if they used their resources to fund several activities and groups. Savers bought shares of these companies to participate in the average fortunes of these ventures. They were not making a bank deposit with its sure, albeit limited, return; they were participating in the equity of the joint-stock company to grow rich or poor as the company’s investments did. Joint-stock companies that sent out expeditions and made other investments from the pool of resources raised by selling shares were financial intermediaries. (Joint-stock companies that used their resources to fund a single group performing a single activity used stocks to pool resources, but they were not financial intermediaries.) We think of early joint-stock companies in terms of their activities in various parts of the world, but some of them were financial intermediaries and precursors of modern conglomerate firms.
The modern type of capital raised in public markets by large companies today is shown in the final row of table 8.1. These companies are large enough and the information about them is plentiful enough that there are public markets in which people can loan to them by purchasing their bonds or participate in their activities by purchasing stocks. There is no need for financial intermediaries at this stage. Unrelated individuals can choose which companies they want to lend to or invest in, and they can make their purchases of bonds or stocks at reasonable cost. New financial intermediaries have grown up to solve some of the information problems facing savers who do not have the time or interest to gather the information needed to choose which company to buy or sell or do not have enough resources to diversify their investments easily by themselves. Mutual funds are the modern analogue of the older joint-stock companies that financed varied projects. This analogy allows us to describe some joint-stock companies as early mutual funds and illuminates the differences between those companies that acted like a mutual fund and those that conducted a single business.
Even today most companies are too small to go to the open market for their capital. They start with internal and informal external sources of capital; they progress to the use of public markets only if they are very successful. They may have the form of joint-stock companies early in their history, but only after they are known outside a small circle can they “go public” and sell shares on the open market. The types of capital sources shown in the rows in table 8.1 can be seen as a progression of funding sources for a modern enterprise that starts with capital from an individual or a family and progresses through the types of sources shown in the table to arrive finally at the New York Stock Exchange or the Nasdaq Market. While it is not necessary for all companies to go through all these stages, the progression shows an idealized history of modern firms. In the modern world, we expect to see all types of capital coexisting (Calomiris 1995).
We can use the same progression as a measure of financial sophistication of economies from the past. If only the first type of capital, internal sources, is available to people who want to engage in economic activity, then that economy should be described as lacking a financial system at all. If informal external sources also are available, then the economy has a limited financial system. If financial intermediation is available, an economy has a very good financial system, adequate to finance many activities, certainly any activity of the preindustrial world. And the presence of public capital markets indicates the kind of modern financial system that we find in advanced industrial countries. If we compare financial markets in ancient Rome and in early modern Europe, then it is likely that we will be looking at the differences between informal external sources of capital and financial intermediation. Were there financial intermediaries such as banks, or only brokers? Were the trade credits that arose among merchants accessible to other people? Were joint-stock companies prevalent? These are the kind of questions we need to pose.
To provide a standard of comparison with which to evaluate the capital markets of Rome, I briefly survey the capital markets of early modern Europe. The most advanced capital markets were in Amsterdam and London, and the most common way that credit was extended there was by book credit on the part of a merchant. The merchant loaned money to his purchasers by not requiring payment immediately. He loaned money to his suppliers by paying them quickly or in advance for goods he received. There was no intermediation; the merchant had excess resources that he loaned to others. The bill obligatory or promissory note was a more formal form of credit. This was a way for prominent merchants and individuals to borrow on their good names. A bill obligatory could be sold to a third person in England, but it did not travel far because it had to come back to the borrower for payment. The original bill obligatory did not need intermediation; it was a simple loan. If a third party bought a bill, there was simple intermediation but still individual placement of loans.
More extensive credit intermediation was accomplished through bills of exchange in the course of international trade. Bills of exchange were a way of financing trade by arranging for payment at a distance and a later time. Sellers like to be paid when and where the goods are shipped from, while buyers like to pay when the goods are sold and at their eventual destination. The bill of exchange was a way to deal with the ownership of the goods in the gap between these two events, which could easily be three months or more in time and across an ocean in space. A seller drew a bill on a buyer who accepted the obligation in the bill. The accepted bill could be sold to a third party.
The sale of accepted bills was a form of financial intermediation; merchants or others who bought bills were extending credit indirectly. The presence of a uniform credit instrument allowed people who had resources to lend to find people who wanted to borrow. The use of multiple signatures on the accepted bills reduced the need for the lender to know all about the credit-worthiness of the borrower. The drawer and the acceptor both stood behind the bill, as did other people who had purchased it on its way to the eventual holder. Because bills could be bought and sold, because they were assignable, they facilitated credit intermediation (Neal 1990; 1994).
Inland bills of exchange were used to finance trade within England. They were given the same legal standing as foreign bills at the start of the eighteenth century. An inland bill could be drawn and made payable in the same place, making the provision of credit much simpler. It could circulate in a local area where potential purchasers of the bill knew the people involved in its origins. After 1765, it could even be made payable to bearer, making it suitable for use as money.
These are all short-term debt instruments, typically for three months. Longer loans could be secured by rolling over these bills, and often was. The English and French governments both found themselves with a lot of existing debt at the start of the eighteenth century from their wars in the previous century. They experimented with schemes to reduce the burden of these debts under the influence of the notorious John Law, and they experienced financial panics around 1720. The English government retreated into offering 3 percent perpetual bonds, that is, loans that never came due. These bonds were collected into the Three Percent Consol—for consolidated annuity—in 1751. Consols became in time the safest and most liquid (that is, saleable on short notice) financial assets available for potential lenders.
There were several kinds of financial institutions in eighteenth-century England, mostly specialized to a particular kind of credit. Goldsmiths and scriveners, who performed research into land titles, had begun to accept deposits in the seventeenth century on which they paid interest, suggesting that the funds were loaned out. Merchant banks, which loaned both to the government and to merchants, grew during the eighteenth century. They “accepted from merchants and large landowners deposits on both current account and on term; they lent money at interest by opening credit on current account or by advances, and discounted inland or outland bills and various official securities” (Van der Wee 1977, 351). They built on Dutch models, but the common law allowed private and then joint-stock banking to flourish in Britain.
Private banking began slowly in the early years of the eighteenth century, and their numbers grew over the century. These banks, located in the west end of London, were quite distinct from bankers loaning to the tight community of merchants, and they had to learn the craft of banking anew. They loaned to a wider class of people, but they also retained some archaic practices, for example, charging simple interest for their loans (Joslin 1954; Capie 2001, 46; Quinn 2001; Temin and Voth 2006). The reform of government finance and the creation of Bank of England further stimulated the growth of English banking and the use of its bank notes as currency.
England in the eighteenth century therefore had a variety of financial intermediaries from which aspiring borrowers could choose. Borrowers also had a means of payment that derived from the actions of these intermediaries, namely their obligations. The most useful obligation was Bank of England notes, which became paper money. This further facilitated the pooling of resources for business by making it easier to transfer money from place to place. There had been some use of short-term loans as money in the seventeenth century, but the success of the Bank of England in the eighteenth provided England with a new and better form of money. The widespread use of bank notes increased the supply of money beyond what the use of coin would have permitted.
Joint-stock companies multiplied and grew during the seventeenth century. The financial bubble and collapse in 1720 led to restrictions on these companies, and they did not grow much if at all in the eighteenth century. Joint-stock companies clearly pooled resources, and they facilitated equity investments by informed participants, as described in the second row of table 8.1. Some joint-stock companies engaged in a variety of activities, subcontracting their operations to many smaller operations. They were financial intermediaries, as described in the third row of table 8.1. But it is hard to see in the surviving records how these companies were administered. Modern accounts discuss the operations of the companies as if they were administering their activities from London, implying that they were pooling funds but not acting as financial intermediaries (Scott 1995).
Joint-stock companies played another, possibly even more important, part in credit intermediation as well. Their shares could be used as collateral for bank loans. This began in Holland in the early seventeenth century with shares from the Dutch East India Company (VOC) and spread to England (Gelderblom and Jonker 2004). By the time of the South Sea bubble in 1720, it was common for borrowers to pledge stocks as securities for bank loans (Temin and Voth 2006). After the English government straightened out its finances and introduced consols, government bonds became good collateral, but the practice of using shares to secure credit intermediation began with shares of private joint-stock companies.
The Dutch financial market was more developed in the seventeenth century than the English, and the English borrowed institutions and practices from them at the end of the century. Dutch financial institutions did not develop as fast as the English ones in the eighteenth century, but they already had achieved an impressive level. There were extensive merchant banks, dealing primarily with trade, as well as abundant private shares and government debt that changed during the eighteenth century from named to bearer bonds. There were many loans among individuals secured by public and private stocks, but few institutions like banks that pooled funds. Cashiers, or kassiers, provided transfers of funds, but never developed into banking institutions (Riley 1980, 31; de Vries and van der Woude 1997, 132). The Bank of Amsterdam held deposits and transferred money between accounts by a giro system, but it provided loans only to major companies. These large companies in turn appear to have acted as credit intermediaries by reloaning to smaller businesses (Dehing and Hart 1997, 47). There were a variety of institutions facilitating payments both internally and externally, but only a few institutions that provided banking services to the domestic economy.
The French credit market in the eighteenth century appears to have been more limited than the English or Dutch. Inland bills never became legal instruments and could not circulate. Bills of exchange were allowed only when currency exchange was involved, and the credit market for merchants could not spill over into more general credit provision as it did in England. Interest rates were fixed by law and did not vary. Joint-stock companies were exceedingly rare. Payments typically were made in coin; there was little paper money. The French fiscal system was based on farmed taxes that did not raise enough revenue to make government debt secure. Frequent defaults by the French government did not encourage the growth of private finance (North and Weingast 1989).
Short-term domestic loans were made with the French version of the bill obligatory, an unsecured note backed by the reputation of the borrower. Longer credits were arranged through notaries who recorded them for legal reasons and preserved the records in order to provide credit histories of borrowers. There were 113 notaries in Paris throughout the eighteenth century. This number is more than sufficient to create a credit market, but probably not enough to make credit available throughout the economy. They were not banks that separated the acquisition and disbursement of funds in deposits and loans, providing intermediation where borrowers need not borrow for the same period that lenders want to lend. Notaries were brokers who brought borrowers and lenders together. Some Parisian notaries attempted to pool the funds invested with them and act as banks around 1750, but they returned to being brokers in the 1760s after a wave of bankruptcies among the notaries (Hoffman et al. 2000, 136–45). There also were other banks in Paris, but they do not appear to have offered much competition to the notaries. The literatures on the notaries and the banks, however, have not yet been connected (White 2003).
The rate of interest on loans in France did not vary. Usury laws restricted the maximum rate of interest that could be charged to 5 percent for the entire century (with a few short suspensions). This maximum rate was binding, and almost all loans arranged by Paris notaries were at this rate. Loans to the general public in London also were at their legal maximum in the early eighteenth century, contrasting with the more sophisticated practice among merchants (Temin and Voth 2006). A recent study of the Paris notaries describes the French credit market as a priceless market—meaning without variable prices rather than very expensive (Hoffman et al. 2000). A financial market with a fixed interest rate provided credit, but the absence of price flexibility restricted its range of operations. Faced with a risky prospective borrower, the French notary could only decide to arrange a loan or not; he could not raise the interest rate in response to the added risk. Credit was far harder to obtain for moderate risks in Paris than in London in the eighteenth century (Kindleberger 1984).
One view of the French financial market comes through the eyes of Voltaire, who mentioned his financial dealings in his letters. The primitive state of the French financial markets can be seen in a 1737 letter from Voltaire to his agent in Paris, monsieur l’abbé Moussinot: “You can very safely place the 300 L. well packed into the stage coach without declaring them and without paying anything as long as the crate is correctly and duly registered to the address of Madame la Marquise, as precious furniture” (Voltaire 1977-, vol. 1, lettre 872, 1004). A few days later, Voltaire asked for a promissory note of 2,400 livres tournois, showing that smuggling cash was not the only way to move credit around the country.
In fact, Voltaire was engaged in both lending and borrowing money, apparently making all the arrangements himself. He worked through a notary from time to time, but there is no sense that he could deposit money with the notary without specifying a specific use for it. This can be seen in his own summary of a complex set of instructions to his agent in January 1738, “The result of all this verbiage is that you would place twenty-five thousand livres in life annuities at 5 percent and that you would try at your leisure to assure towards the month of April a loan of around 20 to 30 thousand livres to place by privilege on a land of 3000 livres tournois of rent. That would not, I think, be difficult” (Ibid., lettre 911, 1063). Voltaire appears to have been lending half of a sum of money to the government at the legal limit in return for an annuity and seeking to place a loan himself with the other half that would yield between 10 and 15 percent. There is no evidence of credit intermediation. Voltaire expressed the interest rate on the annuity as au denier 20, literally “at one penny [interest for a loan of] 20,” not very different from the Roman shorthand for interest.
Credit markets elsewhere in Europe were in the range of England and France. The Dutch credit market was the most sophisticated in the seventeenth century, but it lagged behind the English market in the eighteenth. Merchants in what would become Germany and Italy had access to ample credit intermediation, but ordinary residents probably had more trouble than Voltaire moving and lending money. Joint-stock companies and stable government securities also were confined to England, France, and Holland. Adventurous people who wanted to engage in economic activity had a hard time accumulating the needed resources; there were few opportunities for pooling wealth. Economic activity therefore had an accidental quality, happening only if an entrepreneur happened to be rich or related to rich people. There is less information about credit markets outside England, Holland, and France because they did not exist in any real sense.
These historical observations can be summarized with the aid of table 8.1. Investors in England in the eighteenth century could make use of internal sources, informal external sources, and financial intermediation, that is, the sources of capital in the first three rows of the table. There were banks, at least in London, and a few joint-stock companies. Some investors in Holland had the same opportunities, but not all. French investors by and large were restricted to the sources listed in the top two rows; they did not have access to financial intermediaries. Potential investors in other countries were like France, although perhaps even more dependent on the internal sources listed in the first row. Only England had a good all-purpose financial system; other countries had only limited ones.
Returning to the topic of this chapter, it is clear that wealthy Romans frequently provided each other with cash on a one-to-one basis normally at interest, sometimes without. These arrangements, which created or reinforced social obligations alongside the financial ones, are the ones best attested in the literature of the elite. The classic case-study for the financial behavior of the elite from the late republic is Marcus Tullius Cicero and his brother Quintus (Pittia 2004). The legal sources also focus on lending and borrowing by the elite.
Roman contracts traditionally were oral, but there was a trend in the Principate to record them in a chirographum (“handwritten record,” a Greek word) and to treat the document as primary evidence of the terms. In Italy and the western provinces this was usually done in the traditional Roman format of a sandwich of two, later three, waxed tablets (tabulae), with one inner and one outer copy of the text, tied together and sealed by the witnesses (Meyer 2004). A loan could be arranged informally and recorded as an entry (nomen) under outgoings by the creditor in his accounts; the borrower was expected but not obliged to make a corresponding entry under receipts in his own accounts, or he might take a witnessed statement (testatio) of the transaction, itself recorded in a diptych, later triptych, of waxed tablets. The accounts or testatio could be produced as evidence in court. The jurists envisaged structured chronological accounts, called (with variants) rationes accepti et expensi, “accounts of receipts and outgoings,” but individual formats must have varied considerably. From the mid-first century CE it seems to have been common practice for frequent lenders to keep a kalendarium, a special ledger of loans made, perhaps with details of their terms, which was so called because interest was calculated monthly to the Kalends (day 1) of the next month. Already in the mid-republic the Romans had recognized that in practice loans could be contracted without money changing hands, purely as a paper transaction (litteris obligatio, literally an obligation through writing), through the simple writing of a transfer entry (nomen transscripticium) by the lender in his accounts (Gaius III, 128–34). In theory Roman contractual forms could only be used by Roman citizens, which excluded most of Rome’s provincial subjects, but the tablets of the Sulpicii and papyri of Egypt reveal that actual practice was fairly indiscriminate in business agreements involving non-Romans and many contracts were hybrids of Roman and Greek usages.
It is generally assumed that a Roman gentleman in need of cash would look first to family and friends, as indicated in the first two rows of table 8.1. The younger Pliny, with purchase of an adjacent farm in mind, is commonly cited: “and borrowing will be no problem; I can get money from my mother-in-law whose strongbox I use just like my own” (Plinius, Ep. III,19,8). Romans also used their social networks to obtain cash in an emergency or when they were away from home. When Cicero’s son Marcus was studying in Athens, Cicero provided him with cash by assigning the rents of some of his properties in Rome to his friend Atticus who had a debtor of his in Athens advance cash to Marcus (Andreau 1999, p. 20–21). The Cicero brothers apparently never lent to each other, even though they both had extensive credit dealings with unrelated parties (Pittia 2004, 36–37). Wealthy Romans with surplus cash could make loans through their freedmen, as is attested in the Digest and exemplified by Crassus in the late republic and the fictional Trimalchio, by making the freedman their legal agent (institor), perhaps in some cases by forming a legal partnership (societas) with him (Dig. XIV,3,19,3; Cicero, Parad. VI,4,6; Petronius 76). This situation only made sense if the freedman was given considerable latitude to choose creditors on his own initiative. The freedman’s business in all these cases was restricted to making loans; he was not set up as a banker.
Loans were numerous enough for commentators to speak of a market rate of interest. They spoke or wrote of the rate of interest separate from the rate on any particular loan, which has meaning only if it was possible for people to borrow at this rate more or less on demand. Cicero (Att., 4, 15, 7) commented that “interest [rates] went up on the Ides of July from 1/3 to 1/2 percent [per month].” There was “a 60 per cent drop in interest-rates after Augustus brought back treasure from Egypt” (Duncan-Jones 1982, 21). Providing a possible earlier example, Livy (7, 27, 3–4) reported that in the peaceful consulship of Titus Manlius Torquatus and Gaius Plautius in the fourth century BCE, “the rate of interest was reduced [by the city] from one percent to one-half per cent [per month].”
More often we see loans at 1 percent a month or 12 percent per year. This was the official maximum, and it appears to be the default rate on many loans. Bogaert (2000) catalogued dozens of loans in Roman Egypt for 12 percent. The presence of so many loans at this fixed rate indicates that this market probably was not a totally free market rate, for the random movement of a market rate would not return to any given value so often. It also does not mean the opposite, that interest rates could not vary. As just noted, we find many comments that interest rates were below 12 percent and variable. We also have examples of rates above 12 percent. Livy (35, 7) reported that prohibitions against higher rates were evaded in the late republic by transferring the loans to foreigners who were not subject to rate restrictions. This has a modern ring to it both because of the picture of financiers evading regulations by going “offshore” and because it appears to have been easy to transfer ownership of commercial loans among interested parties.
The inscription of a second-century Dacian loan says that the borrower will repay whomever is holding the loan when it comes due:
Julius Alexander, the lender, required a promise in good faith that the loan of 60 denarii of genuine and sound coin would be duly settled on the day he requested it. Alexander, son of Cariccius, the borrower, promised in good faith that it would be so settled, and declared that he had received the sixty denarii mentioned above, in cash, as a loan, and that he owed them. Julius Alexander required a promise in good faith that the interest on this principal from this day would be one percent per thirty days and would be paid to Julius Alexander or to whomever it might in the future concern. Alexander, son of Cariccius, promised in good faith that it would be so paid. Titius Primitius stood surety for the due and proper payment of the principal mentioned above and of the interest. Transacted at Alburnus Maior, October 20, in the consulship of Rusticus (his second consulship) and Aquilinus. (CIL 3.934–35; reproduced in Shelton 1998, 136–37)
This contract exemplifies the assignability of loans assumed by Livy, although the assignment referred to here normally was done only if the lender was deceased or otherwise indisposed. This kind of loan sets up the possibility of wider negotiability, but we do not have any evidence that it happened.
One cause of the land crisis of 33 CE described in chapter 7 probably was that most senators were in breach of Julius Caesar’s law that no more than a third of their census (property) in Italy should be in loans rather than land. Seneca’s (Ep. 41,7; 87) generalized fortunate man “sows a lot and lends a lot,” his rich man has “a large kalendarium ledger”; he himself was known for “his spreading estates and equally extensive lending” (Tacitus, Ann. XIV,53). “I am almost all in property,” said the younger Pliny (possibly thinking of Caesar’s law), “but I have some money on loan” (Plinius, Ep. III,19,8).
There is little evidence to tell us how far straight one-to-one lending went down the socioeconomic scale in Rome and Italy. Borrowing from banks reached down to the level of the small shippers and petty businessmen who appear in the tablets of the Sulpicii. In Egypt of the same period the broader range of discarded documents which survive shows that one-to-one lending was common down to village level, although unsurprisingly, most creditors were those with metropolitan (urban) status (Tenger 1993). Romans from top to bottom of the social scale lent out and borrowed money in one-to-one arrangements in the first century CE.
Some financial intermediation was integrated with commercial activity when credit was granted for purchases or sales. In Italy credit attached to dealings of the elite is best attested. When a friend bought some Greek statues on Cicero’s behalf from a dealer in Campania, the dealer told Cicero he would defer making the entry (of debt) in his accounts until the day Cicero (Fam. VII, 23,1) chose to receive him in Rome. This is an example of a nomen transscripticium, a debt created by an account entry to replace the price due from a sale. Men who purchased at auction wine or oil “on the tree,” that is who contracted to arrange and pay for the harvesting and processing, were allowed a long period to pay the sum they had bid (Cato, Agr. 146–47; Plinius, Ep. VIII,2). However, credit at auctions of goods with immediate delivery normally was provided by a banker.
In Roman Egypt peasants in need of cash to pay taxes or pay off a cash loan might sell their crop to a dealer in advance of the harvest, and if we had documentary evidence from the Italian countryside, we would undoubtedly find similar transactions. Bagnall (1977; P.Oslo II,63) hints at large-scale speculative forward selling of produce in the third century CE, and Varro (R. II,6,5) reveals that itinerant dealers bought up the crops of smallholders in Italy. Because there was a chronic undersupply of small change, retailing and related businesses must have depended heavily on ad hoc credit arrangements.
While some of these loans surely were to finance consumption, many more may well have been for production. Columella (3, 3, 7–11) advised people setting up vineyards to include the interest on borrowed money among their costs as a matter of course: “[And] if the husbandman would like to assess his debt according to the vineyards like the moneylender does with the debtor, the owner may [consider] the preceding 1/2 percent per month on that total as a perpetual annuity; he should take in 1950 sesterces every year by this calculation, [since] the return on seven iugerum, following from the opinion of Graecinus, exceeds the interest on 32,480 sesterces.” Columella clearly understood that investors needed to think about the opportunity cost of invested funds, whether borrowed or not. His advice shows financial sophistication in addition to suggesting that loans may have been used to promote productive investments. Columella also based his calculation on a 6 percent loan—half the legal limit often seen in Roman Egypt.
We know of many loans made to finance trade. Merchants typically were at the center of European capital markets before the Industrial Revolution, and they appear to have been in antiquity as well. Cohen (1992) documented the extensive use of loans to finance maritime trade in classical Athens. Andreau (1999, 54–56) argued that maritime loans were as extensive in Rome, albeit not as well documented. Rathbone (2000) identified the Muziris papyrus as the “master contract” for a standard maritime loan of the early Roman Empire. The careless grammar and syntax and the general sloppiness of the document suggest a scribe copying the boilerplate of a standard contract. In other words, maritime loans were common enough in the early Roman Empire to have a standard form known to all the merchants and their clerks. This particular loan was for a shipment worth 6,926,852 sesterces, twenty times the size of Columella’s hypothetical agricultural investment and seven times the property requirement to be a Roman senator.
Finance for a commercial activity could be organized through a societas, a legal form of partnership that the Romans had developed by the later third century BCE (Crook 1967, 236–43; Zimmermann 1990, 451–71; Johnston 1999, 106–7; France 2003). A societas was a contractual arrangement between two or more associates to pool resources for a particular venture and share the resulting profits or losses. Some societates, including the earliest known, were formed to bid for state contracts for military supplies, to collect taxes, and to provide other government services, and their active members were called publicani (public contractors). The tax-collecting societates were particularly large, with hierarchies of magistri (executive officers) and agents, and complex record-keeping procedures, but we also hear of a private trading societas in the earlier second century BCE of fifty or so members (Cicero, Verr. II, 167, 171, 182, 186–87; Plutarchus, Cato Maior 21,6). Toward the end of the republic the state reverted to collecting direct provincial taxes through its own officials, but societates still collected indirect taxes like the imperial customs dues (portoria) and were involved in military and civilian supplies (the annona), building projects, and other urban services, including the disposal of waste and corpses. In the private sphere societates flourished in all areas of enterprise, including large-scale maritime commerce (Rathbone 2003a, 211–13). A moneylending societas in attested in the province of Dacia, and some banks were set up as societates (CIL III, 950–51 (no. 13) = FIRA III, no. 157, 481).
Although the societas had originally been envisaged as a short-term arrangement between equal partners for a specific venture, its scope soon expanded. Contracts were easy to renew with changing partners while leaving the employed agents and stock of the societas in place. An asymmetric societas was probably common, that is, a societas dominated by one or more rich investors with one or more resourceless partners who did the donkey work. Yet a societas was not like a modern company with shares, dividends, and public reports. If a partner wanted out, he took his current share of profit or loss and left; a new partner simply added his investment to the pot and would be rewarded proportionately. In theory the partners had to agree individually to any new venture, but actual practice was probably less rigid. Societates provide a rare example in an agrarian economy of pooled equity capital. Although they fall in the right-hand column of table 8.1, they were not quite joint-stock companies (Malmendier 2009).
Most societates had no corporate legal persona (corpus), apart from some large societates of public contractors which it suited the state to recognize officially as corpora. Thus in legal theory third parties could only deal with socii as individuals, but the potential awkwardness of this is exaggerated by modern scholars. Roman courts came to concede that third-party claims extended to all the members of a banking societas, and perhaps all societates were increasingly treated as though, like the principal publicani, they formed corpora. Socii, and hence societates, could themselves borrow from or lend to individuals, moneylenders, other societates, and banks (Malmendier 2009).
The central Roman state of the Principate, as that of the republic, almost never lent or borrowed money. In the critical years 215–210 BCE of the Hannibalic War the state had deferred several payments due to individual citizens and had solicited contributions in bullion and coin, which it later decided to repay (Livius XXIII, 48, 4–49, 4; XXIV,18, 10–15; XXVI, 35–36). In the civil wars of the 40s–30s BCE at the end of the republic some generals had raised loans in the provinces, mostly with senatorial authorization (Caesar, BC III, 32; Dio XLII, 50–51; Cicero, Phil. X, 26; Brut. II, 4,4; Fam. XII, 28,1). In 69 CE Vespasian and his supporters probably borrowed cash in the eastern provinces, as well as levying it, to finance his bid for power, and in 70 CE, after two years of civil wars the senate voted to borrow HS 60 million from individuals, the one known Roman plan to raise a state loan, although it was not carried out or needed (Tacitus, Hist. II, 84; IV, 47; Suetonius, Ves. 16,3).
Civic administrations, on the other hand, especially in the eastern provinces, could and did borrow, sometimes substantial sums, typically for building projects, and newly annexed areas tended to borrow from Romans to pay Roman cash taxes. The central imperial government was constantly worried by the problems civic bankruptcy would cause and banned borrowing against future revenues.
The Hellenic cities of the Roman Empire were also lenders. An exchange of letters between Pliny the Younger and Trajan in 109 or 110 CE, when the emperor sent Pliny to Bithynia in Asia Minor to straighten out the local government finances, reveals some details. Pliny wrote that tax revenues were accumulating at the local government, but that they might lie idle because no one wanted to borrow at the offered rate of 9 percent (Pliny, Letters, 10, 54). (The interest rate is unclear from the Latin, duodenis assibus, which could refer to 12 out of 16 asses to a denarius, meaning ¾ percent a month or 9 percent annually for a loan of 100 denarii, or might mean 12 asses, one a month, indicating the maximum legal rate of 12 percent for a loan of 100 asses. The lower rate appears more likely because it fits with the normal practice of quoting rates on a monthly basis (Billeter 1898, 105).) Pliny asked the emperor if he should allocate the funds to town councilors by fiat. Trajan responded, “I see no other method of facilitating the placing out of the public money, than by lowering the interest. . . . But to compel persons to receive it, who are not disposed to do so, when possibly they themselves may have no opportunity of employing it, is by no means consistent with the justice of my government” (Pliny, Letters, 10, 55).
This interchange reveals that local governments holding government revenues for some future use loaned out this money as a matter of course. The whole reason for Pliny to write was to avoid having the funds sit idle in some strong box. Trajan’s response was to choose a market solution over an administrative one, and his imperial directive had the force of law. His realization that a financial institution could loan more by reducing the interest rate shows further that Romans up to and including the emperor conceptualized a demand curve (like those described in chapter 1) for loans.
An important element of civic finances was capital donated by benefactors to the city or a civic cult (temple) to fund some activity, or accumulated as surplus civic income, which was lent out to members of the local elite, normally at a favorable rate of interest (Plinius, Ep. X, 54–55; BGU II, 362; lex Irnitana ch. 79; Liebenam 1900, 330–40). To some extent this practice spread to the municipalities of Italy and the Latin-speaking provinces, above all Africa, in the later Principate, but western benefactors preferred to donate agricultural property whose rents would fund their foundations (Duncan-Jones 1982, 80–81, 102–3, 132–38, 171–84). The only attested case of lending by the Roman state is an exception that proves the rule: in the crisis of 33 CE, Tiberius placed HS 100 million from the aerarium (state treasury) with banks in Rome to provide interest-free three-year loans to heavily indebted senators in order to avert a credit crisis (Tacitus, Ann. VI, 17).
The more than fifty alimentary foundations (alimenta) established by the emperors Nerva and Trajan in Italy to provide monthly cash allowances to rear boys and girls are typically presented as perpetual loans at 5 percent annual interest secured on farmland, but these were not like bank loans because they were not repayable. They were compensation to the owners for establishing a perpetual charge, in effect a tax, on their land. Even absorption of the total cash compensation paid out by the state over ten to fifteen years, at most around HS 40 million, the equivalent of two senatorial fortunes, will have had little impact on the Italian markets in land and credit. The closest modern analogs are the British consols (consolidated annuities) established in 1751, which paid a fixed annual return but never came due.
Endowments received resources that were used to fund various sorts of religious activities. When these resources were in the form of money, as they often were, then the funds had to be loaned out to earn interest and support the activities of the endowment. While some endowments were established by committing land, many were established with money (Laum 1914; Andreau 1977, 1; Sosin 2000). In one inscription from the reign of Antoninus Pius, the donor gave 50,000 sesterces in coins to the Collegium of Aesculapius and Hygeia near Rome with instructions to the sixty members of the association to loan out the funds and use the returns to fund their feasts and other activities (CIL 6, 10234; Laum 1914, Vol. 2, Latin 6; Dessau 1962–, Vol. 3, 739, #7213). This explicit injunction must have been a normal, if implicit, one for all endowments financed with a cash donation.
Some endowment accounts anticipated expenditures at or near 12 percent annually, implying that the funds had to earn at least this amount to preserve the endowment. The temples holding these aggressive endowments sometimes paid out only 10 percent, slightly less than 12 percent, to allow a margin of error on 12 percent loans (Sosin 2001). A Roman businessman looking for funds could have looked to temples in order to acquire funds for his enterprises. There were hundreds of geographically dispersed endowments (Laum 1914; Andreau 1977), although it is likely that few endowed temples would have loaned to strangers. Nevertheless, temples were an important means of pooling investment funds in the early Roman Empire. In addition to holding endowments, many temples operated banks, as will be described shortly. Unlike banks in eighteenth-century England, clustered almost exclusively in London, temples and endowments were spread among the minor cities of the early Roman Empire.
There probably were specialist brokers at Rome, even if they are hard to identify and define (Verboven 2008). Cicero’s correspondence reveals three cases in the late republic of the use of brokers in Roman private exploitation of subject and allied states. The most notorious is when Cicero, as governor of Cilicia and Cyprus in 51–50 BCE, was lobbied by Brutus, that supposed paragon of republican virtue, to pressure the Cypriot city of Salamis to repay a loan it had contracted in 56 BCE at an extortionate 48 percent rate of interest from M. Scaptius and P. Matinius, Roman businessmen (negotiatores) resident in the province. An embarrassed Cicero then discovered that, unknown even to Salamis, the money came from Brutus (Cicero, Att. V, 21,10–13; VI,1,3–8; 2,7–9; 3,5–6; Andreau 1999, 15–17). Scaptius and Matinius were not acting as bankers lending from pooled deposits, nor were they Brutus’s mandated agents (institores) since they had lent to Salamis in their own names. Thus they emerge as intermediaries, placing Brutus’s money for him under their names, doubtless for a fee. The legal arrangement was possibly a societas (partnership) but probably, and much more simply, an “irregular” deposit by Brutus with them whose verbal terms specified the lending of the money to Salamis.
While the Augustan anecdote implies that some wealthy Romans still acted as brokers, literary sources and the Digest suggest that masters could set up slaves or freemen as faeneratores, money lenders, which was more discreet (Plutarchus, De Lib. Educ. 7 (= Mor. 4b). A Dacian tablet of the second century also attests a societas danistaria, a “money lending partnership,” and such societates probably existed in first-century CE Italy too. Brokers, like most Roman businesses, operated in an informal setting, normally in the forum in the shade of a colonnade. Brokers at Rome congregated around the arch of Janus, close to the traditional location of the bankers’ tabernae (“lock-up shops”). The Maenian column nearby was used by lenders to post notices of defaulting debtors. There was no regulation of moneylending as a profession (and no public register of debt), but many moneylenders were clearly professionals in the sense of specialists who made their living from the business and had some sense of corporate identity.
Roman banks pooled funds, although they corresponded more closely to the private banks of the eighteenth century than later joint stock banks. The Latin equivalent to the word bank was mensa, a bench, table, a translation of the Greek trapeza (table, bank). Mensam exercere meant to run a bank. But while the common Greek name for a banker, occasionally used at Rome too, was trapezites, the Latin mensarius apparently became largely restricted to disbursers of public monies and specialist money changers (nummularii), that is, people who actually used mensae in public for their business, although the rare term mensularius seems to have had a more general meaning.
The existence of banks in the forum at Rome is first attested in 310 BCE, a century after their development in the Greek world, by the Augustan writer Livy, who perhaps anachronistically calls them argentariae (tabernae, bankers’ shops); by his day the common word for a banker was argentarius (silver-[coin]-man) (Livius IX,40,16; Andreau 1987a, 337–40). By the first century BCE, bankers called nummularii and coactores are sometimes attested, and also coactores argentarii. Andreau and Bürge take the four terms to signify four different types of bank, but it is more likely that argentarius was the generic word for banker, while nummularius and coactor referred to specific functions that an argentarius might or might not carry out as part of his general banking, and which were sometimes carried out on their own as a specialized business.
Roman banks operated under Roman private law. The Digest contains more than forty rulings or opinions that mention bankers or banking, almost all of which discuss the application of general principles to the everyday reality of banking procedures and hence cluster in the particularly relevant chapters (Dig. XIV,3 on agents, XVI,3 on deposits). There are only two legal rules in the Digest specific to banking: first, that women could not be bankers, probably because they were not normally allowed to act as guarantors; second, that all types of bankers had to make relevant entries in their records available in legal cases, and not just to their clients, because, as one ruling says, contracting parties often trusted them to make and keep the sole record of their transaction (Dig. II, 13, 4–12; Gardner 1986, 234–36). The extant rulings seem not to derive from any coherent legislation or even doctrine. Instead Roman jurists had to devise legal devices to cope with banking developments that went beyond strict Roman law.
One of these devices was the irregular deposit (a modern term). Against legal principle it was recognized that deposits could be made by informal understanding that were interest-bearing and usable by the receiver (Dig. XVI,3,7,2; 3,24; 3,28; XLII,5,24,2; Johnston 1999, 86–87). Another was recognition that a loan could be created by a paper transaction, that is, an entry in an account, rather than by counting out money, which a Roman legal textbook (Gaius) tries, unrealistically, to distinguish from an entry recording an actual cash payment. Although they were also applicable to private transactions, the spur to these legal adjustments must have come from banking. It seems that clients and banks could not be bothered to record every deposit through a proper contract of mutuum (loan), so paper transactions were common in banking, including paper transfer deposits.
A third convention was the so-called receptum argentarii (banker’s responsibility), which allowed that once a client had instructed his banker to make defined payments on his behalf, the legal claim of the beneficiaries to these payments lay only against the banker, whether or not the client had provided the banker with the necessary funds (Andreau 1987a, 597–602; Bürge 1987, 527–36). Yet another device was the concession, established by the mid-first century BCE, that by custom, not law, claims to recover deposits and loans could be made against any of the partners of a bank set up as a societas, not just the socius with whom the client had dealt (Rhet. Her. II,19). Unsurprisingly this did not make it into the Digest or Gaius’s textbook, along with other concessions to business realities like Roman judges accepting Roman- and Greek-style or hybrid contracts as legally binding on Roman citizens and provincials alike.
Roman bankers were professionals who made their living from banking. They used common business and accounting techniques and jargon, in which young boys were trained (Maselli 1986; Nadjo 1989; Horatius, Ars 325–530; Petronius 58,7). However, there was no profession in any public sense. Roman banks were not licensed or regulated, let alone guaranteed, by the state. The only exceptions were the fiscal regulations that applied to money changing (nummularii) because it was a state concession, and possibly also to coactores as the collectors of state sales-taxes. There was no corporate body of bankers or self-regulation. A banker was what a banker did, and a Roman chose to deal with a bank, as one legal opinion puts it, “going on its public reputation” (Dig. XLII,5,24,2).
There were banks in Greece before Rome came that continued in operation after the Roman conquest. The most famous banks were on Delos, where there were both temple and private banks. There appears to have been a constant number of private banks, suggesting that the banks continued to operate over time with great stability. The Temple of Apollo appeared to give loans with houses as security, which we now would regard as mortgages. There can be no doubt that these institutions were what we call commercial banks (Inscriptions de Delos 1926-; Frank 1933–40, v. 4, 357; Reger 1992).
Cicero (Pro lege Manilia, aka De imperio Cn. Pompeii, 7, 19) noted the interconnection of financial markets around the Roman world, describing conditions in 66 BCE by reference to events twenty years earlier:
For, coinciding with the loss by many people of large fortunes in Asia, we know that there was a collapse of credit at Rome owing to suspension of payment. 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. Do you defend the commonwealth from this danger; and believe me when I tell you—what you see for yourselves—that this system of credit and finance which operates at Rome, in the Forum, is bound up in, and depends on capital invested in Asia; the loss of the one inevitably undermines the other and causes its collapse.
This passage clearly talks of linked financial markets. It is possible that all these connections were made by loans from one individual to another, but it would be unprecedented in the history of commerce. It is far more likely that Roman loans to Asia were done at least partly through financial intermediaries such as banks (argentarii) or joint-stock companies concerned with Mediterranean trade (societates publicanorum). Even when individuals transferred money between locations, they did not appear to have the problems Voltaire did (Ligt, 2003).
Banks transmitted information, and they could transfer money. Roman senators and even equestrians had investments all over; they needed some way to repatriate their earnings. They might have done so like the Egyptian bank that reported in 155 CE: “Paid into the bank of Titus Flavius Eutychides by Eudaemon, son of Sarapion, and partners, overseers . . . for the rent of the seventeenth year, one talent and four thousand drachmae, on condition that an equivalent amount should be paid at Alexandria to the official in charge of the stemmata, total of 1 tal., 4000 dr.” (P. Fayum 87 in Grenfell et al. 1900, 220–22). This document attests not only to the existence of banks, but of either branch banks or interbank activity. This transfer might have been accomplished by the bank sending the money to its branch in Alexandria or by having a correspondent bank in Alexandria that was willing to honor obligations from the bank of Titus Flavius Eutychides, possibly because the Fayum bank held a balance in Alexandria for that purpose. Grenfell et al. (1900, 220) opted for the latter choice, speaking of “mutual arrangements” between the local and urban banks.
The essence of a Roman bank, as of a modern commercial bank, was that it accepted deposits, normally interest-bearing, from its clients, made payments for them and lent out their pooled money at interest. Lack of documents from Italy make it difficult to give specific illustrations of these basic functions, although there is some evidence in the Campanian tablets. Legal recognition of irregular deposits implies that interest-bearing accounts with banks were now commonplace. Bogaert described private banks in Roman Egypt, although there is no way of knowing how similar banks were in Roman Italy and Egypt. Bogaert (2000, 265–66) argued that the surviving sources limit our knowledge of Roman banks even in Egypt: “We believe that in Egypt most bank loans, particularly large ones, were made in Alexandria, because that is where the biggest banks were. . . . The fact that almost all Alexandrian documents have been lost explains why we have so little evidence of bank loans.”
An important financial service was the financing of payments by purchasers to sellers at auctions, which had an obvious practicality since prices were not known in advance. Public auctions were a typically Roman way to arrange high value sales, especially landed property and slaves, valuable goods, including luxury foods or foodstuffs in large quantities, contracts for agricultural operations, state and civic contracts for revenue-collection, building works, supplies and services, and so on. Auctions were less important in the Greek world, so Greek bankers did not normally provide this service (García Morcillo 2008). A banker who specialized in this field was called a coactor (collector), but reference to coactores argentarii show that, as with nummularii, some coactores were also general bankers and vice versa (Andreau 1987a, 139–67; Horatius, S. I,6,86; Pomponius, Comm. ad loc.; Dig. XL,7,40,8). Typically, as the tablets illustrate, the coactor paid off the vendor, whether in cash or by a credit transaction, in return for a formal acknowledgment from him that he had received from the coactor what the purchaser had paid. The coactor charged a fee (merces) for this service, which perhaps was meant to be 1 percent of the price (Cicero, Rab. Post. 30). In Roman Italy of the first century AD, sales of slaves at auction were liable to a 4 percent tax due to the state treasury, and sales of other property to a sales tax which eventually settled at 1 percent. In 57 CE Nero made the vendor, not the buyer, liable to the tax on slaves (and possibly other property), which in effect probably made coactores the collectors of this tax (Rathbone 2007b).
Most of our specific evidence for credit at auctions comes from the archive of Lucius Caecilius Iucundus (CIL IV, 3340,1–153), for which Andreau (1974) remains invaluable. It seems that the box had been left behind inadvertently during evacuation of the house in August 79 prior to the eruption of Vesuvius. Most of the tablets are receipts, some very fragmentary, in the form of chirographs or testationes, to Iucundus from the vendors of items for the price, net of costs, paid or due to Iucundus from the purchasers. The normal reading of these texts is that Iucundus was a businessman who leased and exploited public properties and concessions, but the payment for the mercatus is said to be on behalf of the named contractor (manceps) of it. These receipts all concern municipal revenues which were farmed out by quinquennial auction to contractors (publicani, mancipes), implying that Iucundus also acted as coactor at these municipal auctions, which made him responsible for collecting the contractors’ payments on behalf of the town (P.Fay. 87).
Acting as collector involved Iucundus in other financial services. Some of the receipts from vendors reveal that Iucundus had made short-term loans to purchasers for the price they had bid, presumably interest bearing. A few tablets reveal that some sellers kept deposit accounts with Iucundus to which the price of items they sold was credited and from which they made withdrawals. We have no idea how many other boxes were successfully removed from the house, let alone what they contained. Iucundus may have had all kinds of economic interests; as a banker he may have provided all kinds of services (Andreau 1999, 35).
Our evidence for the Sulpicii is similar to that for Iucundus. In 1959 a single box of tablets was found in a building, perhaps an inn, which graffiti suggest may have belonged to the Sulpicii, in the port suburb of Pompeii. This too looks like an inadvertent loss from a much bigger collection of records, perhaps in transit from the town for evacuation by ship. From the surviving fragments of those tablets, 128 texts (TPSulp.) have been authoritatively published in Camodeca (1999), of which 95 are well preserved. Coincidentally these texts mirror the chronological range of the Iucundus tablets, from 26/29 to 62 CE, but the majority are from 35 to 55 CE. The range of financial services attested in the tablets of the Sulpicii is much broader, perhaps because they were filed on a different principle, that is, by client or transaction. For example, five texts form a dossier relating to the grain merchant Gaius Novius Eunus. Again, it would be mistaken to make the positivist assumption that we have a representative sample of the whole business of the Sulpicii.
Interpretation of many of the transactions in the documents of the Sulpicii remains controversial. Many texts of the archive imply that the Sulpicii ran deposit accounts for their clients from which cash could be withdrawn or payments made, and particularly the following three types of document. First, the two mandata which authorize Sulpicius Cinnamus to make payments within certain conditions on behalf of clients, and illustrate the working of the principle of receptum argentarii (Camodeca 2003, 76–78). Second, the six texts that Camodeca calls nomina arcaria and often represent paper transactions into and out of clients’ accounts. Third, the eight apochae (receipts, a Greek name), most for payments made to or from the bank, but two between third parties, where it is likely that the bank held the apochae because the transactions had been paper ones between the accounts of two clients. Unless some of the apochae issued by the bank had this function, there is no direct evidence of a client making a deposit. However, an irregular depositum may have generated no written record other than an entry in the bank’s accounts. We also note that in these and other transactions, including those of the Iucundus archive, bankers were in effect creating credit for clients. At present, unfortunately, it is not possible to say to what extent Roman bankers allowed overdrafts, which the practice of receptum argentarii implies could occur, and, if so, under what sort of arrangements, perhaps a loan agreement.
A variety of banking activities is attested for the Sulpicii. Only one text is, like the Iucundus texts, a vendor’s receipt to the bank for the price obtained at auction, but it is enough to show that the Sulpicii also acted as coactores. This is also implicit in the three contracts of sale of slaves, because slaves were normally sold by auction. As these contracts say, the vendor of a slave was liable to a penalty of double the sale price if the goods proved to suffer from undeclared faults; it appears that the bank guaranteed this sum for vendors who were its clients, that is kept deposit accounts with it.
Much of the archive has to do with lending and borrowing. The Sulpicii may have acted as brokers. On one occasion they borrowed the substantial sum of HS 94,000 for just over a month, presumably to finance smaller short-term loans. Some of the eleven contracts of loan and four acknowledgments of debt do not involve the Sulpicii; the idea that they were routed through their bank is supported by one that specifies repayment either to the creditor directly or to Sulpicius Faustus. Some scholars have been worried that no loan contract states the rate of interest and only one the date for repayment. Verboven (2003a) suggested that this was to conceal illegally high interest charges, but we imagine that these matters were fixed by informal verbal agreement based on fides (trust), that is a pactum (Camodeca 2003, 83–85; Johnston 1999, 86). Interest rates were not listed at Hoare’s Bank in the early eighteenth century. Only when the full record of the loan is seen can the interest rate be calculated by modern scholars (Temin and Voth 2006).
For many of the attested loans, perhaps because the borrowers were not already clients, the Sulpicii required guarantors or pledges. For example, a local man guaranteed the loan made to a Carian ship captain. Pledges include a quantity of Egyptian wheat and beans and perhaps a shipload of wine, and for additional security the Sulpicii had the rent of space in storehouses where these pledges were kept in their name. Of the thirteen texts concerning auctions, most are to do with giving notice of intention to auction the pledges of defaulting debtors.
Almost a third of the archive relates to legal proceedings, some about financial transactions involving the Sulpicii. Twenty-two texts record the putting up or confiscation of vadimonia, mutual sureties offered by the parties to a legal dispute for their appearance at a hearing at the set place and date, or to remain in town. Presumably the bank did this for clients as a paper transaction, obviating, as in many of their transactions, the need to obtain and use coin. The archive provides the only evidence for the involvement of banks with vadimonia, which reminds us that there may be other services provided by Roman banks for which there is no extant evidence. The general impression is that the Sulpicii were bankers in the full sense, who ran deposit and withdrawal accounts, made paper transfers between these accounts, accepted mandates to make multiple payments, lent to third parties, acted as investment brokers, provided finance for auctions, put up court bonds and so on; perhaps they also were money changers.
Even in Egypt we lack for Roman banks the core records that survived for Hoare’s bank in London, which would attest who and how many their clients were and how the clients’ accounts were run, and might reveal the overall shape of the business and relative importance of different operating sectors. They also would allow historians to assess how the bankers carried risk, maintained liquidity, and made their profits. The rulings in the Digest expect bankers to keep accounts (rationes), apparently chronological, of receipts and disbursements (accepta et data), for which the term commonly used by legal scholars, although it appears only in one of Cicero’s speeches (Q. Com. 1–14) and there with reference to a private individual, is a codex accepti et expensi (Dig. II,13,1,2; 14,47,1; XXXII,1,29,2; L,16,56,1; L,8,2,3). Consideration of the nature of these accounts has been enmeshed with attempts to understand what the extant Roman legal textbook of the second century CE meant in practice by nomina arcaria (strongbox entries), entries in accounts recording cash payments, and nomina transscripticia (transfer entries), where merely writing the entry created the loan (litteris obligatio), whether with regard to a person (an advance or transfer of credit as a loan) or a thing (to cover the price due from a sale) (Gaius III,128–34). It is at least agreed that the Latin verb transcribere in this sense, and also the noun perscriptio, represent the Greek term diagraphe (bank payment), and imply the influence of Greek banking practices on Rome.
Some of the Campanian tablets help to clarify the problem (Gröschler 1997). Several tablets that Camodeca misleadingly called nomina arcaria are testationes (witnessed statements) of loans made by entries in accounts rather than by a traditional contract. Each is titled as if it represented an extract from the lender’s accounts (tabellae = tabulae) of expensa, and it also notes the borrower’s acceptance of the sum and record of it as accepta (in his or her own accounts), and then documents the promise of a guarantor (fideiussio).
In five cases Sulpicius Cinnamus, that is the bank, is the lender; in one tablet the lender is Titinia Anthrax, and the text is overscored with the word sol(utum), (re)paid. In all cases, it seems, the sum is said to have been counted from the house out of the strongbox into the recipient’s strongbox as if it had been a cash transaction, but there is reason to doubt that cash had always been used. Some tablets recording other purely third-party agreements must survive in the archive of the Sulpicii because they handled the payments. So the house and strongbox cannot have been those of Titinia, and the whole image of counting the money was probably a fiction.
The testationes were a documentary safety net; counting money was the archaic legal way of making a payment or loan; this is an assertion of the reality of a paper transaction. Similarly, some of the Iucundus tablets record money (pecunia) as counted out (numerata) and others as discharged (persoluta), but both types are often labelled perscriptio, (bank) transfer, on the edge of the tablets. It is not safe to conclude that a counted sum had always been paid in cash or a discharged one by a paper entry.
We can only speculate about the types of accounts kept by Roman bankers. Our only direct evidence is that Iucundus and the Sulpicii filed, perhaps on different principles, tablets recording individual transactions and kept them for over twenty years, which seems curious. The common idea that Roman banks kept a single ledger of income and expenditure is unfeasible. For each client a separate ratio accepti et expensi was needed. One tablet notes a loan was recorded as outgoing from the account of Titinia and received in the account of the borrower, Euplia; if Euplia took the loan as cash from the Sulpicii, that will have been recorded as outgoing in her account. A client acknowledged receipt of HS 644 as payment of an auction price of HS 645, which he had received in five separate payments of uncertain interpretation: HS 200 in cash, HS 20 for judgments, HS 13 as additions, HS 51 as a debit, and the remaining HS 360 as a transfer on the day of the receipt. These probably were transactions unrelated to the auction, excerpted from the client’s account because they almost exactly matched the price due to him, and that the tablet represents his agreement with the bank that the auction business was now complete.
The clients’ accounts did not contain much detail of the reasons for the credits and debits recorded there. The tablets were kept because they documented the settlement of particular deals, which had often involved more than one entry in clients’ accounts, and may have served the banker as extra defense against a claim under receptum argentarii that he had not made the payment instructed by his client. The bank itself, and perhaps each principal and agent, needed its own ratio accepti et expensi to record one-to-one dealings with customers. It also needed other interlocking records to run its business such as a kalendarium of loans, a register of vadimonia, a stock account of coin received and disbursed, and so on. Accounting systems of this broad type are known elsewhere in the Roman world, in the army, and on large estates in third-century Egypt (Rom.Mil.Rec; Rathbone 1991).
The range of services provided by the private banks in first-century Italy is quite impressive. There were no public banks (privately run concessions) in Rome and Italy that could receive tax payments, as there were in Egypt and other eastern provinces, for the simple reason that no direct taxes were levied in Italy in this period. Similarly, although the Sulpicii kept copies of contracts between others when they had facilitated the payment, they did this for their own reasons, and perhaps also as a private service to the clients like the “copy kept on land” of maritime loan contracts. There was no registration of property ownership on behalf of the state, as in Egypt and probably other provinces too. Roman law and administration operated in a quite different tradition of civic honesty compared to the prying bureaucratic registers of Hellenistic kingdoms. Nonetheless, we may note the creeping involvement of Roman banks in collecting indirect taxes and fees for the central state and civic administrations, notably the taxes on sales at auction and revenues on auctioned concessions.
In Roman Egypt private banks are always called “the bank of A,” or “of A and B,” where A and B are persons’ names, if necessary with the town or village also specified (Bogaert 1995). The same probably happened in Roman Italy, and it is just like the banks of eighteenth-century London known as Hoare’s Bank, Child’s Bank, Gosling’s Bank, and so on. Almost all the Pompeian tablets are written as if Iucundus junior dealt himself with every transaction, which is quite implausible; presumably he had told his agents to have all documents drawn up in his name only. This looks like a family bank, operating over two or more generations, probably using freedmen and slave agents.
Several different and unnecessarily complex reconstructions of the family of the Sulpicii have been derived from overly positivist reading of the few extant tablets to invent a chronological line of succession. The archive attests the involvement of two brothers, the Gaii Sulpicii Faustus and Onirus, whom a funerary inscription from Puteoli shows to have been sons of a freedman, perhaps the freedman of another freedman. The protagonist in most of the tablets is Gaius Sulpicius Cinnamus, a freedman and procurator (legally appointed agent) of Faustus. It is likely that the bank was structured as a family societas which made considerable use of freedman and slave agents. In origin the family may go back to a freedman of the Sulpicii, a noble family of Rome.
The banks of Iucundus and the Sulpicii fit in with the general impression given by the literary, legal and epigraphic evidence. Banks could be formed of individuals acting in partnership (societas), and could use slaves and freedmen, often legally appointing them as agents (institores, procuratores) through the practice of praepositio (Rhet. Her. II,19; Dig. II,14,25,pr; 14,27,pr.; Dig. XIV,3,5; 3,19,1; 3). These social institutions, slavery, societas, and praepositio, as defined and regulated by Roman law in ways particular to Rome, enabled banks, as other enterprises at Rome, to develop organic and highly flexible operating structures. Note the position of manumitted slaves, that is freedmen, who bore the same main name as their ex-master, owed him respect if not services, yet legally could be treated as independent agents as described in chapter 6. Note also the first-century BCE juristic extension of partnership and agency, by which partners could contribute and profit asymmetrically, and a principal could by verbal or written mandatum give an agent unlimited competence or restrict it as they wished, down to a single transaction in theory, and thereby limit their own liability.
Roman banks did not necessarily have fixed business premises. Seven, then five, tabernae (lock-up shops) in the Roman forum had been provided specifically for bankers to lease, and this was a common arrangement in Roman towns (Livius XXVI,27,2; Vitruvius V,1,2; Dig. XVII,1,32; Andreau 1987b; Jongman 1988, 220–22). The Campanian tablets show that most transactions involving these banks were agreed and recorded by people meeting in the forum, as was usual for most private and public business in Roman cities; public buildings were used in bad weather. In Rome, at least, some bankers based themselves by the wholesale and luxury foodstuff markets for the auctions. Money and records were kept at the banker’s private house (villa), sometimes in a strong-room (horreum) (Dig. II,13,6,pr).
Most banks seem to have been local to one city or town, and it is often claimed that the Romans had no banking system (Bürge 1987, 508–9; Johnston 1999, 86). There are indications that banks in different towns were able to cooperate in making transfers, even transfers of credit. The first point to note is the ubiquity of banks. Inscriptions of the first to second centuries CE attest 47 argentarii and coactores and 12 nummularii at Rome, and 17 argentarii and coactores and 10 nummularii in the towns of Italy (Andreau 1987a, 315). It seems that all the four hundred or so towns of Italy had at least one bank, and many had several. In the eastern provinces banks are found in settlements ranging from major cities to large villages. Not all banks were one-town banks: the Sulpicii were based in Puteoli, but may well have had a branch in Pompeii; they issued vadimonia for legal proceedings in Capua and Rome. They may have used another banker or coactor, Aulus Castricius, to handle the auction of a pledge of a defaulting debtor for them because the property was in another town. Roman jurisprudence could imagine the case of a loan spread between two banks (Dig. II,14,9). The mobile actors of maritime commerce needed to be able to raise cash and credit in whatever port a sudden storm might drive them, and clearly were able to do so. In the mid-first century BCE senators like Verres and Cicero had been able to transfer wealth back from Asia Minor to Rome, including changing sums out of the then existing local coinage. In the mid-first century CE the wealthy Alexandrian Tiberius Iulius Alexander made a substantial loan to King Agrippa II, some paid on the spot in cash, the bulk to be collected in Puteoli. Clearing between banks could be managed without any movement of coin by using rent payments, transfers of tax revenues, and so on (Rathbone 2003a).
Because of their nature the Iucundus tablets mostly concern the purchase of landed and other property, while the dealings attested in the tablets of the Sulpicii are predominantly commercial. For what it is worth, most of this lending was economically productive in the sense of facilitating production and commerce. Andreau has claimed that banks were not used by the Roman elite, although he concedes that their existence in inland towns implies use by municipal elites, a rather fine distinction to draw. The witnesses to the Iucundus contracts include the local elite of Pompeian society. It is true that the only senators specifically said to have used a bank are Scipio Aemilianus and the husbands of his aunts, whose dowries he paid to them in around 160 BCE through a bank where he had an interest-bearing account, but anecdotes attest senatorial attendance at auctions, the state loans made available to senators in 33 CE were provided through banks, and slaves and freedmen of the emperor and of senatorial ladies appear in the documents of the Sulpicii (Polybius XXXI,27; Tacitus, Ann. VI,17 [section 3.3]; e.g. TPSulp. 45; 69; 73; 94).
Also, elite Roman reluctance to write publicly about their financial arrangements must be recognized: how many of the businessmen (negotiatores) with whom Cicero had financial dealings were bankers and brokers? The absence of senators themselves from two boxes of tablets, mostly recording minor transactions, from two perhaps middling banks in Pompeii and Puteoli is no great surprise.
We have a wider sample of the activities of the Sulpicii than of Iucundus, although still far from a complete picture. The 77 tablets from the central twenty-year period of their archive record transactions worth HS 1.28 million, an average of HS 16,623 per transaction (Camodeca 2003, 73–74). If we imagine that Cinnamus by himself was involved in one transaction on 200 days a year, the projected aggregate value of his activity per annum would be HS 3.3 million, which, at a profit margin of 2 percent would imply an income of over HS 66,000 a year. If we suppose he managed five transactions per working day and had a profit margin of 4 percent, he would have achieved a senatorial income. The preferred guesstimate must then be multiplied by the number of active partners or agents in the bank. Given that Italy had some four hundred towns at this time, of which say a hundred were large, it is unlikely that there were fewer than a thousand banks in first-century CE Rome and Italy. Even if the modal Roman bank was small, Roman banking was big business.
It is clear that Rome had a financial system that included internal and informal external sources of capital. This by itself is impressive, but still provides only limited support for economic endeavors. The question is whether Roman investors could make use of financial intermediaries, that is, whether the financial system of Rome was adequate to demands that might have been put upon it. Phrased differently, the question is whether or to what extent banks were present in the early Roman Empire.
There are many uncertainties on both sides of this comparative study, but some broad conclusions are possible. Financial intermediation was big business in first-century CE Rome and Italy. There was a wide range of institutions engaged in financial intermediation, including banks, brokers, partnerships, private individuals, and some cities. Between them they provided a wide range of services, including money changing, deposit accounts, mandated payments, transfers between accounts, credit for auctions, loans to clients and third parties, guarantees for contracts and legal appearances, and in the provinces, tax payments. There may well have been other as yet unattested services. There was no state or corporate regulation of banking, but there were professional bankers, brokers, money changers, and the like, who made their living from that business and used common operating procedures and jargon, and financial intermediation operated in a business culture based on fides (trust). In terms of table 8.1, three out of four rows were active in Rome.
We do not have much information about credit intermediation through equity ownership, but the societates publicanorum of the Roman Republic appear to have been joint stock companies with several qualities of modern corporations. The societates could outlive their principals (unlike partnerships), their shares traded at variable prices, and share ownership was extensive (Malmendier 2009). The practice attributed to Cato that I noted earlier illustrates how the societates operated. Cato insisted that people who wished to obtain money from him form a large association, and when the association had fifty members, representing as many ships, he would take one share in the company (Plutarch, Cato the Elder, XXI.5–6). We know that there were many societates involved with Roman tax farming and grain trading in the later republic; we do not know how long they continued in the early empire. They appear to have continued in private activities like shipping even as their role in tax collection diminished.
The early Roman Empire consequently pooled funds with the aid of financial intermediaries, that is, through many private banks. Interest rates for loans could vary, making the Roman financial market more accessible and flexible than the French eighteenth-century financial market. There were about twenty private banks in eighteenth-century London. Banks outside London were rare in the eighteenth century, and banking conditions in the rest of England probably were worse than those in the early Roman Empire.
Even if they did not have local banks, rural English people had access to Bank of England notes. The availability of a paper currency facilitated business and financial transactions even in the absence of institutional financial intermediaries. The Roman Empire lacked a national debt and a centrally chartered bank. Daily transactions outside the principal cities in the early Roman Empire probably therefore may have been more like those in eighteenth-century France, although Harris (2006, 24) asserted that “credit-money . . . enabled the Romans to extend their money supply far beyond the limits of their monetized metal.”
Conditions varied in early modern Europe; Britain and Holland were more advanced in many ways than other countries. Conditions in the early Roman Empire therefore cannot be compared usefully with those in Europe because European financial institutions varied so widely. Comparing Roman financial institutions to those of specific countries, the surprising result is that financial institutions in the early Roman Empire were better than those of eighteenth-century France and Holland. They were similar to those in eighteenth-century London and probably better than those available elsewhere in England.
Unhappily, Roman banks and other financial intermediaries vanish from the historical record in the third century CE as prices began to rise (see chapter 4). Loans are contracts over time. If prices are higher when a loan is repaid, the interest received is offset by the loss of principal value. In economic terms, the real interest rate—equal to the nominal interest rate minus the rate of inflation—declined sharply and even turned negative in inflationary surges. This was a new problem for Roman banks. While we do not observe any third-century banks losing money, we infer that they accumulated losses and disappeared.