Author: Kent Polkinghorne
Source material: A History of Interest Rates, Fourth Edition by Sidney Homer and Richard Sylla (1963, 2005). This book covers interest rate history dating back to ancient times and contains very interesting charts, tables, and analysis which I will attempt to modernize and summarize. This data can expand our understanding of different eras of monetary and financial information to make us better investors.
The history of Roman and Byzantine interest rates will be separated into three parts in order to align with major events in Rome’s history. The first part covered the Roman Republic, this second part covered the Roman Empire, and the third part will cover the Byzantine Empire.
Background History of the Byzantine Empire
Since the Byzantine Empire is less familiar to most people than the Roman Empire itself, we will provide a little background history for context.
The Byzantine Empire is also referred to as The Eastern Roman Empire due to its continuation after the fall of the western part of the empire. The Byzantine Empire lasted for more than a millennium until it fell to the Ottomans in 1453. The empire itself was the most powerful political and economic unit in all of Europe for the majority of its existence. Its capital of Constantinople constitutes what is now modern-day Istanbul. The term “Byzantine Empire” is essentially a post-mortem appellation. The inhabitants within the empire itself referred to themselves as Romans despite the internal culture being more Greek in orientation. Also more in line with Greek tradition was their principal Eastern Orthodox religion.
Constantine (324–337) made Constantinople the capital city and legalized Christianity. Decades later, Christianity would become the state religion under Theodosius (379-395) and traditional Roman paganism would essentially be banned. The empire reached its largest size under Justinian (527–565) after conquering the majority of the western Mediterranean coast (formerly part of the western empire), North Africa, Italy, and Rome itself. These territories would be under Byzantine control for another two centuries until the Arab conquests.
During the Rashidun Caliphate (632–661), Egypt and Syria were conquered and fell under Muslim rule. The rest of North Africa, and even the Iberian Peninsula, would soon follow and fell to the successor Umayyad Caliphs between 661 and 750. Much of Asia Minor (now modern Turkey) was lost in 1071 to the Seljuk Turks and was never regained but, despite this, Constantinople still managed to regain its place as the largest and wealthiest city in Europe by the 12th century. The capital city of Constantinople was sacked in 1204 during the 4th Crusade and became culturally divided into competing Byzantine Greek and Latin realms. From this point forward the Ottomans would continue to gain territory until the Byzantine Empire itself was eventually conquered by them in 1453.
Background on Byzantine Money and Credit
Interest rate policy in the Byzantine Empire vacillated between the Romanesque policy of regulated interest rates, due to its Roman ancestry, and the Christian policy of hostility toward all usury, due to its religion. This lack of consistency created a sort of tension within the empire itself. Justinian’s Code supported the Roman tradition but with a caveat. He declared that “the ancient rate of interest is exorbitant” and reduced the traditional Roman legal maxima of 12-12 ½% to a range between 4-8% depending on the status of the creditor. For purposes of our history here, the status of a creditor fell into three categories: bankers, regular citizens (others), and senators. Bankers could charge the highest rate of interest at 8%, regular citizens 6%, and senators (referred to as illustrious creditors) just 4%. As an important side note, Justinian was known to favor bankers who were important to the state which likely explains their ability to charge higher rates of interest than the other creditors within the empire.
Maritime loans in Byzantium, which were previously uncapped in the Greek and Roman traditions, were finally capped at 12% per voyage. Loans in commodities payable in kind (meaning loans denominated in grain or perhaps cattle) had a 12% maximum. In Thrace, commodity loans had a maximum of 12% interest, however, money loans were only permitted to charge 4 ½%. Stricter yet were loans to churches and foundations which could not exceed 3%. Overall, accumulated interest could not exceed the amount of the principal. An undated annuity from sometime in the 6th century provides a historical example of a Byzantine loan and paid an interest rate of 9.72%.
Rates were raised from 8 to 11 1/8% sometime during the 9th century and maximum interest on bottomry loans was raised to 16 2/3% sometime in the 9th or 10th century as well. During the 14th century, a bottomry loan was recorded at same 16 2/3% interest rate that had been set centuries earlier.
Interest was prohibited at different points in time but this did not last long and eventually the laws of Justinian would be reinstated allowing the charging of interest once more. Interest rates also experienced slight fluctuations due to changes in the denominations of currency within the empire at various points.
Interest Rates in the Byzantine Empire
Per the text, interest rate history for the Byzantine Empire ends in the 10th century. The chart below illustrates the rates that bankers, others, and senators could legally charge between the 6th and 10th centuries. The reader can observe that rates for both bankers and others rose in the 9th and 10th centuries, however, no data was provided on account of the senators. Despite this absence of data, we can probably safely assume the rates senators were allowed to charge also increased during this period.
The fall of the Byzantine Empire to the Ottoman Turks in 1453 also signifies the end of Part One in the text covering ancient times. In Part Two we will shift our focus to Medieval and Renaissance Europe.