A History of Interest Rates

“In historical times credit preceded the coining of money by over two thousand years. Coinage is dated from the first millennium B.C., but old ian documents, circa 3000 B.C., reveal a systematic use of credit based on loans of grain by volume and loans of metal by weight. Often these loans carried interest.”

“Cattle breeding has supplied us with many financial terms used in later money economies. For example, there is our own word capital and our term pecuniary, from pecus, meaning a “flock” in Latin. Sumerians used the word mas for calves and for interest. The Egyptian term ms, meaning interest, is derived from the verb msj, which means “to give birth.” Early Greeks, in fact, valued their precious metals in terms of cattle.”

“There are many references in the Iliad and the Odyssey to the use of the ox as a unit of account. The Homeric Greeks had been nomads in the grassy steppes. ...One of the later reforms of Solon, 594 B.C., was the recomputation of fines and bounties in coined money instead of cattle.”

“In 508 B.C. a democracy was established in Athens. From this time on Athens so rapidly outdistanced other Greek cities in trade and finance that the history of Greek credit and interest rates is largely... a history of Athenian credit and... interest rates.”

“The victories of the Turks and the interruption of the Oriental trade route through the Mediterranean led to the discovery of alternative trade routes. This ultimately deprived the Italians of their central trading position. Nevertheless, in this century Italian prosperity continued...”

“Between 1430 and 1480, the at Florence was by far the greatest financial organization in Europe.., with branches throughout Europe, the and North Africa. It was the chief bank for the Curia. Many other Italian banks had large capital and a worldwide business. Venice kept ahead of Genoa and was the first seaport of the Mediterranean.”

“The structure of trade and industry changed. Europe now had great capitalists possessed of large and diversified interests. These men were not local merchants; they were no longer dependent on the restrictive regulations of the town burghers. They could move their operations from place to place: to the country or to other towns. ...They began to operate on credit on a large scale and to speculate. They supported royalty and financed wars.”

“Spain, recently the most powerful of European states, sank into financial decrepitude in spite of her empire in the New World and in spite of inpouring gold and silver. Spanish state bankruptcies occurred about every twenty years: 1607–1627–1649. ...Spain’s imported gold and silver were pledged in advance to Genoese bankers.”

“Under Henry IV... Sully... consolidated the debts during a state bankruptcy into low-rate rentes. He avoided floating debt, introduced economy, improved the national finances, and brought on a period of prosperity.”

“In 1610 a new period of mismanagement began. The aggressive foreign policy of Richelieu... and the extravagance of the court led again to a new and huge floating debt. At this time the term “partisans” was coined: people who had partis, money transactions with the government, and thus became its unconditional adherents.”

“Another French state bankruptcy in 1648 eliminated the Italian bankers, mostly Florentines. State revenues by that time had been anticipated three years ahead by borrowing from the partisans who charged the Crown ruinous rates. Even the rentes (perpetual loans) were not always serviced in full. From 1639 French rentes enjoyed a market on the new Paris Exchange.”