Posted on 09/13/2016 2:39:19 PM PDT by Kaslin
‘Capitalism’ as a word was an invention by Marx IIRC, I don’t think that it has any necessary connection to banking. Ironically enough Marx himself seems to have been something of a goldbug in his own theory of what money ought to be.
Modern banking usually dates to the invention of double entry bookkeeping in 14th century Italy. The creation of credit money, currency, and fractional lending probably developed organically among the great trading houses of that era as they began circulating their bills of exchange instead of extinguishing them.
And to balance things they give $287 to RNC ? But make a direct $258 to HRC ? BS
Capitalism perfected banking but fractional reserve lending began probably ~Roman times (possibly greek) with money changers and goldsmiths.
” but fractional reserve lending began probably ~Roman times (possibly greek) with money changers and goldsmiths.”
That’s the usual story but I doubt that it was the case since the Greeks and Romans were dealing in hard money and not paper. No one has produced any evidence of Greeks and Romans dealing in paper money that I’ve ever seen, and particularly credit money which is what fractional reserve money is. And if there was a Bank of Rome or Bank of Sparta I’ve never seen any evidence of that, either. Money at that time was hard money coined by the Empire or the treasury of the government. The biggest inflationary worry was the shaving of coins.
By comparison medieval trading houses were issuing paper bills of exchange, ricorsas, priced in specie to balance their trades and to arbitrage differences in interest rates around Europe. Being more convenient than specie the bill holders circulated these bills of exchange among their trading houses. By not extinguishing these bills the trading houses were expanding the money supply. This was real fractional reserve lending created organically to facilitate trade. Anticipating money backed by a “real bills” doctrine. The great trading houses like the Fuggers became the first bankers. You can evidence of this in Ehrenberg’s Capital and Finance in the Age of the Renaissance.
Well, I guess this is where that gets them.
Paper or physical coins are irrelevant. If you are holding 100,000 denari for various people/firms and you only only have about 1,000 net withdraws a year, it’s pretty easy to lend out 90k of it or a 10% reserve. Paper just made it easier to deal in larger numbers.
“If you are holding 100,000 denari for various people/firms and you only only have about 1,000 net withdraws a year, it’s pretty easy to lend out 90k of it or a 10% reserve.”
You have described hard money lending. That isn’t fractional reserve lending, which is the creation of credit money, not the lending of hard money. Hard money lending is what shadow banks like Household Finance or Aames Home Loans used to do, it’s not fractional reserve banking.
“Paper or physical coins are irrelevant.”
It’s highly relevant which is why upthread I cited von Mises’ quote about what constitutes banking from his Theory of Money and Credit. Fractional reserve lending is the definition of banking, not the lending of hard money on deposit.
The title of von Mises’ work includes both money and credit because the difference is important and the two constitute what we use as money. Physical coins and specie are the fractional reserves against which credit money, aka money substitutes, aka bank money were created. It all looks the same to the public but particularly in a gold standard regime where this all started it is greatly different.
‘Money’ as used by von Mises has the technical definition of being specie or currency backed 100% by specie. Credit money is currency or bank ledger entries not backed 100% by specie. The credit money can be expanded as a multiple of the specie money held as reserves. That’s the fractional reserve lending. The monetary regime that we operate under now still requires reserves, they just aren’t specie or specie based.
No - hard money lending is backed by an asset - that's what I meant by one dollar of capital rule. There is no leverage.
Fractional reserve lending has *nothing* to do with paper or not although paper/receipts certainly made it easier. If I give 1000 gold coins to bank x and 999 other people give a bank 1000 gold coins, the bank has 1 million gold coins, right? If the bank lends out 900,000 gold coins, this process will repeat and you end up the banks holding 10% in this case as a reserve. It is the very definition of fractional reserve lending and why you end up with "run on the banks."
When the bank loans out 900 coins of your 1,000 deposit your account still shows a balance of 1,000. But there are only 100 physical coins on deposit for you. The other 900 credited to you are either currency or a ledger entry.
The money supply has grown to 1,900 with only the initial 1,000 being actual coins.
Customer #2 takes the borrowed 900 coins and deposits them. The bank loans out 810. Customer #2 still has a balance of 900, with only 90 being actual coins.
The total money supply is now 1,000 + 900 + 810= 2710. Only 1,000 of this is coin, the rest is either currency or a ledger entry. It is credit money created by the bank.
Yes I am aware. That is what fractional reserve lending does. It is irrelevent what type of currency you use - coins, paper, sea shells, jewels, etc. The result is the same.
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