Financing Civilization

William N. Goetzmann, all rights reserved

Source: http://viking.som.yale.edu/will/finciv/chapter1.htm

This is the first chapter of a book about the finance and its impact upon civilization. It is
provided for academic use, and may not be copied. Comments on this draft are welcome.
I thank Marc Van der Meiroop, Denise Schmandt-Bessert and Rick Antle for their
suggestions. All errors are the sole responsibility of the author. Please contact me with
corrections and suggestions. Feel free to link to parts if you are interested. If you know of
relevant maps or graphics I may link on the internet, please tell me. I have written
captions for a number of figures which are linked in the text, but out of respect for
copyright law, I have not provided pictures.


Contents
The First Steps out of Eden
The Origins of Finance
Ancient Contracts
Early Financial Accounts
The Urban Economy
The Idea of Lending
The Idea of Interest
Borrowing in Babylon
An Early Roadmap to Riches?
An Ancient Wall Street
The Merchants of Ur
"Clay Profits"
Debt is Good -- But For Whom?
Early Mutual Funds?
Government Regulations and the Great Crash
Mesopotamian Twilight
Finance Moves West
The Ancient Financial World
Sources


The First Steps Out of Eden
Warka today is a parched, tree-less mound in the Iraqi desert. Except for an occasional
archaeologist or two, its only visitors are Arab shepherds grazing flocks of sheep and
goats among the ruins. Few traces remain of the city wall built by its ancient ruler
Gilgamesh(see also: Gilgamesh reference), or of the temple of his mate, the goddess
Inanna. Five thousand years ago, Uruk was a lush metropolis of temples, houses and
gardens; a powerful city-state whose cultural and political influence extended the length
of the valley of the Tigris and Euphrates. It has been argued that Uruk was the birthplace
of urbanism, of monumental architecture, of written numerals, of written language and
the world's first literature. Small wonder that it may have also been the birthplace of
finance.
The Origins of Finance
We may never know when finance began, because financial contracts are as old as
written language -- in fact, writing appears to have been invented for the purposes of
recording financial deals. The first archaeological traces of financial activity appear in the
earliest urban civilizations in the Near East. Where did the idea of borrowing and lending
come from? How did the idea of interest payments evolve? Who first realized that "time
is money?" The answers to at least some of these questions lie buried in ruins of Uruk,
and her ancient sister-cities of Mesopotamia. In 1929 the German archaeologist Julius
Jordan dug a deep trench into the legendary Inanna temple precinct. He made a
spectacular discovery: The goddess' home and storehouse was elegantly decorated with a
multi-colored colonnade, and nearby lay the stone steps of the temple -- exactly as
described in the Epic of Gilgamesh, the world's oldest literary composition. Given the
extraordinary architectural finds, the more prosaic details of the Uruk excavations
received scant attention. In his journals, Jordan recorded the recovery of a number of
curious little tokens "shaped like commodities of daily life: jars, loaves and animals."
Their importance went largely unnoticed until the work of professor Denise Schmandt-
Besserat, an archaeologist at the University of Texas at Austin. Professor Besserat
showed that the clay tokens resembled pictographic inscriptions on clay tablets from
Uruk.
These Uruk pictographic tablets have long been recognized as the first steps towards
written language, however, no-one paid much attention to Jordan's little tokens -- until
now. Professor Besserat found that the pictograph for cloth, for instance, could be traced
to a round striated token. The symbol for sweet evolved from the token shaped like a
honey jar, the symbol for food evolved from a token shaped like a full dish. Most of the
tokens represented commodities from daily life: lambs, sheep, cows, dogs, loaves of
bread, jars of oil, honey, beer, milk, clothing, ropes, wool and rugs, and even "abstract "
goods, such as units of work, and land. Apparently, these were the items once contained
in Inanna's "holy storehouse" at the time of Gilgamesh.
These tokens were, in Professor Besserat's terms, elements in "a system of accounting"
used by the temple priests and perhaps even by Gilgamesh himself. It appears that they
were kept in hollow clay envelopes, about the size of modern day softballs, called bullae.
If this was an accounting system, it was a curious one indeed. The envelopes had to be
broken each time the accountant wanted to check the figures! The Uruk accountants
solved this problem by making marks on the outside of the bullae, indicating the number
and types of tokens on the inside. Denise-Schmandt-Besserat used the similarities
between the inscribed bullae and the earliest Uruk pictographic tablets to reconstruct the
early evolution of written script. The bullae, she argues, were the forerunners of
cuneiform tablets.
Ancient Contracts
Denise Schmandt-Besserat may have discovered the origins of writing on the surfaces of
the clay bullae, but the mystery remains -- why did the ancient accountants of Uruk use a
cumbersome bullae system for their records? Indeed bullae remained in use even after the
full development of written script. The answer lies in the fact that they were more than
accounting tools -- they were actual contracts.
Everything we think of as a financial instrument today is, in fact, a contract. A
government bond, for instance, is a contract between the government and the bond-holder
to guarantee a series of payments in the future. A share of stock is a contract between the
shareholder and the corporation that guarantees participation in the profits of the firm,
and a right to vote on management. Although contracts existed before the invention of
writing, and even before the invention of bullae, the hollow clay balls and their tokens
appear to be the earliest archaeological evidence of contracts. Each bulla found in the
Inanna temple complex meant that someone -- and we don't know who, made a promise
to give some commodities: jars of honey, sheep, cattle -- perhaps even days of work, to
the temple. The writing on the outside of the bulla allowed the contracting parties to refer
to the amount owed over the term of the contract, but the tokens inside, kept by the lender
as evidence of the agreement, tangibly symbolized the obligation. This interpretation may
explain other curious features of the bullae as well. Some of the envelopes are covered
entirely in the impressions of cylinder seals -- the Mesopotamian equivalents of
signatures. These undoubtedly represent a personal mark indicating the promise of the
owing party. Bullae that are entirely covered in seal impressions seem to suggest that the
owing party was concerned that the bulla holder might break open a small part of the
bulla and insert some additional tokens.
We cannot really call the bullae the first financial instruments, because we do not know
who the contracting parties were. We do not know whether the obligation is a return of a
loan, or simply a tax or tribute to the temple. The bullae do not specify time (or at least
Denise Schmandt-Besserat has not decoded the symbols for time) and they do not specify
interest rates. All we know for sure is that they formalized commitments of future
payments. The bullae were contracts that bridged a period of time -- from the moment
when one party entered into an obligation, to the moment when the obligation was
discharged.
Early Financial Accounts
Sometime before 3,000 B.C. the people of Uruk began to use pictographic tablets of clay
to record economic transactions. The script for the tablets evolved from the bullae
symbols, but their use went far beyond contracts. These tablets are important in their own
right as further developments of an ancient financial system that was growing to
accommodate the needs of the Uruk economy. While the bullae typically contained no
more than a couple of dozen tokens, the Uruk pictographic tablets recorded much larger
quantities of goods. They did this in an ingenious way -- they used a number system!
The pictographic tablets from Uruk are the first evidence that exists for an abstract
number system like our own. Once economic quantities became large enough, it was
been difficult to represent them one for one with tokens, or even pictographs. The Uruk
tablets began to separate the pictographic representations of commodities from the
abstract numbers. For instance (see illustration) one tablet represents five sheep by the
symbol for sheep -- the crossed circle, and five impressed strokes in the clay -- the
numeral for five. A round impression represented the numeral for ten. Thus, the Uruk
accountants could represent thirty three by three round marks and three strokes.
The Urban Economy
People in the Near East began to live in towns more than 10,000 years ago, but the first
true cities were built by the Sumerian people, the inhabitants of the region around the
mouth of the Tigris and the Euphrates, in the period after 4,000 B.C. The economy of the
Sumerian city of Uruk during the fourth millennium, the period to which the bullae date,
was based upon herding and agriculture, supplemented with fishing and hunting.
Although it is difficult to understand the Sumerian system of government without
imposing our own political notions, it appears that the temple played an important role in
allocation of economic resources. Apparently the first government was "big government."
A ceremonial vase, "The Warka Vase" was found in the Inanna temple complex, and
provides a simplified perspective of the Uruk social hierarchy. The ruler was the people's
representative to the goddess, and he presented to her the fruits of Uruk's citizens's labor.
Since most of these commodities were perishable, we must presume that the temple
redistributed them in some fashion. The numbers from the Uruk tablets indicate that this
was a big job -- taxing people and then redistributing the income. In fact, this economic
system -- the reliance upon a central distribution center, may explain the movement of
people into the cities, closer to the temple. Judging by the size of the city in its heyday
around 3,000 B.C., Uruk was home to more than 10,000 people. The variety of goods and
materials that survive from Uruk suggest that most of its ancient inhabitants had a distinct
trade. Labor was specialized. Undoubtedly some of its citizens were shepherds, others
were farmers, others were bakers, brewers, weavers, even accountants and scribes. It was
in this urban milieu that financial instruments first developed.
The Idea of Lending
All people, urban as well as rural, tend to lend each other things. They do this even when
the benefits to such helpful behavior are not immediately apparent. In small communities,
people lend their tools and their time to each other. While they may expect reciprocity in
the future, they do not explicitly write a contract to formalize it. Such co-operation is a
form of insurance. You help out when you can afford to do so, and you call upon your
neighbors when you find yourself in need.
When people started living in large communities like Uruk, they began to live with
strangers as well as friends. It may have been possible to know everyone in a large
farming village, but not in a vast city such as Uruk. What were once implicit agreements
among neighbors now became explicit, contractual agreements among strangers. When
everyone had the same profession and skills, neighborly help could always be repaid in
kind. But when people developed different professions it must have been difficult to
maintain neighborly reciprocity. Urban societies still needed cooperation, but limits to
familiarity with fellow inhabitants, and difficulty with quantifying the units of such
cooperation meant that people required more formal ways to insure a return on their
helpful efforts. Cambridge University's Paul Millett traced this developmental
relationship between urbanization and interest loans in ancient Athens in the first century
B.C. In Greece, the pattern is clear -- urbanism necessitated explicit contracts, and gave
rise to interest charges. Interest is a "sweetener" to induce someone to lend you what you
need.
Neighborly cooperation appears to be a way for a community to respond to periods of
crisis, but loans in which the "gift" is repaid with interest allows a lender to accumulate
wealth -- to obtain repayment even when he or she isn't in need. This contrast between
implicit and explicit contracts embodies civilization's ambivalence towards lending --
perhaps it just doesn't feel right to charge a friend or neighbor interest, because
reciprocity was our pre-urban method of adapting to crises. The invention of interest
lending, in the very shadow of the gates of Eden -- may have been humankind's original
fall from grace.
The Idea of Interest
What gave the ancient Sumerians the idea of charging each other interest? Linguistic
evidence provides a clue. In the Sumerian language, the word for interest, mash, was also
the term for calves. In ancient Greek, the word for interest, tokos, also refers to the
offspring of cattle. The latin term pecus, or flock, is the root of our word "pecuniary."
The Egyptian word for interest, like the Sumerian word, is ms, and means "to give birth."
All of these terms point to the derivation of interest rates as the natural multiplication of
livestock. If you lend someone a herd of thirty cattle for one year, you expect to be repaid
with more than thirty cattle. The herd multiplies -- the herder's wealth has a natural rate
of increase equal to the rate of reproduction of his livestock. If cattle were the standard
currency, then loans in all comparable commodities would be expected to "give birth" as
well. The idea of interest seems to be a natural one for a pastoral society, but not so for
other types of economies.
Ancient Sumerian society, in particular, the people of Uruk, "the city of sheepfolds,"
appears to have been the perfect setting for the evolution of the practice of lending money
at interest. It was a pastoral society in which wealth, as measured by livestock, "begot"
wealth. It had a system for recording contractual obligations, and a numerical system that
could specify particular quantities of goods. It had a concept of the present versus the
future. Indeed sometime during the Sumerian period, the Mesopotamian calendar was
developed, and this allowed a mathematical link between lunar months and solar years.
Perhaps an even more fundamental tool was the Mesopotamian ability to symbolize
goods and quantities. The Uruk accounting system made it easy for the Sumerians to
imagine owning and exchanging quantities of goods. Even the act of wrapping the tokens
up in a clay envelop implied ownership of them. Perhaps finance began in the ancient
Near East because, for the first time it was possible to symbolically represent units of
wealth.
Borrowing in Babylon
By the reign of the famous Babylonian king Hammurabi, about 1792-1750 B.C., an
extraordinary literature had developed from the early utilitarian cuneiform script.
Cuneiform texts record creation myths, poetry and even dramatic performances. Despite
the versatility of cuneiform writing, however, the bulk of the half-million surviving
documents from the ancient Near East continued to be economic texts. Ancient
Akkadian, the language of the semitic peoples who succeeded the Sumerians around
2,500 B.C. and who adopted the cuneiform script as their own, is by far the largest of all
the dead languages, in terms of surviving documents, as well as vocabulary. The ongoing
Akkadian dictionary project at the University of Chicago is long past 20 volumes at last
count! Unless you are an economist, however, most of these texts are of little interest.
Writing in the ancient Near East was not only a by-product of economics and finance, but
for most of its early history, remained closely associated with them. Nine out of ten
tablets are accounting records. Of these, a considerable number are mortgages, land
deeds, loan contracts, promissory notes and partnership agreements.
In the centuries following the Uruk period, mathematical and astronomical knowledge
advanced dramatically. The well-educated Babylonian of the third millennium B.C.
learned enough geometry to calculate the area within a triangle, enough astronomy to
calculate the wandering of the planets through the ecliptic, enough algebra to solve a
problem of how much grain to use to sow his fields, and enough about logarithms to be
able to calculate compound interest!
An Early Roadmap to Riches?
The great cuneiform scholar, Otto Neugebauer translated < mathematical interesting
particularly>used in a classsroom at about the time of Hammurabi. It is an interest rate
problem for prospective students of the financial arts. It indicates that interest rates were
quoted as fractions of principal -- much the same as bond yields are quoted today. The
student is asked to figure out the number of years it would take for a sum of money, one
mina of silver, that grows at 20% interest per year to reach 64 minae. The interest
compounds in an odd way -- 20% of the principal is accumulated until the interest is
equal to the principal, and then it is added to the principal. This is not exactly what we
think of as compound interest, which is continuously added to the principal, but none-the-
less, quite similar. The answer to the problem is 30 years. Neugebauer was fascinated by
the cleverness of the solution to the problem -- it appears to prove a knowledge of base 2
logarithms. To students of financial history it is the term of the loan that stands out.
Thirty years is an extraordinarily long term for a loan. Today's home mortgages in the
U.S. are rarely more than 30 years. U.S. government bonds are generally less than 25
years. If the tablet problem bears any relation to business practices of the time, then it
suggests the presence of a stable and reliable legal system, and the ability to contract over
long horizons. But who was making these loans -- and why?
An Ancient Wall Street
In the 1920's, Sir Leonard Woolley, excavating the Mesopotamian city of Ur, the fabled
birthplace of Abraham, found himself standing in the remains of what must have been an
upper middle class neighborhood near the center of the ancient city. His Iraqi excavators
uncovered the narrow walls and small rooms that signified domestic architecture -- rather
than the majestic palace architecture that typically attracted the attention of Near Eastern
excavators. In an area separated from the main temple complex by the main canal
running through town, Woolley and his crew uncovered the mud-brick foundations of
homes, shops, schools and chapels. He even found the business district and the
waterfront, with piers and docks indicating that Ur was a harbor town -- the home of
fishermen and maritime traders as well as farmers and herdsmen. Many of them buried
their personal financial records, along with their ancestors, in the floors of their houses
for safekeeping.
Professor Marc Van De Mieroop of Columbia University has used Woolley's careful
excavation notes to match the dozens of excavated clay tablets to the homes where they
were found. From these, he has been able identify what must have been a very early
"Wall Street" -- a financial district in the ancient city that was the home of Ur's second
millennium lenders and entrepreneurs. From their records, he has been able to reconstruct
a fascinating story about one of the world's first financial centers.
Most of the cuneiform texts found in the financial district date from the early years of the
reign of the King Rim-Sin (1822-1763 B.C.), who ruled from the capital city of Larsa, a
few miles north of Ur shortly before Hammurabi's time. During this period, Ur was
probably home to 25,000 to 40,000 people. Woolley's excavations revealed a large
neighborhood of houses, both large and small, clustered around a central square. Two
shrines faced this plaza, and wide thoroughfares and narrow alleys led away from the
square to other parts of the densely populated city.
The Merchants of Ur
No.3 Niche lane (the names for all of the streets were borrowed by Woolley from
England's town of Canterbury) was the office of the businessman Dumuzi-gamil.
Although he left no personal records, only financial ones, we know something about
Dumuzi-gamil's personality. He was educated, self reliant and careful with his money,
keeping his own accounts in his own distinctive style, rather than hiring a scribe. Despite
his training, however, Dumuzi-gamil avoided lavish prose in favor of what Marc Van De
Mieroop calls "terse phraseology."
The activities of Dumuzi-gamil and other residents of the "Wall Street" of Ur reveal
much about the role that financiers played in ancient Mesopotamia. In 1796 B.C.
Dumuzi-gamil and his partner, Shumi-abiya borrowed 500 grams of silver from the
businessman Shumi-abum. Dumuzi-gamil promised to return 297.3 grams on his share of
250 grams after five years. According to the manner in which the Mesopotamians
calculated interest, this equalled a 3.78% annual rate. The term of the loan was a
relatively long one -- five years. Sumi-abum turned around and sold the loan to a couple
of well-known merchants, who successfully collected on the debt in 1791. Marc Van De
Mieroop suspects that Dumuzi-gamil was acting as a banker -- taking in deposits at low
rates of interest, and in the interim, making productive use of the money. Indeed,
Dumuzi-gamil tried his hand, with great success at a number of business ventures. His
principal trade was as a bread distributor. He invested in institutional bakeries that
supplied the temple. In fact, he may even have supplied bread to the capital city of Larsa
which lay a day's travel to the north. He was the "grain supplier to the King," -- one of his
tablets was a receipt from the a monthly issue to Rim-Sin for more than 5,000 liters of
grain!
There is little doubt that Dumuzi-gamil's loan represented the exploitation of the time
value of money. When he borrowed the capital from Shumi-abum, he undoubtedly had a
plan for increasing his wealth. Perhaps it was the entrepreneurial idea of setting up
institutional bakeries. While his records are not complete , it appear likely that debt, in
the hands of U's entrepreneurs like Dumuzi-gamil, could be a means to social and
economic mobility. Without the ability to shift money through time -- to borrow against
future income, Dumuzi-gamil might not have been able to set up shop. We don't know
much about his lender, but, since he charged interest it must have been more than a
neighborly gesture.
Dumuzi-gamil turned around and used at least some of the money to make short term
loans. According to Marc Van De Mieroop, Dumuzi-gamil frequently lend silver to
fishermen and farmers apparently in desperate need of silver to pay their temple rents. On
some of these loans he exacted 20% interest for a single month! At that pace, one mina
could grow to 64 in two and a half years! Of the fifteen loan records of Dumuzi-gamil's
that survived, most of them were very short term -- one, two or three months. The price
of time was high for citizens in debt to the Ur money-lenders.
The difference between the long term loan of Dumuzi-gamil and the short term loans to
the fishermen is important. The short term loans were clearly for emergency purposes,
while Dumuzi-gamil's was for productive purposes -- for developing the bakery business,
and for lending activities. In fact, most loans in second millennium Ur were of the
emergency variety, not the productive variety. Borrowing was more typically a response
to emergency, and Dumuzi-gamil was probably not very popular with his creditors, given
the usurious rates he charged.
The legal limit on interest rates for loans of silver was 20% over much of Dumuzi-gamil's
life, but Marc Van De Mieroop demonstrates how Dumuzi-gamil and other lenders got
around such strictures -- they simply charged the legal limit for shorter and shorter term
loans! Curiously, while mathematics during this era was extraordinarily advanced, the
government failed to understand, or at least effectively regulate the close link between
time and money.
Dumuzi-gamil and lenders like him played an important role in the ancient economy of
Ur. They supplied the silver money demanded by the temple -- they enlarged the money
supply. The money supply is often cited as an indicator of the health of the economy. In
the modern world, the money supply is measured by the currency in circulation, plus
checking accounts, liquid bank deposits and negotiable financial instruments from large
institutions. It is deemed by economists to be an index of society's buying power. In the
U.S., the Federal Reserve bank uses money supply targets to loosen or tighten the reins of
the economy. While the ancient Babylonian temples were a long way from being federal
reserve banks, they may have performed some of the same functions. Temples injected
silver money into the economy by making long-term loans to lenders like Dumuzi-gamil.
Even at usurious rates of interest, the increase of the money supply created by Dumuzi-
gamil's lending may have had a salutary economic effect. The temple in the second
millennium B.C. may not have been able to allocate perishable goods as efficiently as it
could when the city was smaller. Storage and spoilage must have been significant
problems for a government that distributed, among other things, bread, milk and beer. A
money economy solved these problems by allowing individuals to purchase the goods
when and where they need them. Although the people of Ur did not use coinage, they
used silver by weight, and often in the form of portable items like bracelets. By lending
this silver, Dumuzi-gamil created vital liquidity.
"Clay Profits"
The ancient financiers increased the supply of "non-money" money in Ur as well. They,
like other merchants kept running accounts. Among Dumuzi-gamil's records are
indications that certain payments were credited to individuals. While not as sophisticated
as credit cards, these "tabs" at various merchants and financiers minimized the need for
hard currency. This accounting system may have mirrored the temple's own method of
accounts, but its use in the dealings of individuals is a subtle but important advancement
in financial thought. It meant that people could recognize "paper profits." You could
become wealthy without having the silver hoard to prove it. This was the first stage in the
development of "intangible" wealth, upon which all of our current financial system
depends. Since the records were kept on clay tablets, the first paper profits should rightly
be called "clay" profits! These intangible profits were like the tale of the emperor's new
clothes. They only existed if people believed that they existed, and if a legal system
existed to insure that creditors had secure rights to their loaned property.
From the end of the fourth millennium in Mesopotamia, legal codes guaranteed property
rights even more than they guaranteed what we call human rights. For instance, a person
had the right to sell himself into slavery, or pledge his liberty as collateral for a loan. In
fact, not until the time of the Greek tyrant Solon was the right to enslave oneself
abolished. Courts existed in Mesopotamia to adjudicate property disputes, and it was not
unheard of for lawsuits to span decades! Evidently, it was part of the function of the local
"chapels" in Dumuzi-gamil's time to notarize or witness the drawing up of important
documents like deeds of sale. Such deeds of sale were necessary for even tiny plots of
property. Marc Van De Mieroop found one transaction for four square yards! Neighborly
lending appears to have been on the decline in second millennium Ur -- sales were
recorded even between brothers. Almost all of these sales were denominated in silver.
In a world where "clay" profits were counted as real, Even the financier's debt could
serve as money. The Ur documents reveal a remarkably liquid market for personal
promissory notes. Shumi-abum, Dumuzi-gamil's lender, sold the note to two other
investors -- Nur-ilishu and Sin-ashared. Apparently, Dumuzi-gamil and his partner's debt
was easily transferable. Several other Ur records indicate that selling loans was a
common practice. It appears that Ur had a functioning bond market, in which the promise
of a loan repayment could be regarded as currency. Although no broad, macro-economic
records exist to measure the effect of Ur's ancient financiers, it is likely that their money-
lending activities encouraged commerce of all kinds.
Debt is Good -- But For Whom?
Second Millennium Ur may have been an early hothouse of capitalistic enterprize, but
what of the borrowers mired in debt? The government may actually have preferred them
this way. A study by the economist M. Darling of the rural economy of the Punjab in
modern times suggests a disturbing thing about human nature -- people work harder and
produce more when they are in debt. Darling found that crop yields for farmers in debt
typically exceeded yields from unencumbered farmers. Farmers in the Punjab may have
faced foreclosure, but for the ancient inhabitant of Ur, the motivation was even greater.
Debtors were often forced to sell themselves into slavery.
It is difficult to escape the conclusion that, while the first loan contracts and the legal
system that enforced them may have been good for the Mesopotamian economy, they
made life miserable for the working man and woman. If lending began, as historian Paul
Millet believes, as a process of neighborly reciprocity in rural societies, then it evolved
into something quite different. In Babylonian times, short-term debt was a tool used to
extract taxes from the population, and to increase the productivity of temple lands. It is
almost as though the government had found a way to extract the residual "goodwill" from
the economy, by allowing individuals to shift financial obligations into the future.
Lending in ancient Ur was mostly for emergency purposes -- where the government
created the emergency! The other side of the coin is that certain entrepreneurs such as
Dumuzi-gamil achieved economic upward mobility through borrowing. Thus, while the
system was harsh on the populace, it encouraged creative and productive enterprise. For
those with the imagination to exploit it, the financial system of Ur offered limitless
possibilities.
Financing Trade
Around the corner from Dumuzi-gamil lived Ea-nasir -- a like-minded entrepreneur. He
made his fortune by organizing and financing maritime expeditions from Ur to Dilmun.
Dilmun appears in earlier Sumerian texts as the home of the immortal Ut-napishtim who
survived the great flood. According to legend, Gilgamesh himself journied to Dilmun in
quest of the secret of eternal life, and Ut-napishtim revealed to the king that the "plant of
life" lay at the bottom of the sea. Undaunted, Gilgameshed weighted his feet with stones
and plunged to the depths to gather the sacred plant. Modern archaeological research
points to the the shores of Kuwait, Saudia Arabia and Bahrain as the likey location of the
fabled Dilmun, and the traditional Gulf pearl divers of Kuwait plied their trade by tying
stones to their feet, in the manner of Gilgamesh.
Maritime expeditions to Dilmun, and ports south along the coast of the Persian Gulf and
the Indian Ocean appear to have taken place since Sumerian times, but by Ea-Nasir's
time, Dilmun traders were the key middlemen between Mesopotamia and points south.
Indeed, the Dilmunites may have been the Venetians of their time, establishing
commerical communities in remote ports that allowed them to control trade. Their
distinctive signatures, found at scattered points in second-millenium levels at Ur were
cylinder seals bearing the stylistic echo of the Indus civilization -- including the image of
the sacred bull. While there is no direct evidence that Ea-Nasir himself was Dilmunite, he
was clearly a major player in the Dilmun trade. For one large expedition, Ea-nasir
assembled 51 investors, who contributed money in the form of silver, as well as a variety
of trade goods, including what were apparently the most desirable crafts of the city: Ur
baskets. These were exchanged with the merchants in Dilmun for copper, precious stones
and spices.
Ea-nasir's tablets indicate that considerable diplomacy was required to equitably partition
the profits from the Dilmun trade. Unlike Damuzz-gamil's debt, many of the capital
contributions to Dilmun expeditions were equity investments. The contributors expected
to gain if the expedition was a success. While bond contracts limited the payoff to the
lender to the explicit quantity of interest, there was no limit to the profits that could acrue
to Ea-nasir's backers if they got lucky. They shared in the benefits according to the
proportions of their investments. Another feature of Ur partnership contracts it also
interesting -- loss was often limited to the amount of the contribution. In fact, in some
expedition charters, this limited liability was an explicit condition of the investment.
The exciting thing to financial historians is these equity contracts represent concrete
evidence of a limited partnership -- in which the limited partner assumed no liability
beyond the value of the paid-in capital. It was a joint venture, with silent, but contributing
partners. This is the same way that such risky things as oil-drilling ventures and real
estate investments are financed to this day. Presumably, since Ea-nasir was the general
partner who took the biggest risk, he made the largest profit. Unfortunately, we cannot
calculate his return on investment -- the records did not survive.
Early Mutual Funds?
Many of the tablets deciphered by Van De Mieroop and other Assyriologists indicate that
financial tools such as loans, mortgages and limited partnership ventures were
collaborative ventures. The fact that several partners were involved in Ea-nasir's
expeditions to the copper markets of Dilmun indicates that such enterprises were often
beyond the scope of a single investor. Financial tools allowed very large projects. Just
like the large-scale monumental palace architecture that the Babylonian kings build
during this era, these financial projects encompassed the efforts of more than one source
of capital. Interestingly, the palace was itself a frequent contributor to the expedition -- a
curious foreshadowing of Elizabeth the First's contributions to the exploring expeditions
to the New World that were themselves financed by limited partnerships and
corporations. This governmental participation in the southern maritime ventures was
nothing new. The temple of Nanna had been involved in financing the Dilmun trade for at
least five centuries before Ea-nasir's time. The interesting thing about his partnership
records is that ordinary citizens, some with only small contributions like a bracelet or
two, could join in the profits of the venture. Enterprise was not only for the wealthy or
the politically powerful. The financial technology of second millennium Ur made the
power of time accessible to a broad number of citizens. Like modern-day investors in
mutual funds, they did not have to be experts in the investment trade to enjoy financial
growth. Neither did they have to commit their entire fortune to a risky venture. The effect
of this business structure upon personal fortunes was profound. People were able to
"insure" themselves against personal failure -- if their own venture collapsed, then the
investment in Ea-nasir's might carry them through hard times. By repeatedly investing in
what was one of Ur's key industries -- the Dilmun trade, they were able to participate in
the general economic growth of their city -- that is unless complete disaster struck.
Government Regulations and the Great Crash
Dumuzi-gamil, Ea-Nasir and their fellow financiers became wealthy through banking and
trading activities during the first half of Rim-Sin's reign, but their financial dealings were
not without risks. In fact, in the year 1788 B.C. there was a financial catastrophe. The
king Rim-Sin issued a royal edict declaring all loans null and void. Debtors rejoiced and
creditors panicked! Dumuzi-gamil and the other lenders appear to have been wiped out.
After Rim-Sin's edict, Marc Van De Mieroop finds little evidence of financial dealings --
with the exception of lawsuits. A number of parties sued in the wake of the edict to claim
property pledged in security for loans. They were unsuccessful.
Loan forgiveness edicts were common both before and after Rim-Sin's reign, and they
suggest that the government had an ambiguous relationship to the financial sector. The
financiers indirectly provided silver to the temple and the palace, but they did so at a high
social cost. The periodic voiding of debts suggests that the government regulation of
interest rates was ineffectual. By allowing financial entrepreneurs, the palace opened a
Pandora's box of possibilities, and it had difficulties controlling the result. Individuals
gained control of things such as the copper trade, and they used money as a means of re-
distributing goods. Some people did well, others didn't, and it did not depend entirely
upon their allegiance to the king or the temple. The existence of legal limits on the
charging of interest shows that king Rim-Sin intended to cap the money lenders profits,
and perhaps exert some control over the burgeoning financial sector. He was only
temporarily successful.
Although the debt edicts provided periodic relief to the citizens who had gotten
themselves mired in debt, they had a negative effect on interest rates, and on the
productive use of capital. The mere threat of an edict would be enough to limit long-term
loans for investment. The risks of such a loan were too great, since the chances of it being
forgiven by the king sometime over its tenure were high. Such uncertainty about the
political future induced lenders to increase interest rates, in order to compensate for the
increased risk of loss. Although meant to provide relief, the edicts effectively increased
interest rates. Lenders played a kind of high stakes "Russian Roulette" with their capital.
The short term returns were high, but the chances of complete loss were significant. To
make matters worse, across the board debt forgiveness was the only kind of risk against
which a lender could not protect himself by diversifying investments. Ea-nasir could
insure against his Dilmun ship sinking by lending money to Dumuzi-gamil to invest in
the bread-making business, for instance, but if all loans were wiped out, this
diversification would not help. Perhaps it is no accident that there are virtually no
documents relating to Dilmun trade for another thousand years Ur apparently ceased to
be the flourishing maritime entrept it had been in its heyday. While scholars attribute
broad political forces to decline of long distance maritime trade, we may look to financial
reasons as well. At some point, the gains from long-range trade ventures could not offset
the potential loss faced by investors. It such an economic environment, trade may grind to
a halt.
We can only speculate on Ram-Sin's reason for eliminating all debt by royal decree.
Perhaps he himself, or those close to him had gotten into debt -- or perhaps it was a
political move to restore popularity with his subjects. The financial innovations that aided
the throne and the temple in procuring silver and copper may suddenly have become a
greater liability than an asset. Regardless of his reasons, the effects on the financial
district of Ur were permanent. Marc Van De Mieroop conjectures that the "golden age" of
finance in Ur drew to a close as the economic authority shifted to the capital city of
Larsa. Perhaps Dumuzi-gamil and his comrades survived the great crash of 1788 B.C.
and, ever vigilant for financial opportunities, moved with it.
Mesopotamian Twilight
The temple mound of Nippur lies north of the ancient sites of Ur and Uruk, and like these
other Mesopotamian cities, it was occupied over the course of several millennia. In 1889,
American archaeologists tunneling deep the