Loan contracts date as far back as the 3rd millennium BC and the oldest we know of today come from the same part of the world that gave us the first systems of writing. Examining these records reveals that lending was common even in ancient civilizations, and more surprisingly still, that even in a mostly illiterate and much more ‘primitive’ society, these loans could be quite varied and were formalized in writing. Enough of these loans survive that one can conduct a survey of the lending climate over 4,000 years ago.
In the 4th millennium BC, southern Mesopotamia, within what is now Iraq, became increasingly urban. Societies there developed a written script and some of the oldest legal contracts known to historians today. The most notable of these contracts, of those pertaining to finance at least, were the loan contracts created during the era of the Third Dynasty of Ur which controlled the Mesopotamian region called Sumer in the very late 3rd millennium BC.
Numerous Sumerian loan documents survive in cuneiform script written on tablets, though extant loan contracts any older than these are rare. Nonetheless, lending is among the activities most well documented from this particular time and place. Lending at interest seemed to be a Sumerian peculiarity. There is no evidence of lending at interest in other prominent early Bronze Age civilizations.
Since coined money was still over a millennium away, loans in Bronze Age Sumer would be made in commodities like silver, barley, and wool. Grain and silver were the most common, the former for agrarian loans in the country and the latter for commercial loans in towns. Loans were commonly arranged to be repaid around harvest time. Surviving records show both loans for productive purposes and some simply made to hold over a household, either for a short time or perhaps until the next harvest.
“Lu-saga received 12 1/2 gin of silver without interest from Lu-Suen on the first day of the 3rd month. He swore in the name of the king to return it in the 4th month …”
“Su-asli received 25 gin of silver from Azida. He will return the silver in its entirety in month 8 in Nippur. If he does not return it, he will weigh out 2 gur of barley for each shekel of silver after the harvest. …”
Contracts were almost always recorded with an amount, the commodity being lent, the names of the two parties, the names of the witnesses to the loan, the date, and the seal of the loan’s recipient. The witnesses could be crucial to the legal enforcement of the contract. A precise interest rate and more exact terms of repayment might have been included but not always. Where an interest rate was not explicit, the rate would have either been dictated by the prevailing custom or the loan was simply interest-free.
Borrowers and Creditors
Borrowers in Sumer were commonly from the elite, as were creditors, and the two were often related or were associated through a common industry. Creditors had surplus wealth to lend; they could be institutions like temples or royalty. Some creditors were professional lenders too, who made at least some part of their living lending money. But these people weren’t necessarily merchants or practicing vocations traditionally associated with lending. Archives show that one of the most prolific lenders in Sumer during the Third Dynasty of Ur was a shepherd.
Sumerian loans commonly bore interest. None of this was a given since lending at interest seems to date not that much earlier than this period. The concept of interest may have originated from the natural multiplication of livestock over time; the Sumerian word for interest ‘mas’ also had the meaning of ‘calves’. Just as cattle multiplies over time, shouldn’t money lent out as well, especially when that money could have been invested in cattle instead? There are parallels in other languages; the Ancient Greek word for interest was ‘tokos’, which also meant the offspring of cattle.
Interest might not always be paid in the commodity of the loan. Sometimes the interest was to be paid in labor, perhaps by the debtor himself, a dependent, or a slave. The economy of Sumer exhibited labor shortages so this could have been of particular value to a creditor. Debt slavery was not uncommon. Given that some loans’ interest was meant to be paid in labor, there is no means to calculate an interest rate on loans such as these.
For more typical loans, interest rates were commonly 33.33% for loans denominated in barley and 20% for those in silver, though sometimes loans in silver earned 25% interest and some loans were interest-free. The rate of 20% on silver loans corresponded to ‘one shekel per mina per month’ as there were sixty shekels in a mina of silver. Interest rates were likely designed to be easy to calculate in the Sumerian sexagesimal numbering system, based on multiples of sixty rather than ten as we are used to today.
The premium for barley loans over silver loans reflects that these loans were usually made just before harvest when grain was expensive and would be repaid just after harvest when it was cheapened. Since the lender could have sold barley when prices were high and repurchased when it was cheap, the higher interest may have been designed to compensate for the lower price of barley when the loan was repaid.
The fact that many loan agreements, including those that stipulated the loan would be at interest, did not actually specify a rate suggests that the going interest rate on such loans, perhaps dictated by custom, would be common knowledge. Centuries later, the law codes of Esnunna and of Hammurabi both specify the ‘standard’ interest rates on barley and silver loans as the Sumerian rates of 33.33% and 20% respectively. Thus, these law codes codified older Sumerian practice. That said, the law codes and loan contracts did not always make very clear whether the interest accrued at an annual rate or would be a flat amount over the life of the loan; scholars take different views on this question.
“If a merchant gives grain or silver as an interest-bearing loan, he shall take 100 silas of grain per kur as interest (33%); if he gives silver as an interest-bearing loan, he shall take 36 barleycorns per shekel of silver as interest (20%).”Laws of Hammurabi (18th century BC)
Interest-free loans for short terms also existed, rarely for more than one year, often for no more than one month, and sometimes for as short as ten days. These were made between relatives or members of a common work organization, such as a guild of foresters or shepherds.
Still, the penalty for failing to repay on time might be very high, even for non-interest bearing loans. A common practice was to double the amount due. For example, in the loan introduced previously where “Su-asli received 25 gin of silver from Azida”, the penalty was to repay the loan at a rate of “2 gur of barley for each shekel of silver”. Ordinarily, the price of barley was only around one shekel per one gur, or bushel, so this would have meant Su-asli would have had to repay the principal twice over, in bushels of barley, if he was late.
Much has been made of debt cancellation in ancient Sumer, and other ancient civilizations, during jubilee years or the coronation of new kings. In Sumer at least, though it was in fact common for royal proclamations to cancel debts, this relief was meant only for agrarian debts and not commercial ones.
Indeed, the government was usually one of the largest agrarian creditors in Sumer because much of the canceled debt consisted of accumulated arrears in taxes due in kind. Entrepreneurial borrowing was comparatively rare so, to a large extent, these debt cancellations simply consisted of kings abandoning attempts to collect on what was essentially overdue taxes.
Common collateral on Sumerian loans would have consisted of the borrowers’ cattle or labor, or the labor of his slaves or family dependents. Some loans would often be made purely with the intention of benefiting from this collateral if the borrower defaulted. By contrast, using land as collateral was not as common in this early era because, by custom, a creditor could not take over ownership of land from debtors. However, the agricultural output of a field could be offered as collateral. In rare cases, a guarantor might have guaranteed a loan; a few loans dating from Third Dynasty of Ur mention such an arrangement.
Clearly, lending arrangements in ancient Sumer were varied and, considering no other contemporary society seems to have left such a record of lending transactions, we may even judge them to be advanced for the time. To speak of loan contracts in the Bronze Age world essentially means discussing Sumerian loans. They show the benefits and dangers of borrowing. The commercial loans made in silver no doubt helped move money from those who had surpluses to those with opportunities to deploy it. However, agrarian loans made in grain, at higher interest rates, often led to debt slavery.
More from the Tontine Coffee-House
1. Garfinkle, Steven J. “Shepherds, Merchants, and Credit: Some Observations on Lending Practices in Ur III Mesopotamia.” Journal of the Economic and Social History of the Orient, vol. 47, no. 1, 2004, pp. 1–30.
2. Goetzmann, William N. Money Changes Everything: How Finance Made Civilization Possible. Princeton University Press, 2017.
3. Homer, Sidney, and Richard Sylla. A History of Interest Rates. 4th ed., John Wiley & Sons, Inc, 2005.
4. Hudson, Michael. “How Interest Rates Were Set, 2500 BC-1000 AD: Máš, Tokos and Foenus as Metaphors for Interest Accruals.” Journal of the Economic and Social History of the Orient, vol. 43, no. 2, 2000, pp. 132–161.
5. Westbrook, Raymond, and Richard Lewis Jasnow. Security for Debt in Ancient near Eastern Law. Brill, 2001.