On Financial Institutions in the Roman Empire
Were there any significant forms of financial intermediation in the early Roman Empire? And if so, how substantial were they when compared to analogous institutions in later times?
Indeed, these are key questions to consider when studying the field of comparative economic history and tracing the trajectory of economic developments across time, place and period.
Peter Temin, a distinguished professor emeritus of economic history at MIT, wrote an often-cited research article on this topic entitled “Financial intermediation in the early Roman Empire” in which he compares the varied financial institutions of selected early modern states with those of the Roman economy.
I will showcase how he uses his theoretical framework to analyse and consider how such institutions functioned in England, France and the Roman Empire respectively so as to determine which early modern agrarian economy resembled the Roman one the most.
The surprising conclusion which Temin reaches is that the Roman financial market was more effective than its French counterpart of the 18th century and not far behind those of England or Holland either (more about that in just a second).
First of all, there were credit intermediaries in the form of banks in the Roman Empire. That much is certain, as we have records over famous bankers like the Sulpicii family in Puteoli and Lucius Caecilius Iucundus in Pompeii.
The difference lies in the fact that there weren’t larger corporative banking institutions as such, nothing to the likes of the Bank of England or Manhattan Chase. Lenders were private individuals depending on their good name and reputation to attract borrowers.
Giving out loans to friends and family, so-called informal external sources of capital, is well-attested in our written sources on Rome and it was a common occurrence. It’s also important to recognise that banks were not the only way of obtaining funds; money from family, friends and business associates for starting up new projects was prevalent.
Bankers were known as argentarii (Latin) and trapezitai (Ancient Greek). Most deposits were not available on demand, but the French historian Andreau mentions service de caisse as one of their practices, meaning that ancient banks must have dealt with the day-to-day needs of their clients.
We know that there was extensive use of loans to finance maritime trade in classical Athens, which is not surprising given its thalassocratic supremacy in Greece.
Some believe that the Muziris papyrus may have been the master contract for a standard maritime loan in the early Roman Empire. That is telling because of how important that source is for understanding Roman international seagoing trade. If it was standard, then maritime loans were commonly known to merchants and clerks.
In fact, loans were so numerous that commentators began speaking of a market rate of interest. That is, they could speak of a rate of interest separate from the rate of any particular loan.
Interest rates fluctuated and were described by writers such as Livy and Cicero. There could be quite abrupt changes as well: after Augustus brought back treasure from Egypt, there was a 60% drop in interest-rates. This had further financial implications for domestic financial affairs in Rome, especially for the elites.
It was standard practice to see loans at one percent per month or 12% per year, which was the official maximum and default rate on many loans. Rates could vary above and below this rate, but the presence of many loans at this fixed rate in Roman Egypt (the province where the written source record is the strongest, as usual) suggests that the market wasn’t completely free, because variables wouldn’t return to the same value so often. This stands in contrast with other quite privatised and even anarcho-capitalist practices in the empire: mines could be driven by private individuals who received some if not most of the profits and at one point in the late Republic taxation was privatised.
An interesting parallel to our modern-day idea of financiers evading regulations by going offshore is when Livy describes how prohibitions against higher rates in the late Republic were evaded by transferring the loans to foreigners who were not subject to rate restrictions.
Ownership of commercial loans appear to have been easily transferable among interested parties. The existence of these assignable loans meant that the borrower was obliged to pay whomever holds the loan when it is due.
Historians have tended to assume that all transactions were made in coin because there is little documentary evidence for paper money, but in the words of the economic historian Walter Scheidel: absence of evidence is not evidence of absence.
Banks and related financial institutions were common throughout the Roman Empire, and the most famous banks were on Delos. There they had both temple and private banks, what we would now call commercial banks. The number of private banks appeared to remain constant, suggesting that they operated over time with great stability. Banks did not have a separate legal existence; Roman bankers accepted deposits and made loans in their own name.
Interestingly, the Temple of Apollo on Delos seemed to give loans with houses as collateral, so mortgages existed back then. Roman deposits may have been time deposits of certificates of deposit, not demand deposits that are immediately accessible.
Cicero described how the conditions of interconnected financial markets were around the Roman world in 66 BCE, referring to events twenty years earlier:
Many people had lost large fortunes in Asia (Turkey). Coinciding with this, the suspension of payment caused a collapse of credit in Rome. Cicero further remarked that the ruin of many individuals inexorably involved still greater numbers, causing more loss of property and fortunes.
He emphasised the fact that the system of finance and credit which operated in the Forum in Rome was bound up in and depended on capital invested in Asia. The loss of the one inevitably undermines the other and causes its collapse.
These connections may have consisted of loans made by one individual to another, but it would be unprecedented in commercial history. It is much more likely that Roman loans to Asia were conducted at least partly through financial intermediaries, like banks.
Roman senators and even equestrians had investments all over, also abroad, so they needed some way to repatriate their earnings.
Members of the Senate had vested financial interests, not only in their property and domains but also in the Silk Trade Routes, where individual senators earned profits by financing seagoing vessels to India, East Africa and beyond. Some senators also participated in the slave trade, notably Vespasian before he was sent to Judea and later assumed the Roman imperial office.
In general, Romans seeking to acquire resources to conduct business could borrow widely in the economy from:
- Individuals, merchants and private banks who borrowed money
- Temples holding endowments (temples were an important means of “pooling” investment funds in the early Roman Empire; a given temple could loan the funds from their endowment to earn interests and fund their feasts and other sorts of religious activities while supporting the constant size of a self-sustainable endowment)
- Local governments holding tax revenues that typically were looking to place loans among citizens to further increase their income
Some emperors had financial acumen as well: responding to a lack of local government loans in Bithynia (area around modern-day Istanbul) Trajan understood that a market solution was the way to go. He realized that a financial institution could loan more by reducing the interest rate. Thus Romans even in the uppermost echelons of society conceptualised a demand curve for loans.
So, to sum up, the Roman Empire pooled funds with the aid of financial intermediaries, albeit not through many private banks. There was not a plethora of private banks as there was in 18th century London. Banks outside London were rare in the 18th century; in the Roman Empire, they were more geographically dispersed.
Interest rates for loans could vary, making the Roman financial market more flexible and accessible than the French 18th century financial market. France in the 18th century had strict usury laws and set 5% as the legal maximum for all loans. When a French lender met with a rather risky borrower in the 1700s, this government policy made it impossible for them to adjust the interest rate to take account of the augmented risk. This made it far harder to obtain loans with intermediate risk in Paris than in London, for instance.
Despite the relatively accessible nature of credit in the empire, the Roman Empire lacked a national debt and a centrally chartered bank. Instead it ran on a cash basis, prompting them to collect tax returns for future expenditures rather than risk falling into a debt trap. The Roman government had their share of economic interventionism as well: under Tiberius in the 30s CE a massive economic crisis prompted him to make use of quantitative easing to rescue the banks and lenders from utter ruin.
All of this speaks to the remarkable financial sophistication of early Rome when compared to leading early modern economies.
Sources:
The Economy of Ancient Rome
Why Was Egypt Crucial for the Roman Empire?
Financial intermediation in the early Roman Empire
