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In this article I use a theoretical hierarchy of financial sources to evaluate the effectiveness of the financial markets in the early Roman Empire. The goal of this exercise is two-fold. First, it reveals the extent to which the Roman economy resembled more recent societies. No ancient historian claims that the Romans operated in a twentieth-century mode, but most of the financial institutions that we take for granted today are less than two centuries old. More relevant is how the Roman financial system compares with the advanced agrarian economies of the eighteenth century. Second, this exploration sheds light on the prospects for economic growth in the Roman Empire. Good financial markets and institutions help people who have ideas for production get resources to implement those ideas. Empirical investigations of recent economic growth have exposed a clear connection between financial institutions and economic growth; without these markets and institutions, the prospects for economic progress appear far more limited. I argue that the Romans had a sophisticated financial structure, which had the potential to promote growth. Recent archaeological research on various parts of the Roman economy has suggested a capacity for growth. This article therefore is part of a more general reevaluation of the economy of the early Roman Empire.
In order to evaluate the sophistication of the Roman financial market, we need to know if there were credit intermediaries, that is, institutions that mediate between borrowers and lenders, obviating direct contact between them. The most popular credit intermediaries in many societies are banks, and we are fortunate that ancient historians and modern economists employ the same definition of a bank. Edward Cohen opened his discussion of Athenian banking by quoting the legal definition in use in the United States today. This same definition can be found in a recent textbook on financial markets and institutions, which states: "Banks are financial institutions that accept deposits and make loans." The text explains that, "Banks obtain funds by borrowing and by issuing other liabilities as deposits. They then use these funds to acquire assets such as securities and loans." Deposits are bank borrowing for which banks furnish services in place of paying interest, either in part or in full. Demand deposits, which are totally liquid, typically do not pay...