Archive | February 2013

Finance in Ancient Rome

Roman Empire, c. 395

Roman Empire, c. 395

I just read this and thought it was absolutely fascinating. Apparently the Federal Reserve Bank of New York is busy commissioning studies of finance and money transfer as it was 2,000 years ago.

Though I’ve ripped this off the Big Picture blog (which my good friend Chris introduced me to), I’ll repeat it again here (since it was ripped off the Fed of New York anyway).

I never considered the problem of having to physically move money (read: metal coins) around to make foreign investments. Moving it would be an incredible risk, as it would likely be stolen along the way. Turns out, you could just pay the money to the central bank in Rome, and the Romans would just deduct the amount of money you wanted to transfer from their tax collection in whatever region it was going to.

This is worth the read. I promise I’ll write something of substance after I’m done dissertating.

Historical Echoes: Cash or Credit? Payments and Finance in Ancient Rome
Marco Del Negro and Mary Tao

Imagine yourself a Roman citizen in the 1st Century B.C. You’ve gone shopping with your partner, who’s trying to convince you to buy a particular item. The thing’s pretty expensive, and you demur because you’re short of cash. You may think that back then such an excuse would get you off scot-free. What else can you possibly do: Write a check? Well, yes, writes the poet Ovid in his “Ars Amatoria, Book I.” And since your partner knows it, you have no way out (the example below shows some gender bias on Ovid’s part. Fortunately, a few things have changed over the past 2,000 years):

But when she has her purchase in her eye,
She hugs thee close, and kisses thee to buy;
“Tis what I want, and ‘tis a pen’orth too;
In many years I will not trouble you.”
If you complain you have no ready coin,
No matter, ‘tis but writing of a line;
A little bill, not to be paid at sight:
(Now curse the time when thou wert taught to write.)

In a previous Historical Echoes post, we describe some of the characters in early Roman high and low finance. Here, we look at their modus operandi.

Large sums of money changed hands in Roman times. People bought real estate, financed trade, and invested in the provinces occupied by the Roman legions. How did that happen? Cicero writes, in Epistulae ad Familiares 5.6 and Epistulae ad Atticum 13.31, respectively: “I have bought that very house for 3.5 million sesterces” and “Gaius Albanius is the nearest neighbor: he bought 1,000 iugera [625 acres] of M. Pilius, as far as I can remember, for 11.5 million sesterces.” How? asks historian H. W. Harris (in “The Nature of Roman Money”)–“mechanically speaking, did Cicero pay three and half million sesterces he laid out for his famous house in the Palatine . . . . That would have meant packing and carrying some three and half tons of coins through the streets of Rome. When C. Albanius bought an estate from C. Pilius for eleven and half million sesterces, did he physically send the sum in silver coins?” Harris’ answer is: “Without much doubt, these were at least for the most part documentary [i.e., paper] transactions. The commonest procedure for large property purchases in this period was the one casually alluded to by Cicero [De Officiis 3.59] . . . ‘nomina facit, negotium conficit’ . . . provides the credit [or ‘bonds’–nomina], completes the purchase.”

What exactly are these nomina?–from which, by the way, comes the term “nominal,” so commonly used in economics. In his Ph.D. dissertation “Bankers, Moneylenders, and Interest Rates in the Roman Republic,” C. T. Barlow writes (pp. 156-7): “An entry in an account book was called a nomen. Originally the word meant just that–a name with some numbers attached. By Cicero’s day . . . [n]omen could also mean “debt,” referring to the entries in the creditor’s and the debtor’s account books.” And this “debt was in fact the lifeblood of the Roman economy, at all levels . . . nomina were a completely standard part of the lives of people of property, as well as being an everyday fact of life for a great number of others” (Harris, p. 184). Pliny the Younger writes, for example, (in Epistulae 3.19): “Perhaps you will ask whether I can raise these three millions without difficulty. Well, nearly all my capital is invested in land, but I have some money out at interest and I can borrow without any trouble.”

For concreteness, say that some fellow, Sempronius, owes you one million sesterces. You–or in case you’re a wealthy senator, or eques, your financial advisor (procurator–Titus Pomponius Atticus was Cicero’s)–would record the debt in the ledger. What if you suddenly needed the money to buy some property? Do you have to wait for Sempronius to bring you a bag with 1 million sesterces? No! As long as Sempronius is a worthy creditor (a bonum nomen [see Barlow, p. 156]; in the modern parlance of credit rating agencies, a triple-A creditor), you’d do what Cicero says: transfer the nomina, strike the deal. For example, Cicero writes to his financial advisor Atticus (Ad Atticum 12.31): “If I were to sell my claim on Faberius, I don’t doubt my being able to settle for the grounds of Silius even by a ready money payment.” As Harris (p. 192) observes: “Nomina were transferable, and by the second century B.C., if not earlier, were routinely used as a means of payment for other assets . . . . The Latin term for the procedure by which the payer transferred a nomen that was owed to him to the seller was delegatio.”

So, we’ve seen that Romans could settle payments by transferring nomina. But was there a market for nomina, just like there’s one today in, say, mortgage-backed securities? According to both Barlow and Harris, the answer is yes. They claim that the Romans took the transferability one step further and essentially turned “mere entries in account books” into “negotiable notes” (see Barlow, p. 159, and Harris, p. 192). Not everyone agrees. The economic historian P. Temin (“Financial Intermediation in the Early Roman Empire”) also reports evidence of assignability of loans, opening the possibility of “wider negotiability, but,” he adds, “we do not have any evidence that it happened” (p. 721). Yet some indirect evidence is there. For instance, the idea of negotiable notes appears to be well understood by Roman jurists, such as Ulpian (The Digest of Justinian XXX.I.44): “A party who bequeaths a note bequeaths the claim and not merely the material on which the writing appears. This is proved by a sale, for when a note is sold, the debt by which it is evidenced is also considered to be sold.”

What if you had to transfer money to somebody in a different part of the globe? As the Roman dominions expanded into Greece, Spain, North Africa, and Asia, Roman finance actually faced this logistical problem. If you’re in Rome and want to, say, finance Caius’ mines in Thapsus, North Africa, how do you get him the money? He needs the silver to buy material, slaves, and other things, but you’re naturally very reluctant to see your money sail away for Africa, as the chances of it getting there aren’t that high (see pirates, shipwrecks, etc.). “Permutatio, the transfer of funds from place to place through paper transactions, was Rome’s great contribution to ancient banking” (Barlow, p. 168). It worked as follows: The publicani were private companies in charge of tax collection in the provinces (as well as many other tasks; see “Publicani,” by U. Malmendier). They had a branch in Rome and one in Thapsus. So, you’d give them the silver in Rome (or transfer them some nomina) and they’d divert some of their tax collection in North Africa to Caius. This is also how the Republic would finance its public spending overseas. Since taxes were collected throughout the provinces, by trading claims on taxes Romans could transfer funds across the globe–or at least to the part of the globe they had conquered.

Interestingly, some historians measure the sophistication of Roman finance “by the extent banks were present” (Temin, p. 719). While it is true that we have no evidence of a 1st Century B.C. Wells Fargo, this may not necessarily imply lack of sophistication. Prior to the Great Recession in the United States, a large chunk of financial intermediation didn’t involve banks–it went through the “shadow banking system.” Roman high finance “functioned primarily on the basis of brokerage” (K. Verboven, “Faeneratores, Negotiatores and Financial Intermediation in the Roman World,” p. 12), and hence was a bit like a proto-shadow banking system, as we suggest in our prior post. Like the shadow-banking system in the United States, it was fragile. Going back to our earlier example, we note that if whomever you want to buy property from starts wondering about the creditworthiness of Sempronius, she will not accept his nomina in payment and will want cash. That’ll force you to call in the loan to Sempronius, who in order to pay you will call in his loan to Titus, and so on. But financial crises in ancient Rome are the subject of a future post.

We are grateful to Cameron Hawkins of the University of Chicago for help navigating the literature.

Sensationalist Reporting on the Kenyan Election

NYT headline, Feb 22, 2013

NYT headline, Feb 22, 2013

Generally speaking, in the context of large American media outlets, the NYT shys away from sensationalist reporting. Today’s headline on the upcoming Kenyan election is a disappointing exception.

There’s no doubt that the events in the article occurred and is worthy of reporting. The NYT, however, has been near silent on the subject of the Kenyan elections, arguably the most important political event in the world in early 2013. After months of nothing, we get a picture of a near decapitated infant.

The 2008 Kenyan elections were an absolute disaster. Such a disaster, in fact, that the entire country is proactively wishing that the next one (scheduled in March) passes peacefully and without incident. I am, of course, skeptical that the elections will proceed entirely without incident as Kenyans universally insist, but I think it unlikely that there will be near the extent of bloodshed.

ICC court proceedings are constantly broadcast live in every eating establishment and bar in the country, likely as a grim reminder as to how bad things can be, but also as a deterrent to further violence. The festering remains of IDP camps on the sides of Kenyan highways are even more grim, particularly when one realizes that a few people are still living in them.

As the article says, Kenya is an oasis of development in a highly troubled region (it borders Somalia). In 2013, Nairobi is no different than Houston, TX. I’m not a fan of either, but it’s telling when I can go into a Nairobi supermarket and be offered free, processed food samples, just as I would at Meijer back home. It’s telling when I can buy real coffee (not instant) at a local Starbucks analogue. Granted, the rest of the country has a lot of catching up to do, but there is light at the end of the tunnel.

Donald Richie, RIP

Donald Richie

Donald Richie

Sometime in 1993, I became interested in Japanese cinema. To date, I’m still not sure why, but it happened nonetheless. I picked up a large tome, “The Japanese Film: Art and Industry,” for a discount while I was working at a local bookstore. That book was written in 1959 by a Mr. Donald Richie, who, it turns out, was teaching a class at the University of Michigan, where I was enrolled. It was too late to add the course to my schedule, but I went anyway, listened to the first lecture and was immediately hooked.

I approached Mr. Richie after class and asked him if it would be alright if I sat in on the class. He looked a bit distressed and asked if I would be doing the course work. I said that didn’t really matter to me. I just wanted to come to the course every week and listen to his lectures.

Richie loved the Japanese cinema. His lecture style was so un-alienating that one couldn’t help but love it, too. He would present the films in a manner that made them entirely foreign and unique products of the particular culture that produced, but simultaneously fit them squarely in a worldwide tradition of movies. He would present his lecture on the movie of the week, then we would watch the film in a theater, where he would deliver an abridged version of his Tuesday lecture for people who didn’t have the pleasure of attending his class. I think I learned more about art, cinema, media, culture, social science, the humanities and politics in that one 7 week course that I did in the entire remainder of my undergraduate education.

The time for the first mid term came, and I sat for it. Richie came up to me again with a distressed look on his face and stuttered, “A-a-are you taking this c-course for c-c-credit?” I said no, but asked him if I could take the exam anyway. He looked stressed but said yes, no problem. The following week, when he passed back the exams, he had thoughtfully commented on my work, writing more than a page of notes, ending with “If I were grading this, I would give you an A+. Good work.” When the time for the final exam came, the entire incident was repeated. To this day, I’m not sure why my not officially signing up for the course stressed him so. Perhaps he had too many students. I would like to think that he was trying to be meticulous and follow the rules to the letter, which was rather uncharacteristic of a man who flouted so many rules in his lifetime. Perhaps Japan had rubbed off on him more than he cared to consider (though there was no sucking of air through teeth).

I would see him on the street and he would always say hello. I regret not engaging him more while he was there, but it’s hard to just approach someone when you’re a starstruck kid. I later learned that he had a terrible time in Michigan, mainly because the stodgy faculty in the Japanese studies department would take him out on the town in neighboring Ypsilanti. I wish I would have known.

Shortly after that, I became more and more immersed in Japanese cinema studies and decided that I wanted to go to Japan and eventually pursue a graduate degree in the field (I didn’t do the latter). I arranged for a job teaching English conversation in Osaka (with the help of a friend), and left for Japan in November of 1996. It was there that I started speaking Japanese on a daily basis, and met my wife, who still puts up with my abhorrent command of the language.

If I had not taken Richie’s course, I don’t think I would have gone to Japan. It can’t be said that life would have been better or worse had I not gone, but it certainly would have been very different, and probably a little less interesting and certainly minus a life partner. For this, I am entirely grateful for Donald Richie’s existence and wholly sad for a great man’s passing.

Richie made experimental films in the 1960’s. This is one of them:

The Uncharted Land of Marketing

Juggalo.

Juggalo.

I’m back in the swing of dissertation writing and currently slogging through marketing papers. I now know more about how new products spread than I ever cared to.

First, the truth is that no one really knows why some products succeed and others don’t. As the purchasing of goods in the market done by multiple individuals whose decisions are often personal and multi-factorial, direct observation and dissection of behavior is nearly impossible.

There are some theories, though (largely from Van den Bulte, 2007). So that I don’t forget, and purely for my own benefit, here’s a breakdown:

1. People who buy early are different from those who buy late. For example, the people who sit in the cold waiting to buy the new iPhone on the day it is released are vastly different from those who wait until the price drops 6 months later. It’s hard to tell who’s smarter. Me, I like heat. (See Rogers, 2003.)

2. There are market leaders that other people like to follow. People buy products because they want to imitate others, who might mostly be those who pick up on fads early, i.e. there are “innovators” and “imitators.” People who bought to iPhone 1 (what did that look like?) early showed it to their friends, who bought one, too. (see Bass, 1969)

3. People buy products autonomously, because of influence from above, or because of peer influence. Some people buy stuff caring little for anyone else. Some people buy stuff because an authority said it was a good idea. Some people buy stuff because their friends do. (see Riesman, 1950 and Schor, 1998)

4. Purchase decisions depend on social status. Some people buy stuff because they want to emulate those higher on the social ladder than they are. Similarly, those on top buy new stuff because they don’t want to fall behind or be unseated as a high profile consumer. Some people tend to want to buy slightly more car than they can afford, so that they can feel more like those with more money than they have. The stratified nature of society, thus, perpetuates a system of striving to consume more beyond one’s means. This desire is, of course, endless. (see Simmel 1971 and Burt 1987)

5. Marketing is a two step process. Ads are only effective at influencing behavior of leaders, who, in turn influence their followers. I call this the “Economist effect.” Only a few sad people (such as myself) read the British magazine, the Economist. When the Economist endorses a Presidential candidate, it would seemingly have little effect since only about .0028% of the American populace is paying attention. However, the readership of the Economist consists of educated and well positioned people who have the capacity to influence large numbers of people who don’t read the Economist. On numbers alone, an endorsement from that newspaper would seem meaningless, but as a conduit to the less engaged, the effect could be considerable. (Fortunately, though, no one cares what I think.) (see Lazarsfeld, 1944)

6. There are risks to adopting new products, fashions, etc. Very, very poor people are very similar to very, very wealthy people in that they have nothing to lose by taking adopting new products or behaviors. Ever think about the crazy stuff that some homeless people wear? Is it any crazier than high fashion? Think of Juggalos vs. Comme de Garcons. (I don’t know anything about fashion; that was all I could come up with). People in the middle, however, have a lot to lose by dressing crazy, so they end up really boring. (see Homans, 1961)

A Visit to the Local Witch Doctor

The Healer holding a diarrhea medication and wearing a medicinal herb which alleviates joint pain.

The Healer holding a diarrhea medication and wearing a medicinal herb which alleviates joint pain.

I’ve seen survey after survey which show that a large percentage of Africans rely on traditional healers (witch doctors, medicine men) as a first choice when symptoms of disease appear. It’s pretty easy to dismiss them outright, but they have to be taken somewhat seriously when so many people rely on them for help.

My friend, Gabriel, though, knowing I’m into weirdness, took me to one tonight. By sheer coincidence, we happened to run into him on the way walking with a young gentleman. After a brief exchange, he was kind enough to agree to see us and led us back to his house.

Through Gabriel (my Luo is beyond poor), I asked him what the young man was doing there. The healer told me that someone had stolen some items from the guy. He had come to the healer to ask him to use his magic to reveal the identity of the thief and purchase some medicine with with to curse the man who had stolen his property. I asked him if people came to him often with such troubles. He replied that yes, indeed, many people do.

I tried to be snide and ask him what he would do if the thief came to him to try and get the curse removed and put on the guy that cursed him (fueling a never ending cyclic hell of cursing), but he didn’t really get what I was after.

The Healer's house, complete with waiting patients.

The Healer’s house, complete with waiting patients.

The healer then turned to me and asked me what my troubles were. I tried to tell him my knee hurts (which it does), but he kept insisting that my stomach hurt (it does not). Finally, I had to cave and just tell him that I was suffering from stomach pain. When he was describing the pain, he kindly tried to include the knees.

The healer learned his trade from his parents. He claims that his particular magic is strong because he learned it from his mother (rather than his father). I was told that that was a secret but I guess I’ve let it out. I’m sure it’s still a secret here. (My readership numbers show that it’s a secret anyway.)

He took us back to his house, a shack in a fishing compound on the edge of town, which usually smells of weed. He took us inside and had us sit down on his couch while he started pulling out various bottles and bags of powders. I was sitting next to him. Suddenly he jumped up and insisted that the medicines wanted me to move to the far side of the couch. I asked him if the medicines talked to him to which he replied yes, indeed, they do. I figured out pretty quickly that he’s half deaf and wanted Gabriel closer to him so he could hear.

Medicines

Medicines

He went about mixing up some medications. The first was a small amount of powder that I thought was going to cure my alleged stomach problems, but instead was intended to get me a job. In fact, this medicine is so powerful, that I will never get fired from the job once I get it. I guess this means I’ll get a tenured faculty position any day now.

Next, he produced a number of bags of what looked like Indian spices and proceed to mix a heaping amount of what could be easily mistaken for garam masala. This medicine is what’s supposed to cure my diarrheal ills (which he also insisted I had). He poured some in my hand and told me to taste some. I hesitated but did it anyway. Definitely chili peppers in there. My mouth immediately went numb and my head started to spin a bit. Could be something like kava, definitely not weed. I have no clue what’s in this stuff, but there’s most certainly some active ingredient in it. I suspect that he produces it to emphasize his powers.

Magical items

Magical items

He gave me very specific instructions on how to mix it, and when to use it. I am only supposed to use it between the hours of 8 and 9 p.m. All of my diarrhea and abdominal pains will immediately disappear. I am to go back to see him after two days (presumably to buy more).

Finally, he recognized that my knee hurts. He asked me if I had time to wait. I said yes, and he left the house to go and get some herbs. We could hear him pounding it into a powder outside. He returned, and said that I should mix the power with Vaseline and cover my entire body with it. I would need a partner to do it. After covering my entire body with the vaseline/powdered grass mixture, I should shake my limbs a bit. After two days, all of my pain would cease. I was to see him again (and again buy more, presumably).

We asked him how much it would be. “This is very expensive. 2,000 Schillings ($24.00).” to which we both balked. Eventually, we talked him down to 500 (about $6.00). Gabriel wanted to talk him down to 100, I just let it go figuring it was a small price to pay for such a weird experience.

Eventually, we had to go. Patients were lined up outside waiting.

The Healer with patients

The Healer with patients

Ruma National Park

Impala

Impala

I took a few hours off today and visited Ruma National Park, home of the last of the roan antelope, along with zebras, black and white rhinos, leopards and a number of other animal species.

The name apparently has some history:

It was renamed “Ruma” upon request of the local community. The area had been so named by one of Kenya’s most powerful wizard, the much feared Gor Mahia who lived around the park. The park is largely of black cotton soil with surrounding area settled with a mix of small scale cultivation and grassy pasture land.

Gor Mahia is a legendary Luo figure, who even has a book written about him.

Without much else to say outside of complaining about the heat, I leave a few pictures.

Kenya: Land of Heat, Land of Beef

Kids at the Junction

Kids at the Junction

During the day it’s easy to come up with a million brilliant things to write about, but once I return home, there’s nothing but data waiting and exhaustion after that.

We went around and continued a survey of shops here in Mbita. Mostly, I tagged along taking GPS readings while secretly dying in the heat. We probably walked more than 10 kilometers total and I probably shook more hands than a politician. All along, I got to hear great tales of employees running away with the day’s profits while the boss is at lunch, stories of false representatives of the “health council” that demand exorbitant weekly payments, how horribly lazy the men of Mbita are, and women who get their hair halfway cut and then run out without paying.

At the end of the day, my survey guy started complaining that he was hungry. To be honest, I’ve never had a survey person ever complain of being hungry. I’ve watched (with awe) Africans go without food and water for far longer than I’m able to. Malawians seem to be able to hold out the longest. (That’s not a generalization. That’s truly my experience.) I have to admit, I was really ready to eat something but was going to hold out until the work was done.

By some bizarre stroke of luck, we happened upon the house of one of the survey managers, who, with no prompting, enthusiastically invited us into his home. Next thing we know, heaping plates of ugali (boiled rice meal) and Nyama Choma (grilled beef and the National Dish of Kenya) are being served up. It was fantastic, of course.

I can’t summon the strength to write much more, so I’ll leave you with a couple of pictures.

Barber shop in downtown Mbita

Barber shop in downtown Mbita

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