Roman Loans

The financial system of classical Rome was developed enough that it had long abandoned a barter economy by the time of Caesar or Augustus. Rather, it had an efficient monetary system. This is not to say that it was an economy where people only, or even mostly, transacted in coins. Indeed, credit was also important. Credit circulated as did coins and both were recognized as forms of money in contemporary commentaries. This credit took the form of formal loans as well as ‘shop credit’. In either case, lending arrangements were not all that alien to the modern eye.

Contracts

In classical antiquity, perhaps the biggest departure from modern lending practices was around documentation. When Romans lent to each other, they did not always draft a written contract to those ends. Lending contracts were largely oral. Shopkeepers offering credit to their customers may have maintained written records of such transactions but even they typically relied only on memory. That said, loan contracts were increasingly likely to be written during the Principate, the period that began when the Roman Republic turned into an empire.

These written agreements would commonly be in the form of two copies of the contract text inscribed on waxed tablets and then tied together and sealed by a witness to the loan. In Roman Egypt meanwhile, loan records survived on papyri scrolls, paper-like material made from the tissue of local reed plants, rather than on tablets. Nonetheless, even where there was a written contract, critical details like the interest rate may have been absent from it, existing instead only in a verbal agreement.

The vocabulary of Roman credit differentiated between types of loans. There were cheirographa (unsecured loans with informal documentation), parathekai (loans secured by a pledge of assets), and homologiai (loans financing purchases of goods for sale), among other forms of credit. Jurists considered all of these types of nomina, or debt, to be a form of money.

Not only could loans be used to make purchases, they could also be exchanged like money. Where written, cheirographa often had ‘bearer clauses’ that specified that the loan would be due to whoever held the loan, even if that wasn’t the original lender. Loans could thus be sold. In one account of such a transaction, Marcus, one of the orator Cicero’s sons, was studying in Athens and Cicero would send money to Marcus by assigning the rents of some of his Roman properties to a friend, Atticus, who in exchange for this had his own debtors pay Marcus instead of him, as though Marcus had made the loan originally.

Lenders

Professional lenders recorded their loans in a kalendarium, a ledger of loans, which may have included details of the loans’ terms. The kalendarium was so called because interest would often be due on the kalends, the first day, of each month. The wealthy earned interest on their money by lending it out at interest but they usually did not exert their own energies in this matter, instead lending their money through freedmen employed as their agents. So prolific were the lending activities of the rich that the wealth of the most prosperous men in Rome was usually described in terms of either land or loan portfolios, rather than in terms of cash.

Lenders included professional bankers, sometimes set up as partnerships. These were largely urban operations. Even transactions carried out in the country seem to have usually involved a city-dwelling lender. Some banking operations could be extensive. The Sulpicii family of Puteoli were professional bankers and seem to have engaged in activities as broad as accepting deposits, making loans, facilitating payments, brokering investments, and maybe even exchanging currencies.

There were perhaps a thousand banks in Roman Italy in the first century, likely at least one in every town, even if these were largely small operations. They were also ubiquitous in Roman Egypt. Bankers usually met with their clients in the fora or public buildings of their home city. Not all of these many bankers were wealthy though and not all lent their own money. Rather, the conventional model was for the banker to broker transactions between lenders and borrowers.

However, the most common lenders were retailers and artisans and not bankers. Sellers of goods often provided credit to purchasers, even if only because of shortages of small coins. There are also very few records that suggest large transactions, such as the purchase of estates, were made in cash. This form of seller financing or shop credit was likely more commonplace than formal loans. That said, the two approaches could converge. Some bankers operated as intermediaries between buyers and sellers, providing financing to buyers and accounts for sellers into which their sale proceeds would be credited and withdrawals deducted.

Borrowers

Borrowers would not always obtain credit from professional lenders, at least when obtaining frequently-needed small loans. They customarily turned first to friends and family and, in the case of the wealthy, even to their slaves or servants. Professional, personal, and civic networks were also leveraged when in need of credit. That said, the services of professional lenders were commonly turned to as well. Indeed, even fairly ordinary people turned to bankers.

However, outside of formal loans, credit was also to be had in the form of accounts maintained by vendors on behalf of their customers. Retailers and artisans relied on trade credit from their suppliers to accumulate their requisite materials and inventories. Meanwhile, their own customers made purchases on credit provided by the retailer.

This form of shop credit was common in Rome. It was perhaps even ubiquitous since the incomes of ordinary people could be seasonal and uncertain, increasing their reliance on credit. Obviously, those with agricultural incomes had some of the most seasonal earnings; to address this, peasants sometimes sold crops ahead of a harvest as a source of early income but they also resorted to loans that would be repaid at harvest time. As such, credit could be extended for months, even in the case of wealthy borrowers. In another one of his transactions, Cicero asked his friend Gallus to select some sculptures for one of his estates and he also tasked Gallus with negotiating credit with the seller, hoping to defer final payment by a full year.

Interest Rates

As in modern times, lending was regulated to prevent abuse that could cause unrest fueled by desperation and feelings of injustice. A legal maximum rate of 1% per month was instituted. In Roman Egypt, this was a reduction from a rate of 2% that existed prior to the Roman conquest. Nonetheless, the historian Livy wrote of mechanisms by which lenders avoided this limit, such as assigning a loan to non-citizens who were not subject to the limit. By one means or another, pawnbrokers in ancient Rome would charge interest as high as 75% per year and at least a subset of borrowers would nonetheless resort to utilizing their services.

Lending at interest was a competitive and active market. Loans were made frequently enough that there was such a thing as a ‘market’ rate of interest, the going rate at the time; commentators wrote of movements in this interest rate. Of course, while conventional loans carried interest, not all forms of credit did. The credit shopkeepers offered to their customers gave the latter time to pay for their purchases without an interest charge. This increased the retailers’ sales compared to those not offering such credit. Retailers and artisans thus accumulated holdings of reliqua, or receivables. This shop credit was an attractive non-interest-bearing alternative to conventional loans.

Security

Lenders were as always concerned with defaults on their loans. To protect their money, they could ask for some sort of security on a loan. The most common ways of securing a loan were by surety or property. Surety, in the form of third-party guaranteeing the debt, was regarded as very valuable and was typically preferred by lenders to a pledge of property. Nonetheless, the latter was also an option and loans were commonly secured by chattel property, such as ship cargos, as well as by land. Shops and slaves could also be pledged as collateral.

In any case, many loans were unsecured, such as the trade and retail credit which facilitated everyday transactions. This credit was not backed by any particular collateral, which borrowers may have lacked in sufficient amounts to secure the capital they required. A common shopkeeper simply could not rely on a conventional secured loan. One might think they could borrow against their inventories but since they would have to repay the loan upon selling the inventory, this was not an option. Remember that odds were high that the purchaser of this product would likely have paid with credit extended by the merchant and not in cash that could be used to repay the merchant’s debts.

The common Roman shopkeeper needed to be reasonably fastidious in his use of credit; it was essential, but potentially ruinous, to his business. Each shopkeeper was something of a banker himself, accumulating large balances of receivables and payables relative to his income or other assets. If an artisan or retailer were driven to bankruptcy by his debts, such as that trade credit provided by suppliers, then his assets not already pledged elsewhere, including any receivables due from clients, would be liquidated to repay creditors. Roman laws like the actio tributoria governed liquidation processes to protect unsecured creditors who otherwise lacked collateral to secure their loans, whatever form they took.

Lesson

Finance in a historical setting can be surprisingly familiar, if largely because our expectations towards activities like ancient lending are unreasonably dismissive of the potential for extensive or sophisticated practices. True, the manner in which contracts were formed and the scale of banking operations may have been less developed. Nonetheless, though the arrangements and actors may have been very different in classical civilizations like that of Rome, the fundamental nature of loans and credit in ancient times are hardly unrecognizable to modern eyes.

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