Financing Civilization

© William N. Goetzmann, all rights reserved



This is the first chapter of a book about the finance and its impact upon civilization. It is provided for academic use, and may not be copied. Comments on this draft are welcome. I thank Marc Van der Meiroop, Denise Schmandt-Bessert and Rick Antle for their suggestions. All errors are the sole responsibility of the author. Please contact me with corrections and suggestions. Feel free to link to parts if you are interested. If you know of relevant maps or graphics I may link on the internet, please tell me. I have written captions for a number of figures which are linked in the text, but out of respect for copyright law, I have not provided pictures.

Contents

The First Steps out of Eden
The Origins of Finance
Ancient Contracts
Early Financial Accounts
The Urban Economy
The Idea of Lending
The Idea of Interest
Borrowing in Babylon
An Early Roadmap to Riches?
An Ancient Wall Street
The Merchants of Ur
"Clay Profits"
Debt is Good -- But For Whom?
Early Mutual Funds?
Government Regulations and the Great Crash
Mesopotamian Twilight
Finance Moves West
The Ancient Financial World
Sources

The First Steps Out of Eden

Warka today is a parched, tree-less mound in the Iraqi desert. Except for an occasional archaeologist or two, its only visitors are Arab shepherds grazing flocks of sheep and goats among the ruins. Few traces remain of the city wall built by its ancient ruler Gilgamesh(see also: Gilgamesh reference), or of the temple of his mate, the goddess Inanna. Five thousand years ago, Uruk was a lush metropolis of temples, houses and gardens; a powerful city-state whose cultural and political influence extended the length of the valley of the Tigris and Euphrates. It has been argued that Uruk was the birthplace of urbanism, of monumental architecture, of written numerals, of written language and the world's first literature. Small wonder that it may have also been the birthplace of finance.

The Origins of Finance

We may never know when finance began, because financial contracts are as old as written language -- in fact, writing appears to have been invented for the purposes of recording financial deals. The first archaeological traces of financial activity appear in the earliest urban civilizations in the Near East. Where did the idea of borrowing and lending come from? How did the idea of interest payments evolve? Who first realized that "time is money?" The answers to at least some of these questions lie buried in ruins of Uruk, and her ancient sister-cities of Mesopotamia. In 1929 the German archaeologist Julius Jordan dug a deep trench into the legendary Inanna temple precinct. He made a spectacular discovery: The goddess' home and storehouse was elegantly decorated with a multi-colored colonnade, and nearby lay the stone steps of the temple -- exactly as described in the Epic of Gilgamesh, the world's oldest literary composition. Given the extraordinary architectural finds, the more prosaic details of the Uruk excavations received scant attention. In his journals, Jordan recorded the recovery of a number of curious little tokens "shaped like commodities of daily life: jars, loaves and animals." Their importance went largely unnoticed until the work of professor Denise Schmandt-Besserat, an archaeologist at the University of Texas at Austin. Professor Besserat showed that the clay tokens resembled pictographic inscriptions on clay tablets from Uruk.

These Uruk pictographic tablets have long been recognized as the first steps towards written language, however, no-one paid much attention to Jordan's little tokens -- until now. Professor Besserat found that the pictograph for cloth, for instance, could be traced to a round striated token. The symbol for sweet evolved from the token shaped like a honey jar, the symbol for food evolved from a token shaped like a full dish. Most of the tokens represented commodities from daily life: lambs, sheep, cows, dogs, loaves of bread, jars of oil, honey, beer, milk, clothing, ropes, wool and rugs, and even "abstract " goods, such as units of work, and land. Apparently, these were the items once contained in Inanna's "holy storehouse" at the time of Gilgamesh.

These tokens were, in Professor Besserat's terms, elements in "a system of accounting" used by the temple priests and perhaps even by Gilgamesh himself. It appears that they were kept in hollow clay envelopes, about the size of modern day softballs, called bullae. If this was an accounting system, it was a curious one indeed. The envelopes had to be broken each time the accountant wanted to check the figures! The Uruk accountants solved this problem by making marks on the outside of the bullae, indicating the number and types of tokens on the inside. Denise-Schmandt-Besserat used the similarities between the inscribed bullae and the earliest Uruk pictographic tablets to reconstruct the early evolution of written script. The bullae, she argues, were the forerunners of cuneiform tablets.

Ancient Contracts

Denise Schmandt-Besserat may have discovered the origins of writing on the surfaces of the clay bullae, but the mystery remains -- why did the ancient accountants of Uruk use a cumbersome bullae system for their records? Indeed bullae remained in use even after the full development of written script. The answer lies in the fact that they were more than accounting tools -- they were actual contracts.

Everything we think of as a financial instrument today is, in fact, a contract. A government bond, for instance, is a contract between the government and the bond-holder to guarantee a series of payments in the future. A share of stock is a contract between the shareholder and the corporation that guarantees participation in the profits of the firm, and a right to vote on management. Although contracts existed before the invention of writing, and even before the invention of bullae, the hollow clay balls and their tokens appear to be the earliest archaeological evidence of contracts. Each bulla found in the Inanna temple complex meant that someone -- and we don't know who, made a promise to give some commodities: jars of honey, sheep, cattle -- perhaps even days of work, to the temple. The writing on the outside of the bulla allowed the contracting parties to refer to the amount owed over the term of the contract, but the tokens inside, kept by the lender as evidence of the agreement, tangibly symbolized the obligation. This interpretation may explain other curious features of the bullae as well. Some of the envelopes are covered entirely in the impressions of cylinder seals -- the Mesopotamian equivalents of signatures. These undoubtedly represent a personal mark indicating the promise of the owing party. Bullae that are entirely covered in seal impressions seem to suggest that the owing party was concerned that the bulla holder might break open a small part of the bulla and insert some additional tokens.

We cannot really call the bullae the first financial instruments, because we do not know who the contracting parties were. We do not know whether the obligation is a return of a loan, or simply a tax or tribute to the temple. The bullae do not specify time (or at least Denise Schmandt-Besserat has not decoded the symbols for time) and they do not specify interest rates. All we know for sure is that they formalized commitments of future payments. The bullae were contracts that bridged a period of time -- from the moment when one party entered into an obligation, to the moment when the obligation was discharged.

Early Financial Accounts

Sometime before 3,000 B.C. the people of Uruk began to use pictographic tablets of clay to record economic transactions. The script for the tablets evolved from the bullae symbols, but their use went far beyond contracts. These tablets are important in their own right as further developments of an ancient financial system that was growing to accommodate the needs of the Uruk economy. While the bullae typically contained no more than a couple of dozen tokens, the Uruk pictographic tablets recorded much larger quantities of goods. They did this in an ingenious way -- they used a number system!

The pictographic tablets from Uruk are the first evidence that exists for an abstract number system like our own. Once economic quantities became large enough, it was been difficult to represent them one for one with tokens, or even pictographs. The Uruk tablets began to separate the pictographic representations of commodities from the abstract numbers. For instance (see illustration) one tablet represents five sheep by the symbol for sheep -- the crossed circle, and five impressed strokes in the clay -- the numeral for five. A round impression represented the numeral for ten. Thus, the Uruk accountants could represent thirty three by three round marks and three strokes.

The Urban Economy

People in the Near East began to live in towns more than 10,000 years ago, but the first true cities were built by the Sumerian people, the inhabitants of the region around the mouth of the Tigris and the Euphrates, in the period after 4,000 B.C. The economy of the Sumerian city of Uruk during the fourth millennium, the period to which the bullae date, was based upon herding and agriculture, supplemented with fishing and hunting. Although it is difficult to understand the Sumerian system of government without imposing our own political notions, it appears that the temple played an important role in allocation of economic resources. Apparently the first government was "big government." A ceremonial vase, "The Warka Vase" was found in the Inanna temple complex, and provides a simplified perspective of the Uruk social hierarchy. The ruler was the people's representative to the goddess, and he presented to her the fruits of Uruk's citizens's labor. Since most of these commodities were perishable, we must presume that the temple redistributed them in some fashion. The numbers from the Uruk tablets indicate that this was a big job -- taxing people and then redistributing the income. In fact, this economic system -- the reliance upon a central distribution center, may explain the movement of people into the cities, closer to the temple. Judging by the size of the city in its heyday around 3,000 B.C., Uruk was home to more than 10,000 people. The variety of goods and materials that survive from Uruk suggest that most of its ancient inhabitants had a distinct trade. Labor was specialized. Undoubtedly some of its citizens were shepherds, others were farmers, others were bakers, brewers, weavers, even accountants and scribes. It was in this urban milieu that financial instruments first developed.

The Idea of Lending

All people, urban as well as rural, tend to lend each other things. They do this even when the benefits to such helpful behavior are not immediately apparent. In small communities, people lend their tools and their time to each other. While they may expect reciprocity in the future, they do not explicitly write a contract to formalize it. Such co-operation is a form of insurance. You help out when you can afford to do so, and you call upon your neighbors when you find yourself in need.

When people started living in large communities like Uruk, they began to live with strangers as well as friends. It may have been possible to know everyone in a large farming village, but not in a vast city such as Uruk. What were once implicit agreements among neighbors now became explicit, contractual agreements among strangers. When everyone had the same profession and skills, neighborly help could always be repaid in kind. But when people developed different professions it must have been difficult to maintain neighborly reciprocity. Urban societies still needed cooperation, but limits to familiarity with fellow inhabitants, and difficulty with quantifying the units of such cooperation meant that people required more formal ways to insure a return on their helpful efforts. Cambridge University's Paul Millett traced this developmental relationship between urbanization and interest loans in ancient Athens in the first century B.C. In Greece, the pattern is clear -- urbanism necessitated explicit contracts, and gave rise to interest charges. Interest is a "sweetener" to induce someone to lend you what you need.

Neighborly cooperation appears to be a way for a community to respond to periods of crisis, but loans in which the "gift" is repaid with interest allows a lender to accumulate wealth -- to obtain repayment even when he or she isn't in need. This contrast between implicit and explicit contracts embodies civilization's ambivalence towards lending -- perhaps it just doesn't feel right to charge a friend or neighbor interest, because reciprocity was our pre-urban method of adapting to crises. The invention of interest lending, in the very shadow of the gates of Eden -- may have been humankind's original fall from grace.

The Idea of Interest

What gave the ancient Sumerians the idea of charging each other interest? Linguistic evidence provides a clue. In the Sumerian language, the word for interest, mash, was also the term for calves. In ancient Greek, the word for interest, tokos, also refers to the offspring of cattle. The latin term pecus, or flock, is the root of our word "pecuniary." The Egyptian word for interest, like the Sumerian word, is ms, and means "to give birth." All of these terms point to the derivation of interest rates as the natural multiplication of livestock. If you lend someone a herd of thirty cattle for one year, you expect to be repaid with more than thirty cattle. The herd multiplies -- the herder's wealth has a natural rate of increase equal to the rate of reproduction of his livestock. If cattle were the standard currency, then loans in all comparable commodities would be expected to "give birth" as well. The idea of interest seems to be a natural one for a pastoral society, but not so for other types of economies.

Ancient Sumerian society, in particular, the people of Uruk, "the city of sheepfolds," appears to have been the perfect setting for the evolution of the practice of lending money at interest. It was a pastoral society in which wealth, as measured by livestock, "begot" wealth. It had a system for recording contractual obligations, and a numerical system that could specify particular quantities of goods. It had a concept of the present versus the future. Indeed sometime during the Sumerian period, the Mesopotamian calendar was developed, and this allowed a mathematical link between lunar months and solar years.

Perhaps an even more fundamental tool was the Mesopotamian ability to symbolize goods and quantities. The Uruk accounting system made it easy for the Sumerians to imagine owning and exchanging quantities of goods. Even the act of wrapping the tokens up in a clay envelop implied ownership of them. Perhaps finance began in the ancient Near East because, for the first time it was possible to symbolically represent units of wealth.

Borrowing in Babylon

By the reign of the famous Babylonian king Hammurabi, about 1792-1750 B.C., an extraordinary literature had developed from the early utilitarian cuneiform script. Cuneiform texts record creation myths, poetry and even dramatic performances. Despite the versatility of cuneiform writing, however, the bulk of the half-million surviving documents from the ancient Near East continued to be economic texts. Ancient Akkadian, the language of the semitic peoples who succeeded the Sumerians around 2,500 B.C. and who adopted the cuneiform script as their own, is by far the largest of all the dead languages, in terms of surviving documents, as well as vocabulary. The ongoing Akkadian dictionary project at the University of Chicago is long past 20 volumes at last count! Unless you are an economist, however, most of these texts are of little interest. Writing in the ancient Near East was not only a by-product of economics and finance, but for most of its early history, remained closely associated with them. Nine out of ten tablets are accounting records. Of these, a considerable number are mortgages, land deeds, loan contracts, promissory notes and partnership agreements.

In the centuries following the Uruk period, mathematical and astronomical knowledge advanced dramatically. The well-educated Babylonian of the third millennium B.C. learned enough geometry to calculate the area within a triangle, enough astronomy to calculate the wandering of the planets through the ecliptic, enough algebra to solve a problem of how much grain to use to sow his fields, and enough about logarithms to be able to calculate compound interest!

An Early Roadmap to Riches?

The great cuneiform scholar, Otto Neugebauer translated used in a classsroom at about the time of Hammurabi. It is an interest rate problem for prospective students of the financial arts. It indicates that interest rates were quoted as fractions of principal -- much the same as bond yields are quoted today. The student is asked to figure out the number of years it would take for a sum of money, one mina of silver, that grows at 20% interest per year to reach 64 minae. The interest compounds in an odd way -- 20% of the principal is accumulated until the interest is equal to the principal, and then it is added to the principal. This is not exactly what we think of as compound interest, which is continuously added to the principal, but none-the-less, quite similar. The answer to the problem is 30 years. Neugebauer was fascinated by the cleverness of the solution to the problem -- it appears to prove a knowledge of base 2 logarithms. To students of financial history it is the term of the loan that stands out. Thirty years is an extraordinarily long term for a loan. Today's home mortgages in the U.S. are rarely more than 30 years. U.S. government bonds are generally less than 25 years. If the tablet problem bears any relation to business practices of the time, then it suggests the presence of a stable and reliable legal system, and the ability to contract over long horizons. But who was making these loans -- and why?

An Ancient Wall Street

In the 1920's, Sir Leonard Woolley, excavating the Mesopotamian city of Ur, the fabled birthplace of Abraham, found himself standing in the remains of what must have been an upper middle class neighborhood near the center of the ancient city. His Iraqi excavators uncovered the narrow walls and small rooms that signified domestic architecture -- rather than the majestic palace architecture that typically attracted the attention of Near Eastern excavators. In an area separated from the main temple complex by the main canal running through town, Woolley and his crew uncovered the mud-brick foundations of homes, shops, schools and chapels. He even found the business district and the waterfront, with piers and docks indicating that Ur was a harbor town -- the home of fishermen and maritime traders as well as farmers and herdsmen. Many of them buried their personal financial records, along with their ancestors, in the floors of their houses for safekeeping.

Professor Marc Van De Mieroop of Columbia University has used Woolley's careful excavation notes to match the dozens of excavated clay tablets to the homes where they were found. From these, he has been able identify what must have been a very early "Wall Street" -- a financial district in the ancient city that was the home of Ur's second millennium lenders and entrepreneurs. From their records, he has been able to reconstruct a fascinating story about one of the world's first financial centers.

Most of the cuneiform texts found in the financial district date from the early years of the reign of the King Rim-Sin (1822-1763 B.C.), who ruled from the capital city of Larsa, a few miles north of Ur shortly before Hammurabi's time. During this period, Ur was probably home to 25,000 to 40,000 people. Woolley's excavations revealed a large neighborhood of houses, both large and small, clustered around a central square. Two shrines faced this plaza, and wide thoroughfares and narrow alleys led away from the square to other parts of the densely populated city.

The Merchants of Ur

No.3 Niche lane (the names for all of the streets were borrowed by Woolley from England's town of Canterbury) was the office of the businessman Dumuzi-gamil. Although he left no personal records, only financial ones, we know something about Dumuzi-gamil's personality. He was educated, self reliant and careful with his money, keeping his own accounts in his own distinctive style, rather than hiring a scribe. Despite his training, however, Dumuzi-gamil avoided lavish prose in favor of what Marc Van De Mieroop calls "terse phraseology."

The activities of Dumuzi-gamil and other residents of the "Wall Street" of Ur reveal much about the role that financiers played in ancient Mesopotamia. In 1796 B.C. Dumuzi-gamil and his partner, Shumi-abiya borrowed 500 grams of silver from the businessman Shumi-abum. Dumuzi-gamil promised to return 297.3 grams on his share of 250 grams after five years. According to the manner in which the Mesopotamians calculated interest, this equalled a 3.78% annual rate. The term of the loan was a relatively long one -- five years. Sumi-abum turned around and sold the loan to a couple of well-known merchants, who successfully collected on the debt in 1791. Marc Van De Mieroop suspects that Dumuzi-gamil was acting as a banker -- taking in deposits at low rates of interest, and in the interim, making productive use of the money. Indeed, Dumuzi-gamil tried his hand, with great success at a number of business ventures. His principal trade was as a bread distributor. He invested in institutional bakeries that supplied the temple. In fact, he may even have supplied bread to the capital city of Larsa which lay a day's travel to the north. He was the "grain supplier to the King," -- one of his tablets was a receipt from the a monthly issue to Rim-Sin for more than 5,000 liters of grain!

There is little doubt that Dumuzi-gamil's loan represented the exploitation of the time value of money. When he borrowed the capital from Shumi-abum, he undoubtedly had a plan for increasing his wealth. Perhaps it was the entrepreneurial idea of setting up institutional bakeries. While his records are not complete , it appear likely that debt, in the hands of U's entrepreneurs like Dumuzi-gamil, could be a means to social and economic mobility. Without the ability to shift money through time -- to borrow against future income, Dumuzi-gamil might not have been able to set up shop. We don't know much about his lender, but, since he charged interest it must have been more than a neighborly gesture.

Dumuzi-gamil turned around and used at least some of the money to make short term loans. According to Marc Van De Mieroop, Dumuzi-gamil frequently lend silver to fishermen and farmers apparently in desperate need of silver to pay their temple rents. On some of these loans he exacted 20% interest for a single month! At that pace, one mina could grow to 64 in two and a half years! Of the fifteen loan records of Dumuzi-gamil's that survived, most of them were very short term -- one, two or three months. The price of time was high for citizens in debt to the Ur money-lenders.

The difference between the long term loan of Dumuzi-gamil and the short term loans to the fishermen is important. The short term loans were clearly for emergency purposes, while Dumuzi-gamil's was for productive purposes -- for developing the bakery business, and for lending activities. In fact, most loans in second millennium Ur were of the emergency variety, not the productive variety. Borrowing was more typically a response to emergency, and Dumuzi-gamil was probably not very popular with his creditors, given the usurious rates he charged.

The legal limit on interest rates for loans of silver was 20% over much of Dumuzi-gamil's life, but Marc Van De Mieroop demonstrates how Dumuzi-gamil and other lenders got around such strictures -- they simply charged the legal limit for shorter and shorter term loans! Curiously, while mathematics during this era was extraordinarily advanced, the government failed to understand, or at least effectively regulate the close link between time and money.

Dumuzi-gamil and lenders like him played an important role in the ancient economy of Ur. They supplied the silver money demanded by the temple -- they enlarged the money supply. The money supply is often cited as an indicator of the health of the economy. In the modern world, the money supply is measured by the currency in circulation, plus checking accounts, liquid bank deposits and negotiable financial instruments from large institutions. It is deemed by economists to be an index of society's buying power. In the U.S., the Federal Reserve bank uses money supply targets to loosen or tighten the reins of the economy. While the ancient Babylonian temples were a long way from being federal reserve banks, they may have performed some of the same functions. Temples injected silver money into the economy by making long-term loans to lenders like Dumuzi-gamil. Even at usurious rates of interest, the increase of the money supply created by Dumuzi-gamil's lending may have had a salutary economic effect. The temple in the second millennium B.C. may not have been able to allocate perishable goods as efficiently as it could when the city was smaller. Storage and spoilage must have been significant problems for a government that distributed, among other things, bread, milk and beer. A money economy solved these problems by allowing individuals to purchase the goods when and where they need them. Although the people of Ur did not use coinage, they used silver by weight, and often in the form of portable items like bracelets. By lending this silver, Dumuzi-gamil created vital liquidity.

"Clay Profits"

The ancient financiers increased the supply of "non-money" money in Ur as well. They, like other merchants kept running accounts. Among Dumuzi-gamil's records are indications that certain payments were credited to individuals. While not as sophisticated as credit cards, these "tabs" at various merchants and financiers minimized the need for hard currency. This accounting system may have mirrored the temple's own method of accounts, but its use in the dealings of individuals is a subtle but important advancement in financial thought. It meant that people could recognize "paper profits." You could become wealthy without having the silver hoard to prove it. This was the first stage in the development of "intangible" wealth, upon which all of our current financial system depends. Since the records were kept on clay tablets, the first paper profits should rightly be called "clay" profits! These intangible profits were like the tale of the emperor's new clothes. They only existed if people believed that they existed, and if a legal system existed to insure that creditors had secure rights to their loaned property.

From the end of the fourth millennium in Mesopotamia, legal codes guaranteed property rights even more than they guaranteed what we call human rights. For instance, a person had the right to sell himself into slavery, or pledge his liberty as collateral for a loan. In fact, not until the time of the Greek tyrant Solon was the right to enslave oneself abolished. Courts existed in Mesopotamia to adjudicate property disputes, and it was not unheard of for lawsuits to span decades! Evidently, it was part of the function of the local "chapels" in Dumuzi-gamil's time to notarize or witness the drawing up of important documents like deeds of sale. Such deeds of sale were necessary for even tiny plots of property. Marc Van De Mieroop found one transaction for four square yards! Neighborly lending appears to have been on the decline in second millennium Ur -- sales were recorded even between brothers. Almost all of these sales were denominated in silver.

In a world where "clay" profits were counted as real, Even the financier's debt could serve as money. The Ur documents reveal a remarkably liquid market for personal promissory notes. Shumi-abum, Dumuzi-gamil's lender, sold the note to two other investors -- Nur-ilishu and Sin-ashared. Apparently, Dumuzi-gamil and his partner's debt was easily transferable. Several other Ur records indicate that selling loans was a common practice. It appears that Ur had a functioning bond market, in which the promise of a loan repayment could be regarded as currency. Although no broad, macro-economic records exist to measure the effect of Ur's ancient financiers, it is likely that their money-lending activities encouraged commerce of all kinds.

Debt is Good -- But For Whom?

Second Millennium Ur may have been an early hothouse of capitalistic enterprize, but what of the borrowers mired in debt? The government may actually have preferred them this way. A study by the economist M. Darling of the rural economy of the Punjab in modern times suggests a disturbing thing about human nature -- people work harder and produce more when they are in debt. Darling found that crop yields for farmers in debt typically exceeded yields from unencumbered farmers. Farmers in the Punjab may have faced foreclosure, but for the ancient inhabitant of Ur, the motivation was even greater. Debtors were often forced to sell themselves into slavery.

It is difficult to escape the conclusion that, while the first loan contracts and the legal system that enforced them may have been good for the Mesopotamian economy, they made life miserable for the working man and woman. If lending began, as historian Paul Millet believes, as a process of neighborly reciprocity in rural societies, then it evolved into something quite different. In Babylonian times, short-term debt was a tool used to extract taxes from the population, and to increase the productivity of temple lands. It is almost as though the government had found a way to extract the residual "goodwill" from the economy, by allowing individuals to shift financial obligations into the future. Lending in ancient Ur was mostly for emergency purposes -- where the government created the emergency! The other side of the coin is that certain entrepreneurs such as Dumuzi-gamil achieved economic upward mobility through borrowing. Thus, while the system was harsh on the populace, it encouraged creative and productive enterprise. For those with the imagination to exploit it, the financial system of Ur offered limitless possibilities.

Financing Trade

Around the corner from Dumuzi-gamil lived Ea-nasir -- a like-minded entrepreneur. He made his fortune by organizing and financing maritime expeditions from Ur to Dilmun. Dilmun appears in earlier Sumerian texts as the home of the immortal Ut-napishtim who survived the great flood. According to legend, Gilgamesh himself journied to Dilmun in quest of the secret of eternal life, and Ut-napishtim revealed to the king that the "plant of life" lay at the bottom of the sea. Undaunted, Gilgameshed weighted his feet with stones and plunged to the depths to gather the sacred plant. Modern archaeological research points to the the shores of Kuwait, Saudia Arabia and Bahrain as the likey location of the fabled Dilmun, and the traditional Gulf pearl divers of Kuwait plied their trade by tying stones to their feet, in the manner of Gilgamesh.

Maritime expeditions to Dilmun, and ports south along the coast of the Persian Gulf and the Indian Ocean appear to have taken place since Sumerian times, but by Ea-Nasir's time, Dilmun traders were the key middlemen between Mesopotamia and points south. Indeed, the Dilmunites may have been the Venetians of their time, establishing commerical communities in remote ports that allowed them to control trade. Their distinctive signatures, found at scattered points in second-millenium levels at Ur were cylinder seals bearing the stylistic echo of the Indus civilization -- including the image of the sacred bull. While there is no direct evidence that Ea-Nasir himself was Dilmunite, he was clearly a major player in the Dilmun trade. For one large expedition, Ea-nasir assembled 51 investors, who contributed money in the form of silver, as well as a variety of trade goods, including what were apparently the most desirable crafts of the city: Ur baskets. These were exchanged with the merchants in Dilmun for copper, precious stones and spices.

Ea-nasir's tablets indicate that considerable diplomacy was required to equitably partition the profits from the Dilmun trade. Unlike Damuzz-gamil's debt, many of the capital contributions to Dilmun expeditions were equity investments. The contributors expected to gain if the expedition was a success. While bond contracts limited the payoff to the lender to the explicit quantity of interest, there was no limit to the profits that could acrue to Ea-nasir's backers if they got lucky. They shared in the benefits according to the proportions of their investments. Another feature of Ur partnership contracts it also interesting -- loss was often limited to the amount of the contribution. In fact, in some expedition charters, this limited liability was an explicit condition of the investment.

The exciting thing to financial historians is these equity contracts represent concrete evidence of a limited partnership -- in which the limited partner assumed no liability beyond the value of the paid-in capital. It was a joint venture, with silent, but contributing partners. This is the same way that such risky things as oil-drilling ventures and real estate investments are financed to this day. Presumably, since Ea-nasir was the general partner who took the biggest risk, he made the largest profit. Unfortunately, we cannot calculate his return on investment -- the records did not survive.

Early Mutual Funds?

Many of the tablets deciphered by Van De Mieroop and other Assyriologists indicate that financial tools such as loans, mortgages and limited partnership ventures were collaborative ventures. The fact that several partners were involved in Ea-nasir's expeditions to the copper markets of Dilmun indicates that such enterprises were often beyond the scope of a single investor. Financial tools allowed very large projects. Just like the large-scale monumental palace architecture that the Babylonian kings build during this era, these financial projects encompassed the efforts of more than one source of capital. Interestingly, the palace was itself a frequent contributor to the expedition -- a curious foreshadowing of Elizabeth the First's contributions to the exploring expeditions to the New World that were themselves financed by limited partnerships and corporations. This governmental participation in the southern maritime ventures was nothing new. The temple of Nanna had been involved in financing the Dilmun trade for at least five centuries before Ea-nasir's time. The interesting thing about his partnership records is that ordinary citizens, some with only small contributions like a bracelet or two, could join in the profits of the venture. Enterprise was not only for the wealthy or the politically powerful. The financial technology of second millennium Ur made the power of time accessible to a broad number of citizens. Like modern-day investors in mutual funds, they did not have to be experts in the investment trade to enjoy financial growth. Neither did they have to commit their entire fortune to a risky venture. The effect of this business structure upon personal fortunes was profound. People were able to "insure" themselves against personal failure -- if their own venture collapsed, then the investment in Ea-nasir's might carry them through hard times. By repeatedly investing in what was one of Ur's key industries -- the Dilmun trade, they were able to participate in the general economic growth of their city -- that is unless complete disaster struck.

Government Regulations and the Great Crash

Dumuzi-gamil, Ea-Nasir and their fellow financiers became wealthy through banking and trading activities during the first half of Rim-Sin's reign, but their financial dealings were not without risks. In fact, in the year 1788 B.C. there was a financial catastrophe. The king Rim-Sin issued a royal edict declaring all loans null and void. Debtors rejoiced and creditors panicked! Dumuzi-gamil and the other lenders appear to have been wiped out. After Rim-Sin's edict, Marc Van De Mieroop finds little evidence of financial dealings -- with the exception of lawsuits. A number of parties sued in the wake of the edict to claim property pledged in security for loans. They were unsuccessful.

Loan forgiveness edicts were common both before and after Rim-Sin's reign, and they suggest that the government had an ambiguous relationship to the financial sector. The financiers indirectly provided silver to the temple and the palace, but they did so at a high social cost. The periodic voiding of debts suggests that the government regulation of interest rates was ineffectual. By allowing financial entrepreneurs, the palace opened a Pandora's box of possibilities, and it had difficulties controlling the result. Individuals gained control of things such as the copper trade, and they used money as a means of re-distributing goods. Some people did well, others didn't, and it did not depend entirely upon their allegiance to the king or the temple. The existence of legal limits on the charging of interest shows that king Rim-Sin intended to cap the money lenders profits, and perhaps exert some control over the burgeoning financial sector. He was only temporarily successful.

Although the debt edicts provided periodic relief to the citizens who had gotten themselves mired in debt, they had a negative effect on interest rates, and on the productive use of capital. The mere threat of an edict would be enough to limit long-term loans for investment. The risks of such a loan were too great, since the chances of it being forgiven by the king sometime over its tenure were high. Such uncertainty about the political future induced lenders to increase interest rates, in order to compensate for the increased risk of loss. Although meant to provide relief, the edicts effectively increased interest rates. Lenders played a kind of high stakes "Russian Roulette" with their capital. The short term returns were high, but the chances of complete loss were significant. To make matters worse, across the board debt forgiveness was the only kind of risk against which a lender could not protect himself by diversifying investments. Ea-nasir could insure against his Dilmun ship sinking by lending money to Dumuzi-gamil to invest in the bread-making business, for instance, but if all loans were wiped out, this diversification would not help. Perhaps it is no accident that there are virtually no documents relating to Dilmun trade for another thousand years Ur apparently ceased to be the flourishing maritime entrepôt it had been in its heyday. While scholars attribute broad political forces to decline of long distance maritime trade, we may look to financial reasons as well. At some point, the gains from long-range trade ventures could not offset the potential loss faced by investors. It such an economic environment, trade may grind to a halt.

We can only speculate on Ram-Sin's reason for eliminating all debt by royal decree. Perhaps he himself, or those close to him had gotten into debt -- or perhaps it was a political move to restore popularity with his subjects. The financial innovations that aided the throne and the temple in procuring silver and copper may suddenly have become a greater liability than an asset. Regardless of his reasons, the effects on the financial district of Ur were permanent. Marc Van De Mieroop conjectures that the "golden age" of finance in Ur drew to a close as the economic authority shifted to the capital city of Larsa. Perhaps Dumuzi-gamil and his comrades survived the great crash of 1788 B.C. and, ever vigilant for financial opportunities, moved with it.

Mesopotamian Twilight

The temple mound of Nippur lies north of the ancient sites of Ur and Uruk, and like these other Mesopotamian cities, it was occupied over the course of several millennia. In 1889, American archaeologists tunneling deep the Nippur mound recovered a remarkable archive: the records of the financial transactions of one banking family over three generations. Their contracts, accounts, deeds and lawsuits extended over the era of the final flourishing of Mesopotamian civilization. Using this rich documentary source, the Assyriologist Matthew Stolper has pieced together the story of this clan, called the Murashu family. What he discovered about their role in the financial and political role of late Mesopotamian society reads like a modern mystery story full of intrigue, scandal and a web of secret financial deals that ultimately toppled the government from power.

In Persian times (626-330 B.C.), Nippur was prosperous and productive vassal of the Persian kings who build grand royal residences at Susa and Persepolis. The home of the Murashu family was a large private residence overlooking Nippur's temple precinct. Like the financial district in Old Babylonian Ur, it stood across the central city canal from the religious district -- perhaps symbolizing the distinction between the sacred and the profane.

Little is known about the patriarch of the Murashu clan who was born about 500 B.C., but his three sons and three grandsons were landowners, agricultural managers and active lenders to other landowners of Nippur. Through careful business dealings they amassed a considerable fortune, and the family business remained under their active control until about 417 B.C. Some years were better than others, but one particular date stands out as an important one for the Murasu dynasty.

423 was a turbulent year for the royal court of Persia. Court intrigue began shortly after the mid-winter death of king Atraxerxes. The eldest son Xerxes II seized the throne, only to be murdered 45 days later by his cunning half-brother Sogdianus, who, with one treacherous act suddenly held in his grasp the entire Persian Empire, from the Zagros mountains to the Mediterranean. While Sogdianus may have had the throne, another son of Artraxerxes had the support and sponsorship of some of Persia's most powerful landowners. Ochus, son of the Babylonian concubine Costmartidus, and Satrap of lower Mesopotamia, was living in a spacious rented residence in the ancient city of Babylon when his half-brother ascended to the throne. One of Sogdianus' first imperial acts was to summon his powerful half-brother to the imperial city of Susa -- perhaps to put him under the sword and consolidate his power.

When the summons came in the form of an official cuneiform tablet delivered by royal messenger, Ochus had to work fast. His supporters urged him to fight, but they could not immediately provide the means for him to do so -- they were land-rich but cash poor, and the mercenaries and supplies to fight Sogdanus could only be obtained with silver. With Sogdianus pressing for a reply, they turned to the Murashu family for help. The Murashu's were landholders like themselves, but they were also lenders. Ochus' backers mortgaged their vast property holdings in the Euphrates valley, and used the proceeds to hire an army. Deserters from the disaffected Persian regulars soon joined them, and when Ochus rode into the city of Susa, it was not at Sogdinius' prisoner, but as his successor. The usurper was himself usurped. Ochus took the royal title of Darius the second.

The overthrow of Sogdanus may be the first war we know to have been fought on borrowed money, but it certainly was not the last. The Persian rulers following Darius II frequently resorted to tax levies in later years to finance wars. The key is that a financial intermediary was a crucial link -- some firm or agent that could turn a contractual promise into money in a hurry. In the fifth century B.C., The Murashu firm provided this essential line of credit and it probably turned the tide of victory. But fate is not always kind. The landholders who supported Ochus remained mired in debt, and many faced foreclosure by the Murashu.

Like the financiers of Old Babylonian Ur, the lenders of Persian Nippur were a necessary evil, but unlike the second millennium B.C., they do not seem to have been easily dismissed by royal edict. The extraordinary thing about the Murashu family story is that finance had become integral to the political process. Perhaps we have Darius II to thank for the fact that the burden of loan-financed armies has continued with us to today.

One important thing to stress about the Murashu is that they were not bankers in the true sense. They were lenders, but most of their income resulted from land management and agriculture. They profited mostly from real property, rather than financial capital. A banker, strictly speaking, generates profits by lending alone -- either by using his own capital, or by borrowing from others at lower rates. While financial historians would like to project banking practices into the ancient Near East, the best evidence for the emergence of true banking comes from ancient Athens --what some have termed "The Barbarian West."

Finance Moves West

The Persian period was a cosmopolitan era for the civilizations of the eastern Mediterranean and Asia, and many of the ideas and insights we attribute to the Greeks were actually borrowed from the ancient Near East. For instance, the result we know as the Pythagorean theorem was actually written down on a cuneiform tablet years before Pythagoras was born. Near Eastern learning filtered in a fragmented way into Greek culture, through the efforts of educated travellers such as Anaxamander who lived and studied in Egypt and Mesopotamia, or of Pythagoras himself, who visited and studied in Egypt.

The Greeks at first lagged in financial technology. Long after Ea-nasir of Ur grew wealthy haggling over the limited partnership shares in copper trading expeditions to Dilmun, the Greek warrior Achilles was sulking in his tent on the shores near Priam's Troy, grieving over Agamemnon's miserly apportionment of the spoils of war. While the Mycenean Greeks of the second millennium B.C. adored the splendors of gold and silver, their approach to obtaining it was direct -- seizure and plunder, rather than lending and investment. Greek silver in the second millennium was booty, not capital.

By the fifth century B.C. however, the Greeks had caught up to their eastern neighbors in terms of financial sophistication. Athens was home not only to petty money lenders like Dumuzi-gamil, and major financiers like the Murashu family, but also to institutions that can truly be called banks.

The Athenian financial system differed in important ways from the Mesopotamian model. While emergency loans were still prevalent,. Most of the financial activities and institutions seemed to foster maritime trade. Banks, for instance, accepted deposits of money for safekeeping while seafaring merchants were away on their travels. The historian Paul Millett notes that many of the bank customers were merchants from out of town -- banking fostered inter-city and perhaps international trade. Maritime loans were the most common. Lenders invested money in trading voyages and if the ship returned safely, they received a handsome return -- as much as 25%. If the ship went down they received nothing.

One of the best known bankers from the fourth century B.C. in Athens was Pasion-- a former slave who learned the banking trade from his masters Antisthenes and Archestratus, two of Athens earliest bankers. Pasion earned his freedom, and gained control of the bank around 400 A.D. In turn, he passed the business on to his son Apollodorus, and his former slave Phormion. We know something of Pasion's success because Apollodorus and Phormion became embroiled in a bitter legal battle over the estate. Their disputes are not half so interesting as the fact that Pasion, the former slave,had amassed a fortune of more than seventy talents through his lending activities. Around 370 B.C., Pasion's was the largest of as many as seven banks in Athens. The financial industry had provided Pasion the means to advance through the social hierarchy from slave to the top of Athenian society. At his death he was the richest citizen of Athens.

While we may look back at Pasion's career as a model of social advancement, it is important to realize that it was also evidence of finance as a destabilizing cultural phenomenon. Pasion, along with other bankers of his time were resented by fellow citizens. Athenian dialogues are full of diatribes against money lenders. Socrates himself describes moneylenders as parasites, who live by:

..inserting the sting of their money into any...who do not resist, and harvesting from them in interest as it were manifold offspring of the parent sum, foster the drone and pauper element of the parent state.

Athenians, like Babylonians, were constantly getting themselves in debt, and at least in Athens, the people that held this debt were typically former slaves, or people from lower social classes. This class distinction between the bankers and their clients may have been used to justify periodic debt forgiveness, just like the edict of Ram-Sin. Socrates cautions against this governmental policy as well however. Debt forgiveness he warned, is the tool of the demagogue.

What is interesting in these Greek accounts is the moralistic attitude towards lending. The money lender was regarded as a predator on other peoples' misfortunes; the capitalist lender who lives off the fruits of his money, rather than personal efforts. Nothing is mentioned in the surviving accounts -- or even in the philosophical writings of the period, about the extraordinary benefits of finance. "cap17.html">Athenian maritime insurance was indispensable to the expansion of her maritime trade, and the banks provided security for the shipowner's fortunes. Finance had become an important part of the Greek engine of commerce, but contemporary critics and philosophers (with the possible exception of Thales) were blind to its benefits. The technology of finance seemed to contradict the natural "neighborliness" of mankind, and it upset the social order. The ability to lend and borrow made rich men out of slaves. It destroyed the natural hierarchy of which Socrates and Plato were so fond -- a hierarchy with politicians, not bankers at the top of the social ladder.

The Ancient Financial World

The most important lesson learned from the emergence of finance in ancient Mesopotamia and Greece is that financial instruments from their very inception could be tools of both enterprise and control. At their best they expanded the realm of Mesopotamian contacts and trade to distant shores of Dilmun, and undoubtedly to Africa and India. They allowed Greek shipping to flourish throughout the Mediterranean. At its worst finance became an institutional tool used by the government to extract taxes and rents from its citizenry, and a way for a group of entrepreneurs to exploit the working class mired in debt. We saw that, at times, the techniques of finance could be turned on the government itself. The power of financial technology worried kings and irritated philosophers. Individuals like Dumuzi-gamil, Ea-nasir, Sogdanus, Pasion or even the roguesh philosopher Thales who had a plan or vision for the future could use financial contracts to profit from that plan. Borrowing multiplied the temporary financial power of the individual, and allowed him or her great feats of economic strength. This strength at times challenged the power of the state itself, the power of human compassion, and even the power of moral reason.

Finance is not like other technologies. It is not something that, once discovered, becomes a permanent cultural fixture. From the very beginning, governments saw it as both good and evil, and alternately supported and suppressed it. Finance may thrive on stability, but it is threatened by situations in flux. Throughout human history, financial instruments have frequently been re-invented as a way to solve certain human problems. In the centuries since the era of the Mesopotamian and Greek financiers, the financial world has become increasingly complex, but the fundamental principles and tools they discovered several millennia ago have remained the root of all investment contracts. In all likelihood, we must thank an ancient Uruk accountant for the discovery of the time value of money -- and we must also not forget to thank the generations of financiers that followed in his wake for the ingenious means to exploit it.

Sources

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Menninger, Karl. Number Words and Number Symbols: A Cultural History of Numbers. 1969. Cambridge, Mass.: MIT Press.

Millett, Paul. Lending and Borrowing in Ancient Athens. 1991. Cambradge: Cambridge University Press.

Neugebauer, O. The Exact Sciences in Antiquity. 1969. New York: Dover Press.

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