“Winner of the 1993 Herbert Feis Award, American Historical Association”

“One of Choice’s Outstanding Academic Titles for 1993”

“Cohen embodies a role of traditional relevance in research on classical antiquity, but one that is increasingly a rarity: he is a ‘man of affairs’ who brings his practical, professional experience to bear on his historical research…. [He] has now given us a very fine book on ancient banking, a work that has been well worth the wait.”—Thomas J. Figueira, Bryn Mawr Classical Review

“[Cohen] possesses an impressive knowledge of the relevant classical and modern literature as well as a close practical acquaintance with contemporary banking, an unusual but fortuitous set of qualifications. . . . Highly readable and contains a wealth of interesting details on social conditions generally.”—John R. Love, American Historical Review

“A thoroughly documented and imaginatively argued book that will mark a new stage in the study of Athenian banking.”—David C. Mirhady, Classical World

In this groundbreaking analysis of the world’s first private banks, Edward Cohen convincingly demonstrates the existence and functioning of a market economy in ancient Athens while revising our understanding of the society itself. Challenging the “primitivistic” view, in which bankers are merely pawnbrokers and moneychangers, Cohen reveals that fourthcentury Athenian bankers pursued sophisticated transactions. Special emphasis is placed on the reflection of Athenian cognitive patterns in financial practices. Cohen shows how transactions were affected by the complementary opposites embedded in the very structure of Athenian language and thought. In turn, his analysis offers great insight into daily Athenian reality and cultural organization.

Edward E. Cohen is Chairman of the Executive Committee at JeffBanks, Inc., a bank-holding company based in Philadelphia. He holds a Ph.D. in classics from Princeton University and is author of Ancient Athenian Maritime Courts (Princeton).

Athenian Economy and Society Reprint Edition

A BANKING PERSPECTIVEBy Edward E. Cohen

PRINCETON UNIVERSITY PRESS

Copyright © 1992 Princeton University Press
All right reserved.
ISBN: 978-0-691-01592-7

Contents

Preface…………………………………………………………………………………..ixAcknowledgments……………………………………………………………………………xvAbbreviations……………………………………………………………………………..xviiChapter 1 Market Economy—Banking Reality……………………………………………….3Chapter 2 A Methodological Alternative to the Misuse of Statistics……………………………..26Chapter 3 Financial Context and Concepts…………………………………………………….41Chapter 4 Wives, Slaves, and the Athenian Banker……………………………………………..61Chapter 5 Banking Operations: “Risk-Laden Revenues from ‘Other People’s Money’ “…………………111Chapter 6 The Banks’ Role in the Economy…………………………………………………….190Works Cited……………………………………………………………………………….225Index of Passages Cited…………………………………………………………………….255General Index……………………………………………………………………………..269

Chapter One

MARKET ECONOMY—BANKING REALITY

The very concept of “the economy” in the modern sense is untranslatable in Greek, because it simply did not exist —M. M. Austin and P. Vidal-Naquet

The banker was little more than a money-changer and pawnbroker. —M. 1. Finley

This book deals with the significant role of the Athenian banks in the economy of fourth-century Athens, an impossible subject for those who deny the existence at Athens of either an “economy” or “banks.” This denial presently is as fashionable as it is false, arising from the prevailing tendency to attribute a primitiveness to ancient economic activity, and a lack of sophistication to ancient businesses. In fact, the fourth century at Athens witnessed two startling, and perhaps interrelated, innovations: the transition to an economy governed (in Aristotle’s words) by “monetary acquisition” rather than by traditional social motivations, and the development of the world’s first private businesses (“banks,” trapezai), which accepted from various sources funds (“deposits”) for which they had an absolute obligation of repayment while being free to profit from, or even lose, these monies in their own loan and investment activities.

The Athenian Economy

An economy is “a system of producing, distributing and consuming wealth.” But anthropologists have developed models of primitive groups where production, distribution, and consumption are accomplished solely through familial or political relationships. In such societies, economic activity cannot occur without direct social significance; the economy thus is said to be “embedded” in the society itself. Since no “system” for creating or dealing with wealth exists as an independent sphere, motivationally and financially distinct from other institutions, such a society can be said to lack an economy—although, more precisely, it lacks not a system of handling wealth (an “economy”), but rather the disengaged commercial activity that would permit the intellectualized concept of an economy.

Fourth-century Athens was very different. The Athenians functioned through a market process in which unrelated individuals, often in the city only transiently, sometimes even operating from abroad, sought monetary profit through commercial exchange (allage). Not only were these transactions “disembedded from” society: they were seen by theoreticians in their writings and litigants in their court cases as threatening traditional social and familial methods of handling production and consumption.

In the Politics (1256a-1257b), Aristotle argues against what modern economists would call the “scarcity postulate” (a purported inability to meet overall consumer demand because of inherent absolute limitations on total potential wealth). Characteristically analyzing commercial issues in an ethical context, Aristotle poses the issue not in terms of the adequacy or expandibility of the “supply side,” but as a problem of misguided desire (“demand”): true wealth, although not infinite, is sufficient to meet man’s needs, properly conceived. In deprecating the tendency of individuals to misconceive of wealth as monetary assets, he notes the relatively recent development of a new type of economic activity that has adversely affected traditional values and methods. This “monied mode of acquisition” (chrematistike ktetikre [techne]) has arisen, he says, from the new dominance of distribution by experienced businessmen motivated by profit considerations (“making money from one another”). lo The individual pursuit of profit reflects society’s new functioning through the exchange of goods and services for money, not bound to societal relations, replacing the prior system of household production/consumption, which had been augmented sporadically, where necessary, by barter within defined social relationships. Aristotle actually appears to be describing a system of production, distribution, and consumption actuated by a supply-demand pricing mechanism, the essence of a “market economy.” This commercial world of the market, in any event, is far removed from traditional forms of organization through the “household” (oikos), where production and consumption was governed not by other people’s money but by societal and familial relationships and motivations. Now transactions are ephemeral and prices determined by economic considerations. Although Aristotle longs for the former system, its replacement by impersonal coined money is what he actually portrays—and rues.

This change was fundamental. In the early fifth century, the basic building-block of Athenian society, the oikos, had been perceived as self-sufficient, producing for its own private consumption. But by the fourth century, agricultural products were increasingly being raised for cash sale; consumer items were now often produced by commercial workshops; aristocratic marriages for dynastic continuity had disappeared. Financial stability had become dependent on the credibility (pistis) in the marketplace of former slaves who were able to marshal unprecedentedly large monetary resources. In the sixth century, nonagricultural income and property was, for the upper classes, “politically negligible” (Davies 1981: 38); by the fourth century, a variety of economic bases supported the propertied citizens and “tended to obliterate differences of origin” (Mosd 1973: 49). Within his own lifetime and writings, the conservative commentator Xenophon reflects this fundamental change from embedded to market economy. Where in the earlier Oikonomikos he had lauded the traditional “household” as a potential solution to all of Hellas’ contemporary problems, by the 350s in the later Poroi he actively proposes financial incentives to promote trade, to encourage immigration of economically useful aliens, and to increase the money supply.

This new system naturally required new functionaries. Since hundreds of separate communities minted their own coins—and a number of dominant currencies circulated far from their own territoriesly—a prominent place in the market was taken by the money changer, who conducted business on the trapeza (literally, the “table” in the marketplace on which currency was exchanged). Since the new price-denominated, profit-oriented market functioned through these coins, monetary exchange through the trapeza itself involved numerous discrete fleeting transactions, themselves further embodiment of the new economic system. Beyond the exchange of currency, however, these money changers (called trapezitai) provided loans, accepted deposits, and served as intermediaries in facilitating commerce, becoming what we would term “bankers” (see below). Since the provision of these functions originated not in traditional familial, social, or political relationships, but in the isolated transactions of a business environment, the trapeza further detached the new economy from the social fabric of traditional society. Because of its commercial genesis, autonomous of traditional society, operation at Athens of a trapezitic business (a “bank”) was open even to those who had no prior stake in the pre-existing fabric of relationships—to nonaristocrats, non-Athenians, even slaves. These activities in turn created new personal and familial relations, further transforming both society and the economy.

And not only, or even primarily, the “visible” economy. Bankers actually functioned largely in a world of hidden transactions, of confidential dealings that existed in counterpoint to the “official” world of commerce. Like many basic Athenian concepts and institutions, the economy itself was dichotomously divided into “disclosed” (phanera) and “invisible” (aphanes) markets, complementary opposites that shaped perception and activity. In the disclosed market, real-estate loans were attested by boundary-stones placed openly on property, and estates were transferred with full confirmation of already-known holdings, but with virtually no mention of bank deposits, which belonged largely to the “invisible” market. In the aphanes market, investments and ownership were cloaked in secrecy, as protection from creditors, tax collectors, and other potential adversaries. Yet the existence of the secret sphere was much bruited, rumors of nonexistent wealth were rampant, and allegations of tax avoidance or creditor evasion were frequent. For example, Demosthenes’ father, who is known to have dealt extensively with Athenian banks, concealed much of his property throughout his lifetime, apparently completely avoiding taxes, and possibly escaping liability for his father-in-law’s debts. The wealthy Stephanos was accused of acting in concert with his bankers “to conceal his wealth in order that he might obtain secret returns through the bank” (dia tes trapezes, Dem. 45.64-66). Even important foreigners came to Athens to use the trapeza to conceal funds from overseas rulers: an entire surviving court speech (Isokrates 17) deals with the efforts of Sopaios, a power at the Pontic court, to hide vast sums through Pasion’s bank. (This “hidden economy,” and the banks’ dominant role therein, are treated in detail in Chapter 6.)

The Trapeza as True Bank

But can we legitimately consider the Athenian trapeza a true “bank”? For prevailing scholarly opinion, the answer is clear, and negative: only through modernizing and erroneous anachronism can these coin-changers or pawnbrokers be conceived of as “bankers.” Yet if “bank” is defined in its generally accepted essence—a business having an obligation to repay funds (“deposits”) received from a multitude of sources, but with the interim right to make loans and investments for its own account—the trapeza is undeniably a “bank.” The two terms even share a common origin: Greek trapeza means “table,” derived by metonymy from the surface on which money was handled in the marketplace; “bank” likewise means table, derived from the original Genoese “banc(h)a,” denoting the money changer’s work surface. As a term for a financial institution, “bank” is today used in virtually every modern language—except modern Greek, which still employs trapeza.

Between the Athenian trapeza and the modern bank, there are of course striking differences—in technology, legal position, and scope of operations. The trapezai were unincorporated businesses operated by individual proprietors or partners, almost entirely free of governmental regulation; modern banks are almost always corporate institutions, invariably governed by official regulation. In contrast to the freedom enjoyed by the trapezitai, a bewildering variety of highly nuanced governmental differentiations govern the modern bank. Yet both Demosthenes and modern banking codes fix on the same basic factors in finding the necessary essence of a bank in its generation of revenue through loans funded by outside deposits, “other people’s money,” which the bank must return. In the language of the United States Code, a “bank” must “(1) accept deposits” and “(2) make commercial loans.” For the French, a “banker” has been defined as one who accepts deposits and grants loans. Ancient Roman banking likewise has been defined through the twin functions of deposit and credit, and on that basis has been isolated from other financial businesses of its period. And for Demosthenes, the trapeza is “a business operation producing risk-laden revenues from other people’s money.”

Most of this book is devoted to the way in which the trapeza accepted deposits and provided loans (thus functioning by modern definition as a “bank”), the economic significance of these activities, and their social, commercial, and legal context and implications. But the Athenian bankers performed business functions beyond the receipt of monies and the provision of credit. The trapeza‘s involvement in currency transactions brought it a major role in the treatment of what modern economists would call “commodity money”; its handling of payment orders and provision of written payment guaranties, eliminating the need for delivery of gold or silver coin, made it, in modem terms, a creator of “bank money.” Its acceptance of legal documents for safekeeping or attestation may resemble similar activities of some modem banks. But its acceptance of valuable items, such as silver bowls, is not even superficially similar to the operation of a modern “pawnshop”: cash was not advanced against such items; the banker had no legal right under any circumstance to retain the goods.

Of these ancillary pursuits, none is more critical to an understanding of the Athenian economy than the bankers’ involvement in the handling and creation of “money.” Although modern economists generally and easily accept the differentiation of money as “commodity money” (one or more of the precious metals such as gold and silver) or “bank money” (unbacked fiat money and credit in all its forms), the actual place of “money” in the modern economy and the mechanics of its utilization remain a mystery. A leading “neoclassical” economic theorist, in a recent study of money and modern inflation, has noted ruefully: “The most serious challenge that the existence of money poses to the theorist is this: the best developed model of the economy cannot find room for it” (Hahn 1982: 1). Keynesian and monetarist analyses share this perplexity: since both are based on a neoclassical synthesis, both are disturbed by the continuing and elusive search for a sound theoretical explanation of basic monetary aspects of the contemporary economy.

In contrast to the diffidence of modern economists in dealing with issues relating to currency and credit, ancient historians following Finley have dogmatically asserted a simplistic, and supposedly dispositive, “truth”: the money supply in Athens (and indeed in the entire ancient world at all times) was essentially inelastic because of its reliance on “coin” and the lack of “machinery for credit beyond the lending of coins.” For Finley, the absence “of official banknotes or similar fiduciary money [was the] basic condition of ancient business practice and finance,” and this mandated the essential “primitive” nature of all ancient economies. Any deviation from this central tenet should be “rightly and briefly dismissed.” Reiterated forcefully over the years, this catechism has come to exert a wide influence.

The dogma, however, is demonstrably untrue, for two reasons. The supposed inexorable link between primitive conditions and the absence of official paper money is theoretically insupportable. And in any event, the activities of the Athenian bankers provided the mechanism for the creation of “money” beyond the available supply of precious metals.

The Lack of Paper Currency

Finley is correct in noting the complete absence at Athens of “unbacked fiat money,” paper currency whose acceptance is mandated solely by governmental designation as “legal tender.” This did not, however, mandate the “primitiveness” of the Athenian economy: well into the twentieth century, paper currency functioning as unbacked fiat money was absent from both the United Kingdom and the United States. Finley erred in assuming that the absence of paper fiat notes necessitates a society’s dependence on “commodity money” (and its consequent inability to increase the monetary supply because of relative inelasticity in the stock of precious metals). “Bank money,” the principal source of increase in most sophisticated societies’ monetary supply, has no necessary relationship to paper legal tender or other governmental fiat money. In fact, even in the absence of governmental fiat currency or state paper money, the Athenian private banks developed “paper” transfer and payment mechanisms that provided the means for expansion of the monetary supply. Elementary modern economic theory easily accommodates the feasibility of these Athenian banking mechanisms.

Unlike commodity money, whose value is equivalent to the worth of the material of which it is composed, “bank money” possesses no inherent worth. It may be composed of “representative money” (“representative” because its worth is not determined by the value of the material of which it is composed) or of “token money” (such as bank deposits, which can function as part of the money supply so long as there is confidence in their easy conversion into an acceptable means of actual payment). Although representative money may be composed of coin as well as paper (and need not have a value less than its nominal Athens never utilized this form of money. But the deposit and credit mechanisms of its trapezai constituted a ready source of “token money” and thus an easy means of expanding its supply of money.

(Continues…)

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