Monday, January 30, 2006

Book / Athenian Society & Economy: A Banking Perspective

One key problem facing many who seek to reinvent the banking system is that they are only dimly acquainted with banking. Indeed many of us who work for banks also suffer this problem, because banking has become so encrusted with concepts from different eras that it's difficult to tell what is fundamental. So whilst we are attempting reinvent ourselves it might behoove us to get back to basics, which is what you get from "Athenian Society & Economy: A Banking Perspective," by Edward E. Cohen, Princeton, 1992.

Drawing on empricial evidence, Cohen presents an intensive study of Athenian banking practices during the 80 year period between the defeat of Athens in the Peloponnesian Wars and the death of Alexander the Great in 323 BC. First he debunks the myth that there were no commercial loans, and then goes on to adduce complex banking transactions carried on with only a bag of silver coins, a book, and a table ("trapeza" in Greek, "banc(h)a" in Italian and most other languages). According to Demosthenes, a trapeza is "a business operation producing a risk-laden return from other people's money." Seeing these transactions arising in their simplest forms is very instructive, because it shows you what really matters about them.

The trapeza took deposits and made loans, some of the proceeds of which were redeposited (and reloaned), thus expanding the money supply without fiat currency. There was zero government regulation! There were no checks, as payors and payees all showed up in person. There were bills of exchange to minimize transport of coins. There were 6,000 drachmas in a talent, and (I think) 20 drachmas in a Cyzicene stater, another popular big coin. Much of the business was undisclosed, to help clients reduce taxes, escape judgements, etc. Notions of interest were different: 1% a month for landed loans, 18-100% (per voyage) for maritime loans. Etc...

I'm only part way thought it, but thought I would share this info, for all you history buffs out there.

Originally posted 23 Dec 1997

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