June 26, 2015
If you haven't read our five-part series on the history of money, now would be a good time to check it out. Now, we are going to go back to the beginning to explore the history of loans.
At the start of the Roman Republic, the southern portion of the Italian peninsula was dominated by Greek Colonies. The fledgling state of Rome had a lot of contact with Greece and Greek culture, and the Romans copied all aspects of Greek culture that they found desirable, right down to their religion. The Greek Hermes = Roman Mercury, Aphrodite = Venus, Ares = Mars, and so on. The banking system, at the start of the Republic, was also a copy of the Greek system, with temple priests acting as money changers and lending their surplus coin. But, the Romans were as much innovators as they were copiers, and the system soon evolved away from the temples. Most likely, this was due to the high percentage of literacy in urban Rome, the highest recorded literacy rate in the ancient world. Roman citizens were educated.
Two separate types of banking evolved from and eventually broke away from the temple banking system. The first, and more direct of the two, was the public treasury. As Rome began to win wars against its neighbors, more and more money began flowing into the city. The conquered would call this plunder. While much of it remained the property of the patrician army commanders and the citizen soldiers who had acquired it by force of arms, any system with even a small amount of representative democracy like the Roman Republic was bound to have some politicians pandering to the votes of the mob. In Rome, this did not happen as much as you would think because of the way the voting deck was stacked toward landholders. But it did happen to some extent.
Incidentally, there was also a property requirement to serve in the army for much of the period of the early republic, so only those who had property could acquire more through plunder. Some reformer (most likely a Tribune of the Plebs, who represented the poor and working class) got a law passed (bribes were the most common way of getting that done) that required a certain percentage of all plunder to go to the public treasury, the common property of all Roman Citizens. Furthermore, conquered tribes would be subject to taxation (called tribute), and this also went into the public treasury after the tax collectors took their cut.
Roman citizens could petition for loans from the public treasury. The interest rate in Rome was set at 12%. It had been 1/60th per month in Babylon because of the base 60 mathematical system. Greece, which used a base 10 mathematical system had set the interest rate to 10%, naturally. On first glance, it would appear that the Romans, by increasing the rate to 12%, were reverting back to something similar to the Babylonian system (12 being an even factor of 60) but, in fact, the Romans were a practical people. They set an interest rate of 12% to make their loans more flexible. The interest would be tacked on monthly, and with a 12% rate, you would add one Denarius for every 100 Denarii owed. The treasury was managed by a group of elected officials called Questors.
Wealthy individuals (but not Senators, as it was not deemed appropriate for their station) could set up shop in the public forum and lend money. They set up money changing and lending stalls with a long bench called a bancu, from which we derive the word "bank." They generally charged a rate similar to what the treasury was charging, mostly due to expediency. One coin interest for each hundred coins of debt was a simple and convenient calculation.
In the event of default, the end result was the same as in Greece - debt bondage. However, the debt trials were presided over by the Urban Praetor, an elected official who was generally responsible for the administration of the city of Rome. If the trial occurred outside the city, the governor of the province, or his appointed representative would preside and act as Judge.
The fall of the Roman Empire in the 5th century effectively ended banking in Europe for the next 500 years. When lending was revived, it was due to the necessity of financing the armies of the crusades, and Christian prohibitions on lending pushed banking in the most unlikely direction.
Next Installment: Part 3 - The effect of religion on banking in the Middle Ages (Antonio and Shylock)