"
"
In ancient Greece temples acted as banks, loaning money
to individuals and monarchs. For religious reasons temples
were considered inviolable and became a relatively safe
refuge for money. In addition, they had their own militias to
defend them and their wealth inspired confidence in deposi-
tors. From a financial standpoint the following were among
the most important Greek temples: Apollo in Delphi, Artemis
in Ephesus, and Hera in Samos.
TRAPEZITEI OR GREEK BANKERS
Fortunately certain documentary sources on banking in
Greece are available to us. The first and perhaps most impor-
tant is Trapezitica,4written by Isocrates around the year 393
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 41
4Raymond de Roover points out that the current term banker originated
in Florence, where bankers were called either banchieri or tavolieri,
because they worked sitting behind a bench (banco) or table (tavola). The
B.C.5It is a forensic speech in which Isocrates defends the
interests of the son of a favorite of Satyrus, king of Bosphorus.
The son accuses Passio, an Athenian banker, of misappropri-
ating a deposit of money entrusted to him. Passio was an ex-
slave of other bankers (Antisthenes and Archetratos), whose
trust he had obtained and whose success he even surpassed,
for which he was awarded Athenian citizenship. Isocrates’s
forensic speech describes an attempt by Passio to appropriate
42
Money, Bank Credit, and Economic Cycles
same logic was behind terminology used in ancient Greece as well,
where bankers were called trapezitei because they worked at a trapeza, or
table. This is why Isocrates’s speech “On a Matter of Banking” is tradi-
tionally known as Trapezitica. See Raymond de Roover, The Rise and
Decline of the Medici Bank, 1397–1494 (Cambridge, Mass.: Harvard Uni-
versity Press, 1963), p. 15. The great Diego de Covarrubias y Leyva, for
his part, indicates that
the remuneration paid to money changers for the exchange of
money was called collybus by the Greeks, and therefore
money changers were called collybists. They were also called
nummularii and argentarii, as well as trapezitei, mensularii
or bankers, because apart from changing money, they carried
out a much more profitable business activity: they received
money for safekeeping and loaned at interest their own
money and that of others.
See chapter 7 of Veterum collatio numismatum, published in Omnium ope-
rum in Salamanca in 1577.
5Isocrates was one of the ancient macróbioi, and he lived to be almost 100
years old (436–338 B.C.). His life began during the last years of peaceful
Athenian dominance over Persia and lasted through the Peloponnesian
War, Spartan and Theban supremacy and the Macedonian expansion,
which ended in the battle of Chaeronea (Chaironeia), in which Philip II
defeated the Delian League the same year Isocrates died. Isocrates’s
father, Theodorus, was a middle-class citizen whose flute factory had
earned him considerable wealth, permitting him to give his children an
excellent education. Isocrates’s direct teachers appear to have included
Theramines, Gorgias, and especally Socrates (there is a passage in Phae-
drus where Plato, using Socrates as a mouthpiece, praises the young
Isocrates, apparently ironically, predicting his great future). Isocrates
was a logographer; that is, he wrote legal speeches for others (people
suing or defending their rights) and later he opened a school of rhetoric
in Athens. For information on Isocrates, see Juan Manuel Guzmán Her-
mida’s “Introducción General” to Discursos (Madrid: Biblioteca Clásica
Gredos, 1979), vol. 1, pp. 7–43.
deposits entrusted to his bank by taking advantage of his
depositor’s difficulties, for which he did not hesitate to
deceive, forge, and steal contracts, bribe, etc. In any case, this
speech is so important to our topic that it is worth our effort to
consider some of its passages in detail.
Isocrates begins his arguments by pointing out how haz-
ardous it is to sue a banker, because
deals with bankers are made without witnesses and the
injured parties must put themselves in jeopardy before such
people, who have many friends, handle large amounts of money
and appear trustworthy due to their profession.6
It is interesting to consider the use bankers have always
made of all of their social influence and power (which is enor-
mous, given the number and status of figures receiving loans
from them or owing them favors) to defend their privileges
and continue their fraudulent activity.7
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 43
6Isocrates, “Sobre un asunto bancario,” in Discursos I, p. 112.
7More than 2200 years after Isocrates, the Pennsylvanian senator Condy
Raguet also recognized the great power of bankers and their use of it to
intimidate their enemies and to in any way possible discourage deposi-
tors from withdrawing their deposits and hinder these withdrawals,
with the vain hope, among others, of avoiding crises. Condy Raguet
concluded that the pressure was almost unbearable and that
an independent man, who was neither a stockholder or a
debtor who would have ventured to compel the banks to do
justice, would have been persecuted as an enemy of society.
See the letter from Raguet to Ricardo dated April 18, 1821, published in
David Ricardo, Minor Papers on the Currency Question 1805–1823, Jacob
Hollander, ed. (Baltimore: The Johns Hopkins University Press, 1932),
pp. 199–201. This same idea had already been expressed almost three
centuries earlier by Saravia de la Calle, who, indicating obstacles cre-
ated by bankers to keep depositors from withdrawing their money,
obstacles few dared to protest, mentioned the
other thousands of humiliations you inflict upon those who
go to withdraw their money from you; you detain them and
make them waste money waiting and threaten to pay them in
weak currency. In this way you coerce them to give you all
you want. You have found this way to steal, because when
Isocrates explains that his client, who was planning a trip,
deposited a very large amount of money in Passio’s bank.
After a series of adventures, when Isocrates’s client went to
withdraw his money, the banker claimed he “was without
funds at the moment and could not return it.” However, the
banker, instead of admitting his situation, publicly denied the
existence of any deposit or debt in favor of Isocrates’s client.
When the client, greatly surprised by the banker’s behavior,
again claimed payment from Passio, he said the banker,
after covering his head, cried and said he had been forced by
economic difficulties to deny my deposit but would soon try
to return the money to me; he asked me to take pity on him
and to keep his poor situation a secret so it would not be dis-
covered he had committed fraud.8
It is therefore clear that in Greek banking, as Isocrates indi-
cates in his speech, bankers who received money for safe-
keeping and custody were obliged to safeguard it by keeping
it available to their clients. For this reason, it was considered
fraud to employ that money for their own uses. Furthermore,
the attempt to keep this type of fraud a secret so people would
conserve their trust in bankers and the latter could continue
44
Money, Bank Credit, and Economic Cycles
they go to withdraw their money they do not dare ask for cash,
but leave the money with you in order to collect much larger
and more infernal profits. (Instrucción de mercaderes, p. 183)
Richard Cantillon mentions a list of tricks used by bankers to delay
the payment of deposits in his Essai sur la nature du commerce en général
(London: Fletcher Gyles, 1775), pp. 425–26. Finally, Marx also mentions
the fear and reverence bankers inspire in everyone. He cites the follow-
ing ironic words of G.M. Bell:
The knit brow of the banker has more influence over him than
the moral preaching of his friends; does he not tremble to be
suspected of being guilty of fraud or of the least false statement,
for fear of causing suspicion, in consequence of which his bank-
ing accommodation might be restricted or cancelled? The
advice of the banker is more important to him than that of the
clergyman. (Karl Marx, Capital, vol. 3: The Process of Capitalist
Production as a Whole, Friedrich Engels, ed., Ernest Untermann,
trans. [Chicago: Charles H. Kerr and Company, 1909], p. 641)
8Isocrates, “Sobre un asunto bancario,” pp. 114 and 117.
their fraudulent activity is very significant. Also, we may
deduce from Isocrates’s speech that for Passio this was not an
isolated case of fraud, an attempt to appropriate the money of
a client under favorable circumstances, but that he had diffi-
culty returning the money because he had not maintained a
100-percent reserve ratio and had used the deposited money in
private business deals, and he was left with no other “escape”
than to publicly deny the initial existence of the deposit.
Isocrates continues his speech with more words from his
client, who states:
Since I thought he regretted the incident, I compromised
and told him to find a way to return my money while sav-
ing face himself. Three days later we met and both promised
to keep what had happened a secret; (he broke his promise,
as you will find later in my speech). He agreed to sail with
me to Pontus and to return the gold to me there, in order to
cancel the contract as far from this city as possible; that way,
no one from here would find out the details of the cancella-
tion, and upon sailing back, he could say whatever he chose.
Nevertheless, Passio denies this agreement, causes the dis-
appearance of the slaves who had been witnesses to it and
forges and steals the documents necessary to try to demon-
strate that the client had a debt with him instead of a deposit.
Given the secrecy in which bankers performed most of their
activities, and the secret nature of most deposits,9witnesses
were not used, and Isocrates was forced to present indirect
witnesses who knew the depositor had taken a large amount
of money and had used Passio’s bank. In addition, the wit-
nesses knew that at the time the deposit was made the depos-
itor had changed more than one thousand staters into gold.
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 45
9The Greeks distinguished between monetary demand deposits (phan-
erà ousía) and invisible deposits (aphanés ousía). The distinction, rather
than denote whether or not the money was continually available to the
depositor (in both cases it should have been), appears to have referred to
whether or not the deposit and its amount were publicly known. If they
were, the money could be seized or confiscated, mostly for tax reasons.
Furthermore, Isocrates claims that the point most likely to
convince the judges of the deposit’s existence and of the fact
that Passio tried to appropriate it was that Passio always
refused to
turn over the slave who knew of the deposit, for interroga-
tion under torture. What stronger evidence exists in con-
tracts with bankers? We do not use witnesses with them.10
Though we have no documentary evidence of the trial’s
verdict, it is certain that Passio was either convicted or arrived
at a compromise with his accuser. In any case, it appears that
afterward he behaved properly and again earned the trust of
the city. His house was inherited by an old slave of his,
Phormio, who successfully took over his business.
More interesting information on the activity of bankers in
Greece comes from a forensic speech written by Demosthenes
in favor of Phormio. Demosthenes indicates that, at the time of
Passio’s death, Passio had given fifty talents in loans still out-
standing, and of that amount, “eleven talents came from bank
deposits.” Though it is unclear whether these were time or
demand deposits, Demosthenes adds that the banker’s profits
were “insecure and came from the money of others.” Demos-
thenes concludes that “among men who work with money, it
is admirable for a person known as a hard worker to also be
honest,” because “credit belongs to everyone and is the most
important business capital.” In short, banking was based on
depositors’ trust, bankers’ honesty, on the fact that bankers
should always keep available to depositors money placed in
demand deposits, and on the fact that money loaned to
bankers for profit should be used as prudently and sensibly as
possible. In any case, there are many indications that Greek
bankers did not always follow these guidelines, and that they
used for themselves money on demand deposit, as described
by Isocrates in Trapezitica and as Demosthenes reports of
other bankers (who went bankrupt as the result of this type of
activity) in his speech in favor of Phormio. This is true of
46
Money, Bank Credit, and Economic Cycles
10Isocrates, “Sobre un asunto bancario,” p. 116.
Aristolochus, who owned a field “he bought while owing
money to many people,” as well as of Sosynomus, Timode-
mus, and others who went bankrupt, and “when it was nec-
essary to pay those to whom they owed money, they all sus-
pended payments and surrendered their assets to creditors.”11
Demosthenes wrote other speeches providing important
information on banking in Greece. For example, in “Against
Olympiodorus, for Damages,”12he expressly states that a cer-
tain Como
placed some money on demand deposit in the bank of Her-
aclides, and the money was spent on the burial and other rit-
ual ceremonies and on the building of the funerary monu-
ment.
In this case, the deceased made a demand deposit which
was withdrawn by his heirs as soon as he died, to cover the
costs of burial. Still more information on banking practices is
offered in the speech “Against Timothy, for a Debt,” in which
Demosthenes affirms that
bankers have the custom of making entries for the amounts
they hand over, for the purpose of these funds, and for
deposits people make, so that the amounts given out and
those deposited are recorded for use when balancing the
books.13
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 47
11Demosthenes, Discursos privados I, Biblioteca Clásica Gredos (Madrid:
Editorial Gredos, 1983), pp. 157–80. The passages from the text are
found on pp. 162, 164 and 176, respectively, of the above edition. For
information on the failure of Greek banks, see Edward E. Cohen, Athen-
ian Economy and Society: A Banking Perspective (Princeton, N.J.: Princeton
University Press, 1992), pp. 215–24. Nevertheless, Cohen does not seem
to understand the way in which bank credit expansions caused the eco-
nomic crises affecting the solvency of banks.
12Demosthenes, Discursos privados II, Biblioteca Clásica Gredos (Madrid:
Editorial Gredos, 1983), pp. 79–98. The passage mentioned in the main
text is found on p. 86.
13Ibid., pp. 99–120. The passage cited is found on p. 102.
This speech, delivered in 362 B.C., is the first to document
that bankers made book entries of their clients’ deposits and
withdrawals of money.14 Demosthenes also explains how
checking accounts worked. In this type of account, banks
made payments to third parties, following depositors’ instruc-
tions.15As legal evidence in this specific case, Demosthenes
adduced the bank books, demanded copies be made, and
after showing them to Phrasierides, I allowed him to inspect
the books and make note of the amount owed by this indi-
vidual.16
Finally, Demosthenes finishes his speech by expressing his
concern at how common bank failures were and the people’s
great indignation against bankers who went bankrupt.
Demosthenes mistakenly attributes bank failures to men who
in difficult situations request loans and believe that credit
should be granted them based on their reputation; however,
once they recover economically, they do not repay the
money, but instead try to defraud.17
We must interpret Demosthenes’s comment within the
context of the legal speech in which he presents his argu-
ments. The purpose of the speech was precisely to sue Timo-
thy for not returning a bank loan. It would be asking too much
to expect Demosthenes to have mentioned that most bank fail-
ures occurred because bankers violated their obligation to
safeguard demand deposits, and they used the money for
themselves and put it into private business deals up to the
point when, for some reason, the public lost trust in them and
tried to withdraw their deposits, finding with great indigna-
tion that the money was not available.
48
Money, Bank Credit, and Economic Cycles
14G.J. Costouros, “Development of Banking and Related Book-Keeping
Techniques in Ancient Greece,” International Journal of Accounting 7, no.
2 (1973): 75–81.
15Demosthenes, Discursos privados II, p. 119.
16Ibid., p. 112.
17Ibid., p. 120.
On various occasions research has suggested Greek
bankers usually knew they should maintain a 100-percent
reserve ratio on demand deposits. This would explain the lack
of evidence of interest payments on these deposits, as well as
the proven fact that in Athens banks were usually not consid-
ered sources of credit.18Clients made deposits for reasons of
safety and expected bankers to provide custody and safekeep-
ing, along with the additional benefits of easily-documented
cashier services and payments to third parties. Nevertheless,
the fact that these were the basic principles of legitimate bank-
ing did not prevent a large group of bankers from yielding to
the temptation to (quite profitably) appropriate deposits, a
fraudulent activity which was relatively safe as long as people
retained their trust in bankers, but in the long run it was des-
tined to end in bankruptcy. Moreover, as we will illustrate
with various historical examples, networks of fraudulent
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 49
18Stephen C. Todd, in reference to Athenian banking, affirms that
banks were not seen as obvious sources of credit . . . it is strik-
ing that out of hundreds of attested loans in the sources only
eleven are borrowed from bankers; and there is indeed no evi-
dence that a depositor could normally expect to receive inter-
est from his bank. (S.C. Todd, The Shape of Athenian Law
(Oxford: Clarendon Press, 1993), p. 251)
Bogaert, for his part, confirms that bankers paid no interest on demand
deposits and even charged a commission for their custody and safe-
keeping:
Les dépôts de paiement pouvaient donc avoir différentes
formes. Ce qu’ils ont en commun est l’absence d’intérêts.
Dans aucun des cas précités nous n’en avons trouvé des
traces. Il est même possible que certains banquiers aient
demandé une commission pour la tenue de comptes de dépôt
ou pour “l’exécution des mandats.” (Raymond Bogaert, Ban-
ques et banquiers dans les cités grecques [Leyden, Holland: A.W.
Sijthoff, 1968], p. 336)
Bogaert also mentions the absence of any indication that bankers in
Athens maintained a certain fractional-reserve ratio (“Nous ne possé-
dons malheureusement aucune indication concernant l’encaisse d’une
banque antique,” p. 364), though we know that various bankers, includ-
ing Pison, acted fraudulently and did not maintain a 100-percent reserve
ratio. As a result, on many occasions they could not pay and went bank-
rupt.
bankers operating, against general legal principles, with a frac-
tional-reserve ratio bring about credit expansion19unbacked
by real savings, leading to artificial, inflationary economic
booms, which finally revert in the shape of crises and economic
recessions, in which banks inexorably tend to fail.
Raymond Bogaert has mentioned the periodic crises
affecting banking in ancient Greece, specifically the economic
and financial recessions of 377–376 B.C. and 371 B.C., during
which the banks of Timodemus, Sosynomus and Aristolochus
(among others) failed. Though these recessions were triggered
by the attack of Sparta and the victory of Thebes, they
emerged following a clear process of inflationary expansion in
which fraudulent banks played a central part.20Records also
reflect the serious banking crisis which took place in Ephesus
following the revolt against Mithridates. This crisis motivated
authorities to grant the banking industry its first express, his-
torically-documented privilege, which established a ten-year
deferment on the return of deposits.21
In any case, the bankers’ fraudulent activity was extremely
“profitable” as long as it was not discovered and banks did
not fail. We know, for example, that the income of Passio
reached 100 minas, or a talent and two-thirds. Professor Trigo
Portela has estimated that this figure in kilograms of gold
would be equivalent today to almost two million dollars a
year. This does not seem an extremely large amount, though it
was really quite spectacular, considering most people lived at
mere subsistence level, ate only once a day and had a diet of
cereals and vegetables. Upon his death, Passio’s fortune
50
Money, Bank Credit, and Economic Cycles
19
The money supply at Athens can thus be seen to consist of
bank liabilities (“deposits”) and cash in circulation. The
amount of increase in the bank portion of this money supply
will depend on the volume and velocity of bank loans, the
percentage of these loan funds immediately or ultimately
redeposited in the trapezai, and the time period and volatility
of deposits. (Cohen, Athenian Economy and Society, p. 13)
20Bogaert, Banques et banquiers dans les cités grecques, pp. 391–93.
21Ibid., p. 391.
amounted to sixty talents; given a constant value for gold, this
would add up to nearly forty-four million dollars.22
BANKING IN THE HELLENISTIC WORLD
The Hellenistic period, especially Ptolemaic Egypt, was a
turning point in the history of banking because it marked the
creation of the first government bank. The Ptolemies soon
realized how profitable private banks were, and instead of
monitoring and cracking down on bankers’ fraudulent activi-
ties, decided to cash in on the overall situation by starting a
government-run bank which would conduct business with
the “prestige” of the state.
Although there was never a true government monopoly on
banking, and private banks (mostly run by Greeks) continued
to operate, Egypt’s prosperity secured a predominant role for
the state bank. Rostovtzeff observes that the Ptolemaic bank
also developed a sophisticated accounting system:
Refined accounting, based on a well-defined professional
terminology, replaced the rather primitive accounting of
fourth-century Athens.23
Several archaeological studies show how widespread
banking was during the Hellenistic period in Egypt. An
incomplete document found in Tebtunis containing daily
account records of a rural bank in the province of Hera-
cleopolis shows the unexpectedly high number of villagers
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 51
22Trigo Portela, “Historia de la banca,” p. 238. Raymond Bogaert, in con-
trast, estimates Passio’s annual income before his death at nine talents,
several times larger:
Cela donne en tout pour environ 9 talents de revenus annuels.
On comprend que le banquier ait pu constituer en peu d’an-
nées un important patrimonie, faire des dons généreux à la
cité et faire les frais de cinq triérchies. (Bogaert, Banques et ban-
quiers dans les cités grecques, p. 367 and also Cohen, Athenian
Economy and Society, p. 67)
23Michael Rostovtzeff, The Social and Economic History of the Hellenistic
World (Oxford: Oxford University Press, 1953), vol. 1, p. 405.
who, whether farmers or not, did business through banks and
made payments out of their deposits and bank accounts. Rel-
atively wealthy people were few, and most of the bank’s cus-
tomers were retailers and indigenous craftspeople, linen mer-
chants, textile workers, tailors, silversmiths and a tinker. Also,
debts were often paid in gold and raw silver, following the
ancient Egyptian tradition. Grain, oil and cattle dealers, as
well as a butcher and many innkeepers were documented as
clients of the bank. The Ptolemaic government bank, private
banks, and temples alike kept custody of different kinds of
deposits. According to Rostovtzeff, bankers accepted both
demand deposits and interest-paying time deposits. The latter
were, in theory, invested in
credit operations of various sorts—loans on collateral secu-
rity, pledges, and mortgages, and a special very popular
type—bottomry loans.24
Private banks kept custody of their clients’ deposits while
at the same time placing their own money in the government
bank.
The main innovation of Egyptian banking was centraliza-
tion: the creation of a government central bank in Alexandria,
with branches in the most important towns and cities, so that
private banks, when available, played a secondary role in the
country’s economy. According to Rostovtzeff, this bank held
custody of tax revenues and also took in private funds and
deposits from ordinary clients, investing remaining funds in
benefit of the state. Thus, it is almost certain that a fractional-
reserve system was used and that the bank’s huge profits were
appropriated by the Ptolemies. Zeno’s letters provide ample
information on how banks received money from their clients
and kept it on deposit. They also tell us that Apollonius, the
director of the central bank in Alexandria, made personal
deposits in different branches of the royal bank. All of these
sources show how frequently individuals used the bank for
52
Money, Bank Credit, and Economic Cycles
24Michael Rostovtzeff, The Social and Economic History of the Hellenistic
World (Oxford: Oxford University Press, 1957), vol. 2, p. 1279.
making deposits as well as payments. In addition, due to their
highly-developed accounting system, paying debts through
banks became extremely convenient, as there was an official
record of transactions—an important piece of evidence in case
of litigation.
The Hellenistic banking system outlived the Ptolemaic
dynasty and was preserved during Roman rule with minor
changes. In fact, Ptolemaic centralized banking had some
influence on the Roman Empire: a curious fact is that Dio Cas-
sius, in his well-known Maecenas speech, advocates the cre-
ation of a Roman government bank which would offer loans
to everyone (especially landowners) at reasonable interest
rates. The bank would draw its capital from earnings on all
state-owned property.25 Dio Cassius’s proposal was never put
into practice.
BANKING IN ROME
Since there are no Latin equivalents of the speeches by
Isocrates and Demosthenes, Roman banks are not docu-
mented in as much detail as their Greek counterparts. How-
ever, we know from Roman law that banking and the mone-
tary irregular deposit were highly developed, and we have
already considered (in chapter 1) the regulations classical
Roman jurists provided in this area. Indeed, Roman argentarii
were not considered free to use the tantundem of deposits as
they pleased, but were obliged to safeguard it with the utmost
diligence. This is precisely why money deposits did not pay
interest and in theory were not to be lent, although the depos-
itor could authorize the bank to use the money for making
payments in his name. Likewise, bankers took in time
“deposits,” which were actually loans to the bank or mutuum
contracts. These paid interest and conferred upon bankers the
right to use the funds as they thought fit for the duration of
the agreed-upon term. References to these practices appear as
early as 350 B.C. in comedies such as Plautus’s Captivi, Asi-
naria and Mostellaria, and Terence’s Phormio, where we find
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 53
25Ibid., p. 623.
delightful dialogues describing financial operations, clearings,
account balances, the use of checks and so on.26In any case, it
appears the work done by professional jurists better regulated
Roman banking and provided at least a clearer idea of what
was and was not legitimate. However, this is no guarantee that
bankers behaved honestly and refrained from using money
from demand deposits to their own benefit. In fact, there is a
rescript by Hadrianus to the merchants in Pergamum who
complained about the illegal exactions and general dishonesty
of their bankers. Also, a written document from the city of
Mylasa to the emperor Septimius Severus contains a decree by
the city council and the people aimed at regulating the activi-
ties of local bankers.27All this suggests that, while perhaps less
frequently than was common in the Hellenic world, there were
in fact unscrupulous bankers who misappropriated their
depositors’ funds and eventually went bankrupt.
THE FAILURE OF THE CHRISTIAN CALLISTUS’S BANK
A curious example of fraudulent banking is that of Callis-
tus I, pope and saint (217–222 A.D.), who, while the slave of
the Christian Carpophorus, acted as a banker in his name and
took in deposits from other Christians. However, he went
bankrupt and was caught by his master while trying to
escape. He was finally pardoned at the request of the same
Christians he had defrauded.28
54
Money, Bank Credit, and Economic Cycles
26In Plautus’s Captivi, for example, we read: “Subducam ratunculam
quantillum argenti mihi apud trapezitam sied” (i.e., “I go inside because
I need to calculate how much money I have in my bank”) cited by Knut
Wicksell in his Lectures on Political Economy (London: Routledge and-
Kegan Paul, 1935), vol. 2, p. 73.
27Trigo Portela, “Historia de la banca,” p. 239.
28The extraordinary fact that someone in the banking profession actu-
ally became Pope and later a saint would seem to make Callistus I a
good choice for a patron saint. Unfortunately, he set a bad example as a
failed banker who abused the good faith of his fellow Christians.
Instead, the patron saint of bankers is St. Charles Borromeo (1538–1584),
Archbishop of Milan. He was the nephew and administrator of Gio-
vanni Angelo Medici (Pope Pius IV) and his feast day is November 4.
Refutatio omnium haeresium, a work attributed to Hippoly-
tus and found in a convent on Mount Athos in 1844, reports
Callistus’s bankruptcy in detail.29Like the recurring crises
which plagued Greece, the bankruptcy of Callistus occurred
after a pronounced inflationary boom followed by a serious
confidence crisis, a drop in the value of money and the failure
of multiple financial and commercial firms. These events took
place between 185 and 190 A.D. under the rule of the Emperor
Commodus.
Hippolytus relates how Callistus, at the time a slave to his
fellow Christian Carpophorus, started a banking business in
his name and took in deposits mainly from widows and
Christians (a group that was already increasing in influence
and membership). Nevertheless, Callistus deceitfully appro-
priated the money, and, as he was unable to return it upon
demand, tried to escape by sea and even attempted suicide.
After a series of adventures, he was flogged and sentenced to
hard labor in the mines of Sardinia. Finally, he was miracu-
lously released when Marcia, concubine of the Emperor Com-
modus and a Christian herself, used her influence. Thirty years
later, a freedman, he was chosen the seventeenth Pope in the
year 217 and eventually died a martyr when thrown into a well
by pagans during a public riot on October 14, 222 A.D.30
We can now understand why even the Holy Fathers in
their Apostolic Constitutions have admonished bankers to be
honest and to resist their many temptations.31These moral
exhortations warning bankers against temptation and remind-
ing them of their duties were used constantly among early
Christians, and some have even tried to trace them back to the
Holy Scriptures.
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 55
29Hippolytus, Hippolytus Wercke, vol. 2: Refutatio omnium haeresium
(Leipzig: P. Wendland), 1916.
30Juan de Churruca, “La quiebra de la banca del cristiano Calisto (c.a.
185–190),” Seminarios complutenses de derecho romano, February–May 1991
(Madrid, 1992), pp. 61–86.
31“Ginesthe trapezitai dókimoi” (“bankers, you must be honest!”). See
“Orígenes y movimiento histórico de los bancos,” in Enciclopedia universal
ilustrada europeo-americana (Madrid: Espasa Calpe, 1973), vol. 7, p. 478.
THE SOCIETATES ARGENTARIAE
Banker associations or societates argentariae were a peculi-
arity of banking in the Roman world. Financial contributions
from members supplied the capital to form them, and this
capital was relied upon to pay debts. However, as banks were
of particular public interest, Roman law established that
members of the societates argentariae must guarantee deposits
with all of their assets.32Hence, members’ joint, unlimited
liability was a general principle of Roman law, intended to
minimize the effects of fraud and abuse by bankers and to
protect depositors’ right to recover their money at any time.33
56
Money, Bank Credit, and Economic Cycles
32See Manuel J. García-Garrido, “La sociedad de los banqueros (societas
argentaria),” in Studi in honore di Arnaldo Biscardi (Milan 1988), vol. 3,
esp. pp. 380–83. The unlimited liability of banker association members
under Roman law was established, among other places, in the afore-
mentioned text by Ulpian (Digest, 16, 3, 7, 2–3) and also in a passage by
Papinian (Digest, 16, 3, 8), where he dictates that money to repay the
debts of fraudulent bankers be drawn not only from “deposited funds
found among the banker’s assets, but from all the defrauder’s assets”
(Cuerpo de derecho civil romano, vol. 1, p. 837). Some present-day authors
have also proposed a return to the principle of unlimited liability for
bankers, as an incentive for them to manage money prudently. How-
ever, this requirement is not necessary to achieve a solvent banking sys-
tem, nor would it be a sufficient measure. It is not necessary, since a 100-
percent reserve requirement would eliminate banking crises and
economic recessions more effectively. It is not sufficient, because even if
banks’ stockholders had unlimited liability, bank crises and economic
recessions would still inevitably recur when a fractional reserve is used.
33Under the Roman Empire, some large, influential temples continued
to double as banks. Among these were the temples at Delos, Delphi,
Sardis (Artemis), and most importantly, Jerusalem, where Hebrews, rich
and poor, traditionally deposited their money. This is the context in
which we must interpret Jesus’s expulsion of the money changers from
the temple in Jerusalem, as described in the New Testament. In Matthew
21:12–16 we read that Jesus, entering the temple,
overturned the tables of the money changers and the benches
of those selling doves. “It is written,” he said to them, “My
house will be called a house of prayer,” but you are making it
a “den of robbers.”
Mark 11:15–17 offers an almost identical text. John 2:14–16 is a bit more
explicit and tells us how, after entering the temple courts,
The argentarii conducted their business in a special place
called a taverna. Their books reflected the debits and credits
made to their clients’ checking accounts. Roman bankers’
books qualified as evidence in court and had to be kept as set
down in the editio rationum, which stipulated the way
accounts were to be dated and managed.34Bankers were also
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 57
he found men selling cattle, sheep and doves, and others sit-
ting at tables exchanging money. So he made a whip out of
cords, and drove all from the temple area, both sheep and cat-
tle; he scattered the coins of the money changers and overturned
their tables.
(New International Version). The translation of these biblical passages is
not very accurate, and the same mistake is found in García del Corral’s
translation of the Digest. Instead of “money changers,” it should read
“bankers,” which is more in accordance with the literal sense of the Vul-
gate edition of the Bible in Latin, in which Matthew’s account reads as
follows:
Et intravit Iesus in templum et eiiciebat omnes vendentes et
ementes in templo, et mensas numulariorum, et cathedras
vendentium columbas evertit: et dicit eis: Scriptum est:
Domus mea domus orationis vocabitur: vos autem fecistis
illam speluncam latronum. (Biblia Sacra iuxta Vulgatam
Clementinam, Alberto Colunga and Laurencio Turrado, eds.
(Madrid: Biblioteca de Autores Cristianos, 1994), Mateo
21:12–13, p. 982)
These evangelical texts confirm that the temple at Jerusalem acted as a
true bank where the general public, rich or poor, made deposits. Jesus’s
clearing of the temple can be interpreted as a protest against abuses
stemming from an illicit activity (as we know, these abuses consisted of
the use of money on deposit). In addition, these biblical references illus-
trate the symbiosis already present between bankers and public offi-
cials, since both the chief priests and the teachers of the law were out-
raged by Jesus’s behavior (all italics have, of course, been added). On
the importance of the Jerusalem temple as a deposit bank for Hebrews,
see Rostovtzeff, The Social and Economic History of the Roman Empire, vol.
2, p. 622.
34Jean Imbert, in his book, Historia económica (de los orígenes a 1789),
Spanish translation by Armando Sáez (Barcelona: Editorial Vicens-
Vives, 1971), p. 58, points out that
the praescriptio was an equivalent of today’s checks. When a
capitalist instructed a banker to make a loan payment in his
name, the banker would do so upon presentation of a bank
draft called a praescriptio.
called mensarii, after the mensa or counter where they origi-
nally carried out their money-changing activities. Much like
today’s banking licenses, the mensa could be transferred. In
Rome, however, as the state owned the premises where bank-
ing took place, it was the right to operate (granted by the state)
that was transmitted. A transfer could include all furniture
and implements of the taverna, as well as financial assets and
liabilities. In addition, bankers formed a guild to defend their
common interests and obtained significant privileges from
emperors, especially Justinian. Some of these privileges
appear in the Corpus Juris Civilis.35
The economic and social disintegration of the Roman
Empire resulted from inflationary government policies which
devalued the currency, and from the establishment of maxi-
mum prices for essential goods, which in turn caused a gen-
eral shortage of these goods, the financial ruin of merchants
and the disappearance of trade between different areas of the
Empire. This was also the end for banking. Most banks failed
during the successive economic crises of the third and fourth
centuries A.D. In an attempt to contain the social and eco-
nomic decay of the Empire, additional coercive, intervention-
ist measures were taken, further accelerating the process of
disintegration and enabling the barbarians (whom Roman
legions had defeated repeatedly and kept at bay for years) to
devastate and conquer the remains of the ancient, thriving
Roman Empire. The fall of the classical Roman world began
the long medieval period, and it was nearly eight hundred
years later that banking was rediscovered in the Italian cities
of the late Middle Ages.36
58
Money, Bank Credit, and Economic Cycles
35See, for instance, New Constitution 126 on “Bank Contracts,” edict 7
(“Decree and Regulation Governing Bank Contracts”) and edict 9, “On
Bank Contracts,” all by Justinian and included in the Novellae (see Cuerpo
de derecho civil romano, vol. 6, pp. 479–83, 539–44 and 547–51).
36A superb overview of the causes of the fall of the Roman Empire
appears in Ludwig von Mises’s work, Human Action: A Treatise on Eco-
nomics, Scholar’s Edition (Auburn, Ala.: Ludwig von Mises Institute,
1998), pp. 161–63. We will also quote Mises’s Human Action by the more
widespread third edition (Chicago: Henry Regnery, 1966), pp. 767–69
to individuals and monarchs. For religious reasons temples
were considered inviolable and became a relatively safe
refuge for money. In addition, they had their own militias to
defend them and their wealth inspired confidence in deposi-
tors. From a financial standpoint the following were among
the most important Greek temples: Apollo in Delphi, Artemis
in Ephesus, and Hera in Samos.
TRAPEZITEI OR GREEK BANKERS
Fortunately certain documentary sources on banking in
Greece are available to us. The first and perhaps most impor-
tant is Trapezitica,4written by Isocrates around the year 393
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 41
4Raymond de Roover points out that the current term banker originated
in Florence, where bankers were called either banchieri or tavolieri,
because they worked sitting behind a bench (banco) or table (tavola). The
B.C.5It is a forensic speech in which Isocrates defends the
interests of the son of a favorite of Satyrus, king of Bosphorus.
The son accuses Passio, an Athenian banker, of misappropri-
ating a deposit of money entrusted to him. Passio was an ex-
slave of other bankers (Antisthenes and Archetratos), whose
trust he had obtained and whose success he even surpassed,
for which he was awarded Athenian citizenship. Isocrates’s
forensic speech describes an attempt by Passio to appropriate
42
Money, Bank Credit, and Economic Cycles
same logic was behind terminology used in ancient Greece as well,
where bankers were called trapezitei because they worked at a trapeza, or
table. This is why Isocrates’s speech “On a Matter of Banking” is tradi-
tionally known as Trapezitica. See Raymond de Roover, The Rise and
Decline of the Medici Bank, 1397–1494 (Cambridge, Mass.: Harvard Uni-
versity Press, 1963), p. 15. The great Diego de Covarrubias y Leyva, for
his part, indicates that
the remuneration paid to money changers for the exchange of
money was called collybus by the Greeks, and therefore
money changers were called collybists. They were also called
nummularii and argentarii, as well as trapezitei, mensularii
or bankers, because apart from changing money, they carried
out a much more profitable business activity: they received
money for safekeeping and loaned at interest their own
money and that of others.
See chapter 7 of Veterum collatio numismatum, published in Omnium ope-
rum in Salamanca in 1577.
5Isocrates was one of the ancient macróbioi, and he lived to be almost 100
years old (436–338 B.C.). His life began during the last years of peaceful
Athenian dominance over Persia and lasted through the Peloponnesian
War, Spartan and Theban supremacy and the Macedonian expansion,
which ended in the battle of Chaeronea (Chaironeia), in which Philip II
defeated the Delian League the same year Isocrates died. Isocrates’s
father, Theodorus, was a middle-class citizen whose flute factory had
earned him considerable wealth, permitting him to give his children an
excellent education. Isocrates’s direct teachers appear to have included
Theramines, Gorgias, and especally Socrates (there is a passage in Phae-
drus where Plato, using Socrates as a mouthpiece, praises the young
Isocrates, apparently ironically, predicting his great future). Isocrates
was a logographer; that is, he wrote legal speeches for others (people
suing or defending their rights) and later he opened a school of rhetoric
in Athens. For information on Isocrates, see Juan Manuel Guzmán Her-
mida’s “Introducción General” to Discursos (Madrid: Biblioteca Clásica
Gredos, 1979), vol. 1, pp. 7–43.
deposits entrusted to his bank by taking advantage of his
depositor’s difficulties, for which he did not hesitate to
deceive, forge, and steal contracts, bribe, etc. In any case, this
speech is so important to our topic that it is worth our effort to
consider some of its passages in detail.
Isocrates begins his arguments by pointing out how haz-
ardous it is to sue a banker, because
deals with bankers are made without witnesses and the
injured parties must put themselves in jeopardy before such
people, who have many friends, handle large amounts of money
and appear trustworthy due to their profession.6
It is interesting to consider the use bankers have always
made of all of their social influence and power (which is enor-
mous, given the number and status of figures receiving loans
from them or owing them favors) to defend their privileges
and continue their fraudulent activity.7
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 43
6Isocrates, “Sobre un asunto bancario,” in Discursos I, p. 112.
7More than 2200 years after Isocrates, the Pennsylvanian senator Condy
Raguet also recognized the great power of bankers and their use of it to
intimidate their enemies and to in any way possible discourage deposi-
tors from withdrawing their deposits and hinder these withdrawals,
with the vain hope, among others, of avoiding crises. Condy Raguet
concluded that the pressure was almost unbearable and that
an independent man, who was neither a stockholder or a
debtor who would have ventured to compel the banks to do
justice, would have been persecuted as an enemy of society.
See the letter from Raguet to Ricardo dated April 18, 1821, published in
David Ricardo, Minor Papers on the Currency Question 1805–1823, Jacob
Hollander, ed. (Baltimore: The Johns Hopkins University Press, 1932),
pp. 199–201. This same idea had already been expressed almost three
centuries earlier by Saravia de la Calle, who, indicating obstacles cre-
ated by bankers to keep depositors from withdrawing their money,
obstacles few dared to protest, mentioned the
other thousands of humiliations you inflict upon those who
go to withdraw their money from you; you detain them and
make them waste money waiting and threaten to pay them in
weak currency. In this way you coerce them to give you all
you want. You have found this way to steal, because when
Isocrates explains that his client, who was planning a trip,
deposited a very large amount of money in Passio’s bank.
After a series of adventures, when Isocrates’s client went to
withdraw his money, the banker claimed he “was without
funds at the moment and could not return it.” However, the
banker, instead of admitting his situation, publicly denied the
existence of any deposit or debt in favor of Isocrates’s client.
When the client, greatly surprised by the banker’s behavior,
again claimed payment from Passio, he said the banker,
after covering his head, cried and said he had been forced by
economic difficulties to deny my deposit but would soon try
to return the money to me; he asked me to take pity on him
and to keep his poor situation a secret so it would not be dis-
covered he had committed fraud.8
It is therefore clear that in Greek banking, as Isocrates indi-
cates in his speech, bankers who received money for safe-
keeping and custody were obliged to safeguard it by keeping
it available to their clients. For this reason, it was considered
fraud to employ that money for their own uses. Furthermore,
the attempt to keep this type of fraud a secret so people would
conserve their trust in bankers and the latter could continue
44
Money, Bank Credit, and Economic Cycles
they go to withdraw their money they do not dare ask for cash,
but leave the money with you in order to collect much larger
and more infernal profits. (Instrucción de mercaderes, p. 183)
Richard Cantillon mentions a list of tricks used by bankers to delay
the payment of deposits in his Essai sur la nature du commerce en général
(London: Fletcher Gyles, 1775), pp. 425–26. Finally, Marx also mentions
the fear and reverence bankers inspire in everyone. He cites the follow-
ing ironic words of G.M. Bell:
The knit brow of the banker has more influence over him than
the moral preaching of his friends; does he not tremble to be
suspected of being guilty of fraud or of the least false statement,
for fear of causing suspicion, in consequence of which his bank-
ing accommodation might be restricted or cancelled? The
advice of the banker is more important to him than that of the
clergyman. (Karl Marx, Capital, vol. 3: The Process of Capitalist
Production as a Whole, Friedrich Engels, ed., Ernest Untermann,
trans. [Chicago: Charles H. Kerr and Company, 1909], p. 641)
8Isocrates, “Sobre un asunto bancario,” pp. 114 and 117.
their fraudulent activity is very significant. Also, we may
deduce from Isocrates’s speech that for Passio this was not an
isolated case of fraud, an attempt to appropriate the money of
a client under favorable circumstances, but that he had diffi-
culty returning the money because he had not maintained a
100-percent reserve ratio and had used the deposited money in
private business deals, and he was left with no other “escape”
than to publicly deny the initial existence of the deposit.
Isocrates continues his speech with more words from his
client, who states:
Since I thought he regretted the incident, I compromised
and told him to find a way to return my money while sav-
ing face himself. Three days later we met and both promised
to keep what had happened a secret; (he broke his promise,
as you will find later in my speech). He agreed to sail with
me to Pontus and to return the gold to me there, in order to
cancel the contract as far from this city as possible; that way,
no one from here would find out the details of the cancella-
tion, and upon sailing back, he could say whatever he chose.
Nevertheless, Passio denies this agreement, causes the dis-
appearance of the slaves who had been witnesses to it and
forges and steals the documents necessary to try to demon-
strate that the client had a debt with him instead of a deposit.
Given the secrecy in which bankers performed most of their
activities, and the secret nature of most deposits,9witnesses
were not used, and Isocrates was forced to present indirect
witnesses who knew the depositor had taken a large amount
of money and had used Passio’s bank. In addition, the wit-
nesses knew that at the time the deposit was made the depos-
itor had changed more than one thousand staters into gold.
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 45
9The Greeks distinguished between monetary demand deposits (phan-
erà ousía) and invisible deposits (aphanés ousía). The distinction, rather
than denote whether or not the money was continually available to the
depositor (in both cases it should have been), appears to have referred to
whether or not the deposit and its amount were publicly known. If they
were, the money could be seized or confiscated, mostly for tax reasons.
Furthermore, Isocrates claims that the point most likely to
convince the judges of the deposit’s existence and of the fact
that Passio tried to appropriate it was that Passio always
refused to
turn over the slave who knew of the deposit, for interroga-
tion under torture. What stronger evidence exists in con-
tracts with bankers? We do not use witnesses with them.10
Though we have no documentary evidence of the trial’s
verdict, it is certain that Passio was either convicted or arrived
at a compromise with his accuser. In any case, it appears that
afterward he behaved properly and again earned the trust of
the city. His house was inherited by an old slave of his,
Phormio, who successfully took over his business.
More interesting information on the activity of bankers in
Greece comes from a forensic speech written by Demosthenes
in favor of Phormio. Demosthenes indicates that, at the time of
Passio’s death, Passio had given fifty talents in loans still out-
standing, and of that amount, “eleven talents came from bank
deposits.” Though it is unclear whether these were time or
demand deposits, Demosthenes adds that the banker’s profits
were “insecure and came from the money of others.” Demos-
thenes concludes that “among men who work with money, it
is admirable for a person known as a hard worker to also be
honest,” because “credit belongs to everyone and is the most
important business capital.” In short, banking was based on
depositors’ trust, bankers’ honesty, on the fact that bankers
should always keep available to depositors money placed in
demand deposits, and on the fact that money loaned to
bankers for profit should be used as prudently and sensibly as
possible. In any case, there are many indications that Greek
bankers did not always follow these guidelines, and that they
used for themselves money on demand deposit, as described
by Isocrates in Trapezitica and as Demosthenes reports of
other bankers (who went bankrupt as the result of this type of
activity) in his speech in favor of Phormio. This is true of
46
Money, Bank Credit, and Economic Cycles
10Isocrates, “Sobre un asunto bancario,” p. 116.
Aristolochus, who owned a field “he bought while owing
money to many people,” as well as of Sosynomus, Timode-
mus, and others who went bankrupt, and “when it was nec-
essary to pay those to whom they owed money, they all sus-
pended payments and surrendered their assets to creditors.”11
Demosthenes wrote other speeches providing important
information on banking in Greece. For example, in “Against
Olympiodorus, for Damages,”12he expressly states that a cer-
tain Como
placed some money on demand deposit in the bank of Her-
aclides, and the money was spent on the burial and other rit-
ual ceremonies and on the building of the funerary monu-
ment.
In this case, the deceased made a demand deposit which
was withdrawn by his heirs as soon as he died, to cover the
costs of burial. Still more information on banking practices is
offered in the speech “Against Timothy, for a Debt,” in which
Demosthenes affirms that
bankers have the custom of making entries for the amounts
they hand over, for the purpose of these funds, and for
deposits people make, so that the amounts given out and
those deposited are recorded for use when balancing the
books.13
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 47
11Demosthenes, Discursos privados I, Biblioteca Clásica Gredos (Madrid:
Editorial Gredos, 1983), pp. 157–80. The passages from the text are
found on pp. 162, 164 and 176, respectively, of the above edition. For
information on the failure of Greek banks, see Edward E. Cohen, Athen-
ian Economy and Society: A Banking Perspective (Princeton, N.J.: Princeton
University Press, 1992), pp. 215–24. Nevertheless, Cohen does not seem
to understand the way in which bank credit expansions caused the eco-
nomic crises affecting the solvency of banks.
12Demosthenes, Discursos privados II, Biblioteca Clásica Gredos (Madrid:
Editorial Gredos, 1983), pp. 79–98. The passage mentioned in the main
text is found on p. 86.
13Ibid., pp. 99–120. The passage cited is found on p. 102.
This speech, delivered in 362 B.C., is the first to document
that bankers made book entries of their clients’ deposits and
withdrawals of money.14 Demosthenes also explains how
checking accounts worked. In this type of account, banks
made payments to third parties, following depositors’ instruc-
tions.15As legal evidence in this specific case, Demosthenes
adduced the bank books, demanded copies be made, and
after showing them to Phrasierides, I allowed him to inspect
the books and make note of the amount owed by this indi-
vidual.16
Finally, Demosthenes finishes his speech by expressing his
concern at how common bank failures were and the people’s
great indignation against bankers who went bankrupt.
Demosthenes mistakenly attributes bank failures to men who
in difficult situations request loans and believe that credit
should be granted them based on their reputation; however,
once they recover economically, they do not repay the
money, but instead try to defraud.17
We must interpret Demosthenes’s comment within the
context of the legal speech in which he presents his argu-
ments. The purpose of the speech was precisely to sue Timo-
thy for not returning a bank loan. It would be asking too much
to expect Demosthenes to have mentioned that most bank fail-
ures occurred because bankers violated their obligation to
safeguard demand deposits, and they used the money for
themselves and put it into private business deals up to the
point when, for some reason, the public lost trust in them and
tried to withdraw their deposits, finding with great indigna-
tion that the money was not available.
48
Money, Bank Credit, and Economic Cycles
14G.J. Costouros, “Development of Banking and Related Book-Keeping
Techniques in Ancient Greece,” International Journal of Accounting 7, no.
2 (1973): 75–81.
15Demosthenes, Discursos privados II, p. 119.
16Ibid., p. 112.
17Ibid., p. 120.
On various occasions research has suggested Greek
bankers usually knew they should maintain a 100-percent
reserve ratio on demand deposits. This would explain the lack
of evidence of interest payments on these deposits, as well as
the proven fact that in Athens banks were usually not consid-
ered sources of credit.18Clients made deposits for reasons of
safety and expected bankers to provide custody and safekeep-
ing, along with the additional benefits of easily-documented
cashier services and payments to third parties. Nevertheless,
the fact that these were the basic principles of legitimate bank-
ing did not prevent a large group of bankers from yielding to
the temptation to (quite profitably) appropriate deposits, a
fraudulent activity which was relatively safe as long as people
retained their trust in bankers, but in the long run it was des-
tined to end in bankruptcy. Moreover, as we will illustrate
with various historical examples, networks of fraudulent
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 49
18Stephen C. Todd, in reference to Athenian banking, affirms that
banks were not seen as obvious sources of credit . . . it is strik-
ing that out of hundreds of attested loans in the sources only
eleven are borrowed from bankers; and there is indeed no evi-
dence that a depositor could normally expect to receive inter-
est from his bank. (S.C. Todd, The Shape of Athenian Law
(Oxford: Clarendon Press, 1993), p. 251)
Bogaert, for his part, confirms that bankers paid no interest on demand
deposits and even charged a commission for their custody and safe-
keeping:
Les dépôts de paiement pouvaient donc avoir différentes
formes. Ce qu’ils ont en commun est l’absence d’intérêts.
Dans aucun des cas précités nous n’en avons trouvé des
traces. Il est même possible que certains banquiers aient
demandé une commission pour la tenue de comptes de dépôt
ou pour “l’exécution des mandats.” (Raymond Bogaert, Ban-
ques et banquiers dans les cités grecques [Leyden, Holland: A.W.
Sijthoff, 1968], p. 336)
Bogaert also mentions the absence of any indication that bankers in
Athens maintained a certain fractional-reserve ratio (“Nous ne possé-
dons malheureusement aucune indication concernant l’encaisse d’une
banque antique,” p. 364), though we know that various bankers, includ-
ing Pison, acted fraudulently and did not maintain a 100-percent reserve
ratio. As a result, on many occasions they could not pay and went bank-
rupt.
bankers operating, against general legal principles, with a frac-
tional-reserve ratio bring about credit expansion19unbacked
by real savings, leading to artificial, inflationary economic
booms, which finally revert in the shape of crises and economic
recessions, in which banks inexorably tend to fail.
Raymond Bogaert has mentioned the periodic crises
affecting banking in ancient Greece, specifically the economic
and financial recessions of 377–376 B.C. and 371 B.C., during
which the banks of Timodemus, Sosynomus and Aristolochus
(among others) failed. Though these recessions were triggered
by the attack of Sparta and the victory of Thebes, they
emerged following a clear process of inflationary expansion in
which fraudulent banks played a central part.20Records also
reflect the serious banking crisis which took place in Ephesus
following the revolt against Mithridates. This crisis motivated
authorities to grant the banking industry its first express, his-
torically-documented privilege, which established a ten-year
deferment on the return of deposits.21
In any case, the bankers’ fraudulent activity was extremely
“profitable” as long as it was not discovered and banks did
not fail. We know, for example, that the income of Passio
reached 100 minas, or a talent and two-thirds. Professor Trigo
Portela has estimated that this figure in kilograms of gold
would be equivalent today to almost two million dollars a
year. This does not seem an extremely large amount, though it
was really quite spectacular, considering most people lived at
mere subsistence level, ate only once a day and had a diet of
cereals and vegetables. Upon his death, Passio’s fortune
50
Money, Bank Credit, and Economic Cycles
19
The money supply at Athens can thus be seen to consist of
bank liabilities (“deposits”) and cash in circulation. The
amount of increase in the bank portion of this money supply
will depend on the volume and velocity of bank loans, the
percentage of these loan funds immediately or ultimately
redeposited in the trapezai, and the time period and volatility
of deposits. (Cohen, Athenian Economy and Society, p. 13)
20Bogaert, Banques et banquiers dans les cités grecques, pp. 391–93.
21Ibid., p. 391.
amounted to sixty talents; given a constant value for gold, this
would add up to nearly forty-four million dollars.22
BANKING IN THE HELLENISTIC WORLD
The Hellenistic period, especially Ptolemaic Egypt, was a
turning point in the history of banking because it marked the
creation of the first government bank. The Ptolemies soon
realized how profitable private banks were, and instead of
monitoring and cracking down on bankers’ fraudulent activi-
ties, decided to cash in on the overall situation by starting a
government-run bank which would conduct business with
the “prestige” of the state.
Although there was never a true government monopoly on
banking, and private banks (mostly run by Greeks) continued
to operate, Egypt’s prosperity secured a predominant role for
the state bank. Rostovtzeff observes that the Ptolemaic bank
also developed a sophisticated accounting system:
Refined accounting, based on a well-defined professional
terminology, replaced the rather primitive accounting of
fourth-century Athens.23
Several archaeological studies show how widespread
banking was during the Hellenistic period in Egypt. An
incomplete document found in Tebtunis containing daily
account records of a rural bank in the province of Hera-
cleopolis shows the unexpectedly high number of villagers
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 51
22Trigo Portela, “Historia de la banca,” p. 238. Raymond Bogaert, in con-
trast, estimates Passio’s annual income before his death at nine talents,
several times larger:
Cela donne en tout pour environ 9 talents de revenus annuels.
On comprend que le banquier ait pu constituer en peu d’an-
nées un important patrimonie, faire des dons généreux à la
cité et faire les frais de cinq triérchies. (Bogaert, Banques et ban-
quiers dans les cités grecques, p. 367 and also Cohen, Athenian
Economy and Society, p. 67)
23Michael Rostovtzeff, The Social and Economic History of the Hellenistic
World (Oxford: Oxford University Press, 1953), vol. 1, p. 405.
who, whether farmers or not, did business through banks and
made payments out of their deposits and bank accounts. Rel-
atively wealthy people were few, and most of the bank’s cus-
tomers were retailers and indigenous craftspeople, linen mer-
chants, textile workers, tailors, silversmiths and a tinker. Also,
debts were often paid in gold and raw silver, following the
ancient Egyptian tradition. Grain, oil and cattle dealers, as
well as a butcher and many innkeepers were documented as
clients of the bank. The Ptolemaic government bank, private
banks, and temples alike kept custody of different kinds of
deposits. According to Rostovtzeff, bankers accepted both
demand deposits and interest-paying time deposits. The latter
were, in theory, invested in
credit operations of various sorts—loans on collateral secu-
rity, pledges, and mortgages, and a special very popular
type—bottomry loans.24
Private banks kept custody of their clients’ deposits while
at the same time placing their own money in the government
bank.
The main innovation of Egyptian banking was centraliza-
tion: the creation of a government central bank in Alexandria,
with branches in the most important towns and cities, so that
private banks, when available, played a secondary role in the
country’s economy. According to Rostovtzeff, this bank held
custody of tax revenues and also took in private funds and
deposits from ordinary clients, investing remaining funds in
benefit of the state. Thus, it is almost certain that a fractional-
reserve system was used and that the bank’s huge profits were
appropriated by the Ptolemies. Zeno’s letters provide ample
information on how banks received money from their clients
and kept it on deposit. They also tell us that Apollonius, the
director of the central bank in Alexandria, made personal
deposits in different branches of the royal bank. All of these
sources show how frequently individuals used the bank for
52
Money, Bank Credit, and Economic Cycles
24Michael Rostovtzeff, The Social and Economic History of the Hellenistic
World (Oxford: Oxford University Press, 1957), vol. 2, p. 1279.
making deposits as well as payments. In addition, due to their
highly-developed accounting system, paying debts through
banks became extremely convenient, as there was an official
record of transactions—an important piece of evidence in case
of litigation.
The Hellenistic banking system outlived the Ptolemaic
dynasty and was preserved during Roman rule with minor
changes. In fact, Ptolemaic centralized banking had some
influence on the Roman Empire: a curious fact is that Dio Cas-
sius, in his well-known Maecenas speech, advocates the cre-
ation of a Roman government bank which would offer loans
to everyone (especially landowners) at reasonable interest
rates. The bank would draw its capital from earnings on all
state-owned property.25 Dio Cassius’s proposal was never put
into practice.
BANKING IN ROME
Since there are no Latin equivalents of the speeches by
Isocrates and Demosthenes, Roman banks are not docu-
mented in as much detail as their Greek counterparts. How-
ever, we know from Roman law that banking and the mone-
tary irregular deposit were highly developed, and we have
already considered (in chapter 1) the regulations classical
Roman jurists provided in this area. Indeed, Roman argentarii
were not considered free to use the tantundem of deposits as
they pleased, but were obliged to safeguard it with the utmost
diligence. This is precisely why money deposits did not pay
interest and in theory were not to be lent, although the depos-
itor could authorize the bank to use the money for making
payments in his name. Likewise, bankers took in time
“deposits,” which were actually loans to the bank or mutuum
contracts. These paid interest and conferred upon bankers the
right to use the funds as they thought fit for the duration of
the agreed-upon term. References to these practices appear as
early as 350 B.C. in comedies such as Plautus’s Captivi, Asi-
naria and Mostellaria, and Terence’s Phormio, where we find
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 53
25Ibid., p. 623.
delightful dialogues describing financial operations, clearings,
account balances, the use of checks and so on.26In any case, it
appears the work done by professional jurists better regulated
Roman banking and provided at least a clearer idea of what
was and was not legitimate. However, this is no guarantee that
bankers behaved honestly and refrained from using money
from demand deposits to their own benefit. In fact, there is a
rescript by Hadrianus to the merchants in Pergamum who
complained about the illegal exactions and general dishonesty
of their bankers. Also, a written document from the city of
Mylasa to the emperor Septimius Severus contains a decree by
the city council and the people aimed at regulating the activi-
ties of local bankers.27All this suggests that, while perhaps less
frequently than was common in the Hellenic world, there were
in fact unscrupulous bankers who misappropriated their
depositors’ funds and eventually went bankrupt.
THE FAILURE OF THE CHRISTIAN CALLISTUS’S BANK
A curious example of fraudulent banking is that of Callis-
tus I, pope and saint (217–222 A.D.), who, while the slave of
the Christian Carpophorus, acted as a banker in his name and
took in deposits from other Christians. However, he went
bankrupt and was caught by his master while trying to
escape. He was finally pardoned at the request of the same
Christians he had defrauded.28
54
Money, Bank Credit, and Economic Cycles
26In Plautus’s Captivi, for example, we read: “Subducam ratunculam
quantillum argenti mihi apud trapezitam sied” (i.e., “I go inside because
I need to calculate how much money I have in my bank”) cited by Knut
Wicksell in his Lectures on Political Economy (London: Routledge and-
Kegan Paul, 1935), vol. 2, p. 73.
27Trigo Portela, “Historia de la banca,” p. 239.
28The extraordinary fact that someone in the banking profession actu-
ally became Pope and later a saint would seem to make Callistus I a
good choice for a patron saint. Unfortunately, he set a bad example as a
failed banker who abused the good faith of his fellow Christians.
Instead, the patron saint of bankers is St. Charles Borromeo (1538–1584),
Archbishop of Milan. He was the nephew and administrator of Gio-
vanni Angelo Medici (Pope Pius IV) and his feast day is November 4.
Refutatio omnium haeresium, a work attributed to Hippoly-
tus and found in a convent on Mount Athos in 1844, reports
Callistus’s bankruptcy in detail.29Like the recurring crises
which plagued Greece, the bankruptcy of Callistus occurred
after a pronounced inflationary boom followed by a serious
confidence crisis, a drop in the value of money and the failure
of multiple financial and commercial firms. These events took
place between 185 and 190 A.D. under the rule of the Emperor
Commodus.
Hippolytus relates how Callistus, at the time a slave to his
fellow Christian Carpophorus, started a banking business in
his name and took in deposits mainly from widows and
Christians (a group that was already increasing in influence
and membership). Nevertheless, Callistus deceitfully appro-
priated the money, and, as he was unable to return it upon
demand, tried to escape by sea and even attempted suicide.
After a series of adventures, he was flogged and sentenced to
hard labor in the mines of Sardinia. Finally, he was miracu-
lously released when Marcia, concubine of the Emperor Com-
modus and a Christian herself, used her influence. Thirty years
later, a freedman, he was chosen the seventeenth Pope in the
year 217 and eventually died a martyr when thrown into a well
by pagans during a public riot on October 14, 222 A.D.30
We can now understand why even the Holy Fathers in
their Apostolic Constitutions have admonished bankers to be
honest and to resist their many temptations.31These moral
exhortations warning bankers against temptation and remind-
ing them of their duties were used constantly among early
Christians, and some have even tried to trace them back to the
Holy Scriptures.
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 55
29Hippolytus, Hippolytus Wercke, vol. 2: Refutatio omnium haeresium
(Leipzig: P. Wendland), 1916.
30Juan de Churruca, “La quiebra de la banca del cristiano Calisto (c.a.
185–190),” Seminarios complutenses de derecho romano, February–May 1991
(Madrid, 1992), pp. 61–86.
31“Ginesthe trapezitai dókimoi” (“bankers, you must be honest!”). See
“Orígenes y movimiento histórico de los bancos,” in Enciclopedia universal
ilustrada europeo-americana (Madrid: Espasa Calpe, 1973), vol. 7, p. 478.
THE SOCIETATES ARGENTARIAE
Banker associations or societates argentariae were a peculi-
arity of banking in the Roman world. Financial contributions
from members supplied the capital to form them, and this
capital was relied upon to pay debts. However, as banks were
of particular public interest, Roman law established that
members of the societates argentariae must guarantee deposits
with all of their assets.32Hence, members’ joint, unlimited
liability was a general principle of Roman law, intended to
minimize the effects of fraud and abuse by bankers and to
protect depositors’ right to recover their money at any time.33
56
Money, Bank Credit, and Economic Cycles
32See Manuel J. García-Garrido, “La sociedad de los banqueros (societas
argentaria),” in Studi in honore di Arnaldo Biscardi (Milan 1988), vol. 3,
esp. pp. 380–83. The unlimited liability of banker association members
under Roman law was established, among other places, in the afore-
mentioned text by Ulpian (Digest, 16, 3, 7, 2–3) and also in a passage by
Papinian (Digest, 16, 3, 8), where he dictates that money to repay the
debts of fraudulent bankers be drawn not only from “deposited funds
found among the banker’s assets, but from all the defrauder’s assets”
(Cuerpo de derecho civil romano, vol. 1, p. 837). Some present-day authors
have also proposed a return to the principle of unlimited liability for
bankers, as an incentive for them to manage money prudently. How-
ever, this requirement is not necessary to achieve a solvent banking sys-
tem, nor would it be a sufficient measure. It is not necessary, since a 100-
percent reserve requirement would eliminate banking crises and
economic recessions more effectively. It is not sufficient, because even if
banks’ stockholders had unlimited liability, bank crises and economic
recessions would still inevitably recur when a fractional reserve is used.
33Under the Roman Empire, some large, influential temples continued
to double as banks. Among these were the temples at Delos, Delphi,
Sardis (Artemis), and most importantly, Jerusalem, where Hebrews, rich
and poor, traditionally deposited their money. This is the context in
which we must interpret Jesus’s expulsion of the money changers from
the temple in Jerusalem, as described in the New Testament. In Matthew
21:12–16 we read that Jesus, entering the temple,
overturned the tables of the money changers and the benches
of those selling doves. “It is written,” he said to them, “My
house will be called a house of prayer,” but you are making it
a “den of robbers.”
Mark 11:15–17 offers an almost identical text. John 2:14–16 is a bit more
explicit and tells us how, after entering the temple courts,
The argentarii conducted their business in a special place
called a taverna. Their books reflected the debits and credits
made to their clients’ checking accounts. Roman bankers’
books qualified as evidence in court and had to be kept as set
down in the editio rationum, which stipulated the way
accounts were to be dated and managed.34Bankers were also
Historical Violations of the Legal Principles
Governing the Monetary Irregular-Deposit Contract 57
he found men selling cattle, sheep and doves, and others sit-
ting at tables exchanging money. So he made a whip out of
cords, and drove all from the temple area, both sheep and cat-
tle; he scattered the coins of the money changers and overturned
their tables.
(New International Version). The translation of these biblical passages is
not very accurate, and the same mistake is found in García del Corral’s
translation of the Digest. Instead of “money changers,” it should read
“bankers,” which is more in accordance with the literal sense of the Vul-
gate edition of the Bible in Latin, in which Matthew’s account reads as
follows:
Et intravit Iesus in templum et eiiciebat omnes vendentes et
ementes in templo, et mensas numulariorum, et cathedras
vendentium columbas evertit: et dicit eis: Scriptum est:
Domus mea domus orationis vocabitur: vos autem fecistis
illam speluncam latronum. (Biblia Sacra iuxta Vulgatam
Clementinam, Alberto Colunga and Laurencio Turrado, eds.
(Madrid: Biblioteca de Autores Cristianos, 1994), Mateo
21:12–13, p. 982)
These evangelical texts confirm that the temple at Jerusalem acted as a
true bank where the general public, rich or poor, made deposits. Jesus’s
clearing of the temple can be interpreted as a protest against abuses
stemming from an illicit activity (as we know, these abuses consisted of
the use of money on deposit). In addition, these biblical references illus-
trate the symbiosis already present between bankers and public offi-
cials, since both the chief priests and the teachers of the law were out-
raged by Jesus’s behavior (all italics have, of course, been added). On
the importance of the Jerusalem temple as a deposit bank for Hebrews,
see Rostovtzeff, The Social and Economic History of the Roman Empire, vol.
2, p. 622.
34Jean Imbert, in his book, Historia económica (de los orígenes a 1789),
Spanish translation by Armando Sáez (Barcelona: Editorial Vicens-
Vives, 1971), p. 58, points out that
the praescriptio was an equivalent of today’s checks. When a
capitalist instructed a banker to make a loan payment in his
name, the banker would do so upon presentation of a bank
draft called a praescriptio.
called mensarii, after the mensa or counter where they origi-
nally carried out their money-changing activities. Much like
today’s banking licenses, the mensa could be transferred. In
Rome, however, as the state owned the premises where bank-
ing took place, it was the right to operate (granted by the state)
that was transmitted. A transfer could include all furniture
and implements of the taverna, as well as financial assets and
liabilities. In addition, bankers formed a guild to defend their
common interests and obtained significant privileges from
emperors, especially Justinian. Some of these privileges
appear in the Corpus Juris Civilis.35
The economic and social disintegration of the Roman
Empire resulted from inflationary government policies which
devalued the currency, and from the establishment of maxi-
mum prices for essential goods, which in turn caused a gen-
eral shortage of these goods, the financial ruin of merchants
and the disappearance of trade between different areas of the
Empire. This was also the end for banking. Most banks failed
during the successive economic crises of the third and fourth
centuries A.D. In an attempt to contain the social and eco-
nomic decay of the Empire, additional coercive, intervention-
ist measures were taken, further accelerating the process of
disintegration and enabling the barbarians (whom Roman
legions had defeated repeatedly and kept at bay for years) to
devastate and conquer the remains of the ancient, thriving
Roman Empire. The fall of the classical Roman world began
the long medieval period, and it was nearly eight hundred
years later that banking was rediscovered in the Italian cities
of the late Middle Ages.36
58
Money, Bank Credit, and Economic Cycles
35See, for instance, New Constitution 126 on “Bank Contracts,” edict 7
(“Decree and Regulation Governing Bank Contracts”) and edict 9, “On
Bank Contracts,” all by Justinian and included in the Novellae (see Cuerpo
de derecho civil romano, vol. 6, pp. 479–83, 539–44 and 547–51).
36A superb overview of the causes of the fall of the Roman Empire
appears in Ludwig von Mises’s work, Human Action: A Treatise on Eco-
nomics, Scholar’s Edition (Auburn, Ala.: Ludwig von Mises Institute,
1998), pp. 161–63. We will also quote Mises’s Human Action by the more
widespread third edition (Chicago: Henry Regnery, 1966), pp. 767–69
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