The Origins and Nature of Bronze-Age Interest Rates
From The Observatory
Interest rates, a fundamental aspect of modern economics, originated in ancient Sumer around the third millennium BC. Unlike other ancient civilizations such as the Indus and Hittite kingdoms, Sumer developed formalized systems for charging interest on debt. This practice was distinct from gift exchanges or fines and involved documented contracts with stipulated rates of return.
Six key features characterize early interest practices:
- Interest emerged in Sumer's commercial sphere, likely influenced by temple institutions.
- Terms for interest, like máš in Sumerian, evolved from metaphors related to birth, signifying the periodic accrual of interest.
- Mesopotamia's commercial interest rate of 1/60th per month became a standard, with variations in Greece and Rome based on their numerical fraction systems.
- Agricultural and commercial interest rates remained separate, with agrarian rates often tied to land rents or sharecropping arrangements.
- Agrarian interest rates sometimes exceeded what cultivators could pay, leading to economic polarization and occasional debt cancellations by rulers.
- Ancient societies considered loans amortized once interest payments equaled or exceeded the principal, a concept seen in laws like Hammurabi's and Justinian's.
Understanding the origins and nature of interest rates provides insights into ancient economic structures and societal dynamics, shedding light on how financial practices evolved over millennia.
🔭 This summary was human-edited with AI-assist.
