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February 22, 2013

Historical Echoes: Cash or Credit? Payments and Finance in Ancient Rome

Marco Del Negro and Mary Tao

Imagine yourself a Roman citizen in the 1st Century
B.C. You’ve gone shopping with your partner, who’s trying to convince you to
buy a particular item. The thing’s pretty expensive, and you demur because you’re
short of cash. You may think that back then such an excuse would get you off scot-free.
What else can you possibly do: Write a check? Well, yes, writes the poet Ovid
in his “Ars
Amatoria, Book I
.” And since your partner knows it,
you have no way out (the example below shows some gender bias on Ovid’s part.
Fortunately, a few things have changed over the past 2,000 years):

            But when she has her purchase in her
            She hugs thee close, and kisses thee
to buy;
            “Tis what I want, and ‘tis a pen’orth
            In many years I will not trouble
            If you complain you have no ready
            No matter, ‘tis but writing of a
            A little bill, not to be paid at
            (Now curse the time when thou wert
taught to write.)

In a previous Historical
we describe some of the characters in early Roman high and low finance. Here,
we look at their modus operandi.

Large sums of money changed hands in Roman times.
People bought real estate, financed trade, and invested in the provinces
occupied by the Roman legions. How did that happen? Cicero writes, in Epistulae ad Familiares 5.6
and Epistulae
ad Atticum 13.31
, respectively: “I have bought that
very house for 3.5 million sesterces” and “Gaius
Albanius is the nearest neighbor: he bought 1,000 iugera [625 acres] of M.
Pilius, as far as I can remember, for 11.5 million sesterces.” How? asks
historian H. W. Harris (in “The
Nature of Roman Money
”)–“mechanically speaking, did Cicero pay three
and half million sesterces he laid out for his famous house
in the Palatine
. . . . That would have meant packing and
carrying some three and half tons of coins through the streets of Rome. When C.
Albanius bought an estate from C. Pilius for eleven and half million sesterces,
did he physically send the sum in silver coins?” Harris’ answer is:
“Without much doubt, these were at least for the most part documentary [i.e.,
paper] transactions. The commonest procedure for large property purchases in
this period was the one casually alluded to by Cicero [De Officiis
] . . . ‘nomina facit, negotium conficit’ . . . provides the credit [or ‘bonds’–nomina], completes the purchase.”

What exactly are these nomina?–from which, by the way, comes the term “nominal,” so
commonly used in economics. In his Ph.D. dissertation “Bankers,
Moneylenders, and Interest Rates in the Roman Republic
C. T. Barlow writes (pp. 156-7): “An entry in an account book was called a nomen. Originally the word meant just
that–a name with some numbers attached. By Cicero’s day . . . [n]omen
could also mean “debt,” referring to the entries in the creditor’s and the
debtor’s account books.” And this “debt was in fact the lifeblood of the Roman economy, at all levels
. . . nomina
were a completely standard part of the lives of people of property, as well as
being an everyday fact of life for a great number of others”
(Harris, p. 184). Pliny the Younger writes, for example, (in
): “Perhaps
you will ask whether I can raise these three millions without difficulty. Well,
nearly all my capital is invested in land, but I have some money out at
interest and I can borrow without any trouble.”

For concreteness, say that some fellow, Sempronius,
owes you one million sesterces. You–or in case you’re a wealthy senator, or eques,
your financial advisor (procuratorTitus Pomponius Atticus
was Cicero’s)–would record the debt in the ledger. What if you suddenly needed
the money to buy some property? Do you have to wait for Sempronius to bring you
a bag with 1 million sesterces? No! As long as Sempronius is a worthy creditor
(a bonum nomen [see Barlow, p. 156]; in
the modern parlance of credit rating agencies, a triple-A creditor), you’d do
what Cicero says: transfer the nomina,
strike the deal. For example, Cicero writes to his financial advisor Atticus (Ad
Atticum 12.31
): “If I were to sell my claim on
Faberius, I don’t doubt my being able to settle for the grounds of Silius even
by a ready money payment.” As
Harris (p. 192) observes: “Nomina were transferable, and by the second century B.C., if not earlier, were
routinely used as a means of payment for other
assets . . . . The Latin term for the procedure by which the payer transferred
a nomen that was owed to him to the
seller was delegatio.

So, we’ve seen that Romans could settle payments by
transferring nomina. But was there a
market for nomina, just like there’s one
today in, say, mortgage-backed securities? According to both Barlow and Harris,
the answer is yes. They claim that the Romans took the transferability one step
further and essentially turned “mere entries in account books” into “negotiable
notes” (see Barlow, p. 159, and Harris, p. 192). Not everyone agrees. The
economic historian P. Temin (“Financial Intermediation in the Early Roman Empire”)
also reports evidence of assignability of loans, opening the possibility of
“wider negotiability, but,” he adds, “we do not have any evidence that it
happened” (p. 721). Yet some indirect evidence is there. For instance, the idea
of negotiable notes appears to be well understood by Roman jurists, such as Ulpian
Digest of Justinian XXX.I.44
): “A party who bequeaths a note bequeaths the
claim and not merely the material on which the writing appears. This is proved
by a sale, for when a note is sold, the debt by which it is evidenced is also
considered to be sold.”

What if you had to transfer money to somebody in a
different part of the globe? As the Roman dominions expanded into Greece,
Spain, North Africa, and Asia, Roman finance actually faced this logistical
problem. If you’re in Rome and want to, say, finance Caius’ mines in Thapsus,
North Africa, how do you get him the money? He needs the silver to buy
material, slaves, and other things, but you’re naturally very reluctant to see your
money sail away for Africa,
as the chances of it getting there aren’t that high (see pirates, shipwrecks, etc.). “Permutatio, the transfer of funds
from place to place through paper transactions, was Rome’s great contribution
to ancient banking” (Barlow, p. 168). It worked as follows: The publicani
were private companies in charge of tax collection in the provinces (as well as
many other tasks; see “Publicani,”
by U. Malmendier). They had a branch in Rome and one in Thapsus. So, you’d give
them the silver in Rome (or transfer them some nomina) and they’d divert some of their tax collection in North
Africa to Caius. This is also how the Republic would finance its public
spending overseas. Since taxes were collected throughout the provinces, by
trading claims on taxes Romans could transfer funds across the globe–or at
least to the part of the globe they had conquered.

Interestingly, some historians measure the
sophistication of Roman finance “by the extent banks were present” (Temin, p. 719).
While it is true that we have no evidence of a 1st Century B.C. Wells Fargo,
this may not necessarily imply lack of sophistication. Prior to the Great
Recession in the United States, a large chunk of financial intermediation didn’t
involve banks–it went through the “shadow banking system.”
Roman high finance “functioned primarily on the basis of brokerage” (K.
Verboven, “Faeneratores, Negotiatores and Financial
Intermediation in the Roman World
,” p. 12), and
hence was a bit like a proto-shadow banking system, as we suggest in our prior post.
Like the shadow-banking system in the United States, it was fragile. Going back to our
earlier example, we note that if whomever you want to buy property from starts
wondering about the creditworthiness of Sempronius, she will not accept his nomina in payment and will want cash.
That’ll force you to call in the loan to Sempronius, who in order to pay you
will call in his loan to Titus, and so on. But financial crises in ancient Rome
are the subject of a future post.

We are grateful to Cameron Hawkins of the University of Chicago for help
navigating the literature.

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.


Marco Del Negro is an assistant vice president in the New York Fed’s Research and Statistics Group.


Mary Tao is a research librarian in the Research and Statistics Group.


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Thank you all very much for your inspiring comments, which will be food for thought for future posts — and yes, we are fully aware that U. Malmendier is a professor at Berkeley. We learned a lot from her work.

Hi friends; there was no organized government structure to provide experience, continuity, and stand by in dealing with foreign affairs; the senate was consulted, but largely as a mark of respect. There were no permanent diplomatic representatives, and there muteness of Parthia meant that personal contact between Roman history.

I believe that Babylonian and Assyrian financial systems included all of the aspects of finance mentioned here (transferable and subordinated debts, negotiable instruments and so on) – and these long predated coinage. Indeed coinage seems to be a latecomer, hardly necessary to a financial system.

I would just note that the “U. Malmendier” listed as author of “Publicani” is in fact U.C. Berkeley’s financial and behavioral economics professor Ulrike Malmendier… Yours, Brad DeLong

This is a great post. I would just like to bring to your attention another ancient author who predates the late Republic and gives a terminus ante quem of about 300 years. There is a fragment from one of the speeches of Isaeus (a 5th century B.C. Athenian jurist). Isaeus himself was probably the foremost estate lawyers of his time and had clients who would be the equivalent of the Bill Gates and Warren Buffetts of our time. So he probably knows something about this topic. Apart from having a Loeb copy of Isaeus’ speeches, the best is typing “Fragments and Lost speeches of Isaeus” into Google book search: “Everything I possessed apart from mortgaged property had been spent on public services, and nobody would have lent me any more if I tried to borrow against it, since I had already committed the revenue from it. Even though I have an undisputed right to it, my opponents, by bringing serious suit and alleging the the property is theirs, prevented me from using the money to have repairs done.” I find it interesting that in 500 B.C. Athens, which is about 100 years after the first coined money came into existence, we already have evidence of not just credit and debt, but a legal system for proto-debt subordination, since it appears that any future creditors of this person would have in effect been subordinated bond holders (of a non-covered bond at that). Clearly finance is a lot more complex than we have imagined.

Beautiful. The importance of this work is magnified by the millennia. Consider me a fan.

On the issue of negotiability: In modern parlance, the term “negotiable note” does not refer only to the ability to sell a debt, but also to the process of endorsement. Because the negotiation of debt typically requires endorsement, the buyer of a debt is not “paid” by the act of selling the debt, but has full recourse to the seller of the debt in the event that the purchased debt turns out to be bad. (See the Uniform Commercial Code Article 3.) Thus it is far from clear that you have established sufficient evidence for the negotiability of Roman debts. I believe it is Herman van der Wee who argued that the key innovation in European law circa 1550 (Dutch/Belgian law to be specific, later adopted by other countries) was the law of endorsement, which led to the development of modern credit markets.

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