Hi Keith:
Respectfully, I anm forced to take issue with your reply to Peter and the
reference to "sound money"
You sent me to the dictionary with your "captious" but I can now
confidently say that I am also not one of those!! ( :-)))
Banking (modern archaeology as proofs) has been around since (according to
Old Testament chronology) long before Abram left Haran.
I will accept that at the time of the Renaissance Italiens introduced the
roots of modern banking. I also agree that banking makes possible the
achievement you list in that, as an abstract measure of value it
facilitates trade of capital that would otherwise stagnate. (That means
using the broad definition of capital as stored value i.e., skills,
materials, knowledge etc.. More recently, a forest can be regarded as
capital as stored within the trees is a great deal of marketable lumber,
albeit, stored there by, God?)
Before copying my references, which by the way are very interesting, I
might mention that only losing political parties have a horrendous party
debt to pay. The winning (majority) party suddenly finds itself flush with
money.
Regards
Ed G
PS
The references are from JK Galbraith's "Money", (rev. 1995) Chapter 3, Banks
There are three progenitors, of money: mints; treasury secretaries or
finance ministers. These being the source of paper money; and banks of one
(description or another. In their claim to precedence banks come next
after mints and are likewise an exceedingly old idea. Banking had a
substantial existence in Roman times, then declined during the Middle Ages
as trade became more hazardous and lending came into conflict with the
religious objection to usury.
With the Renaissance it revived as trade revived and religious scruples
yielded in normal fashion to pecuniary advantage. So far as any business
can be given ethnic association, banking belongs to the Italians. (1) Both
the decline and revival were in Italy; no bankers since, not even the
Rothchilds or J. P. Morgan, have equalled the Medicis in grandeur, the
grandeur being substantially enhanced by their being the fiscal agent of
the Holy See. The banking houses of Venice (2) and Genoa are the
recognized precursors of modem, everyday, commercial banks. Almost as
advanced were those of the Po valley, and, as money lending developed in
London, it was natural that the street on which it settled should be named
for the Lombards.
The process by which banks create money is so simple that the mind is
repelled. Where something so important is involved, a deeper mystery seems
only decent. The deposits of the Bank of Amsterdam just mentioned were,
according to the instruction of the owner, subject to transfer to others in
settlement of accounts. (This had long been a convenience provided by the
Bank's private precursors.) The coin on deposit served no less as money by
being in a bank and being subject to transfer by the stroke of a primitive
pen.
Inevitably it was discovered - as it was by the conservative burghers of
Amsterdam as they reflected incestuously on their own needs as directors of
the Dutch East India Company - that another stroke of the pen would give a
borrower from the bank, as distinct from a creditor of the original
depositor, a loan from the original and idle deposit. It was not a detail
that the bank would have the interest on the loan so made. The original
depositor could be told that his deposit was subject to such use - and
perhaps be paid for it. The original deposit still stood to the credit of
the original depositor. But there was now also a new deposit from the
proceeds of the loan. Both deposits could be used to make payments, be
used as money. Money had thus been created. The discovery that banks
could so create money came very early in the development of banking. There
was that interest to be earned. Where such reward is waiting, men have a
natural instinct for innovation.
There was an alternative opportunity involving bank notes, one that was to
be wonderfully exploited in the eventual American Republic. That was to
give the borrower not a deposit but a note redeemable in the hard currency
that had been placed in the bank as capital or as a sedentary deposit.
(1) See Abbott Payson Usher, "The origins of banking - the primitive bank
of deposit, 1200-1600", Economic History Review, vol. 4, no. 4 (April
1934), p. 399 et seq. Professor Usher suggests a possible connection
between Roman and later Italian banking but concludes that "there is
nothing in evidence now available to indicate any direct continuity in
practice" (p. 402).
(2.) A pioneer and exceedingly interesting study of early practice is
Charles F. Dunbar's "The Bank of Venice", Quarterly Journal oj'Economics,
vol. 6, no. 3 (April 1892). Banks of deposit to the number of a hundred or
more came into existence in Venice in the thirteenth, fourteenth and
fifteenth centuries. A very considerable number also failed with varying
degrees of resonance. Numerous efforts were made by the Senate at
regulation, including such details as the hours that banks were required to
be open and their obligations to count out the depositor's cash in his full
view.
The results of the regulation were less than perfect.
A sixteenth-century senator. One Tommaso Contarini. told in a speech of the
difficulties. As paraphrased by Dunbar, he noted that a banker can
accommodate his friends without the payment of money, merely by writing a
brief entry of credit. The banker can satisfy his own desires for fine
furniture and jewels by merely writing two lines in his books, and can buy
estates or endow a child without actual disbursement. (p316)
See also Frederic C. Lane, "Venetian bankers, 1496-1533: a study in the
early stages of deposit banking", Journal of political Economy, vol. 45,
no. 2 (April 1937), p. 187 et seq.
