Major Douglas rides again
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Last point on contempary account of gold smith receipts; I realize the Bank of England was founded 1694 (some interesting stuff here) so that it is not really contempory of the main practice, but would be equally needed to defend the Bank of England following a similar course. Incidentially, economists from Irving Fisher to Milton Friedman have advocated 100 percent reserve banking, but it's not a solution in my opinion.
Dan, i will concede that 1730 may not be as contemporary as we would hope but it is the earliest reference in English online and when it comes to other web sources, there is a serious lack of historical references and a reliance upon hearsay and assertion, (among them being the dubious out-of-context or even made-up quotations.} Your own inability to cite a similar source seems to suggest that there is an absence of such evidence to support your claims. Of course, the Bank of England was not the first bank in operation. The first banks were the merchants of ancient world that made loans to farmers and traders that carried goods between cities. The first records of such activity date back to around 2000 BC in Assyria and Babylonia. Later in ancient Greece and during the Roman Empire lenders based in temples would make loans but also added two important innovations; accepted deposits and changing money. During this period there is similar evidence of the independent development of lending of money in ancient China and separately in ancient India. The Templars began generating letters of credit for pilgrims journeying to the Holy Land: pilgrims deposited their valuables with a local Templar preceptory before embarking, received a document indicating the value of their deposit, then used that document upon arrival in the Holy Land to retrieve their funds. This innovative arrangement was an early form of banking, and may have been the first formal system to support the use of travellers' cheques. The Order of the Knights Templar arguably qualifies as the world's first multinational corporation. Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Venice, and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, set up in 1397. A bank was founded in 1609 under the protection of the city of Amsterdam. This bank at first received both foreign and local coinage at their real, intrinsic value, deduced a small coinage and management fee, and credited clients in its book for the remainder. This credit was known as bank money. Being always in accord with mint standards, and always of the same value, bank money was worth more than real coinage. At the same time a new regulation was introduced; according to which all bills drawn at Amsterdam worth more than 600 guilders must be paid in bank money. This both removed all uncertainty from these bills and compelled all merchants to keep an account with the bank, which in turn occasioned a certain demand for bank money.Events such at the appropriation of £200,000 of private money by King Charles I from the royal mint, in 1640 caused merchants to lose trust in the existing institutions and drive them to find more trusted alternatives such as the goldsmiths. The goldsmiths soon found themselves with money for which they had no immediate use, and they began to lend the money out at interest to both the merchants and the government. Finding substantial profit in this business, they began to solicit deposits and pay interest on them. The goldsmiths eventually discovered that the deposit receipts they provided were being passed on from one person to another in lieu of payment in coin, which prompted them to begin lending paper receipts rather than coins. By promoting acceptance of the receipts as a means of payment, the goldsmiths discovered they could lend more than the gold and silver coin they had on hand, a practice that became known as fractional-reserve banking. These practices created a new kind of "money" that was actually debt, that is, goldsmiths' debt rather than silver or gold coin, a commodity that had been regulated and controlled by the monarchy. This development required the acceptance in trade of the goldsmiths' promissory notes, payable on demand. Acceptance, in turn, required a general belief that coin would be available; and a fractional reserve normally served this purpose. The monarchy's urgent need for funds at rates lower than those charged by the goldsmiths, and the example of the public Bank of Amsterdam, which had been able to make an ample supply of credit available at low-interest rates, led in 1694 to the establishment of the Bank of England. The Bank of England succeeded in raising money for the government at relatively low rates.http://www.banking-history.co.uk/history.htmlhttp://en.wikipedia.org/wiki/History_of_bankingA description of the Fractional Reserve process can be found athttp://www.federalreserveeducation.org/fed101/fedtoday/FedTodayAll.pdf page 5"The fact that banks are required to keep on hand only a fraction of the funds deposited with them is a function of the banking business. Banks borrow funds from their depositors (those with savings) and in turn lend those funds to the banks borrowers (those in need of funds). Banks make money by charging borrowers more for a loan (a higher percentage interest rate) than is paid to depositors for use of their money. If banks did not lend out their available funds after meeting their reserve requirements, depositors might have to pay banks to provide safekeeping services for their money. For the economy and the banking system as a whole, the practice of keeping only a fraction of depositson hand has an important cumulative effect. Referred to as the fractional reserve system, it permits the banking system to "create" money." (The inverted commas round "create" are particularly appropriate. They should also have been around "money" as they are using the word to include "bank deposits" and nobody denies that the circulation of money through the banking system leads to an increase in the number of bank deposits.)The New York Federal Reserve also gives a rather more sophisticated explanation at http://www.newyorkfed.org/aboutthefed/fedpoint/fed45.html"Reserve Requirements and Money Creation: Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000). In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of $500 ($100+$80+$64+$51.20+…=$500). Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity. In practice, the connection between reserve requirements and money creation is not nearly as strong as the exercise above would suggest. Reserve requirements apply only to transaction accounts, which are components of M1, a narrowly defined measure of money. Deposits that are components of M2 and M3 (but not M1), such as savings accounts and time deposits, have no reserve requirements and therefore can expand without regard to reserve levels. Furthermore, the Federal Reserve operates in a way that permits banks to acquire the reserves they need to meet their requirements from the money market, so long as they are willing to pay the prevailing price (the federal funds rate) for borrowed reserves. Consequently, reserve requirements currently play a relatively limited role in money creation in the United States." (Note that the pyramid is based on the assumption that the money loaned on the basis of the original deposit is also deposited in a bank.)In sceptical accounts, such explanations are neglected and ignored with preference given to badly expressed and articulated explanations such as Graeber's "proof" in the B of E statement. Banks, in pursuit of profit, have every incentive to make as many loans as they can (since the more loans they make the more income they stand to get as interest) and that in recent years they overdid this by creating all sorts of complicated and dubious loans financed by money they had borrowed on the money market. This all came unstuck when the US housing construction sector "overproduced" houses (in relation to paying demand, not real need, ). That's the way capitalism works. In a boom, every capitalist enterprise (banks included) tries to make as much profits as they can. Then one sector overproduces and this has a knock-on effect on the rest of the economy. This happens every time and there's nothing governments can do to stop it. That's one reason why we've got to get rid of capitalism and its production for profit and replace it with socialism and production directly for use.Dan, the Marxist reply to premise of your argument is this. There are three main divisions within capitalist society which share the surplus-value which is socially extracted from the working class; the industrialist, the landlord and the banker. These divisions historically reflect the application of the division of labour to the specialised investment of capital in any field of production and distribution, any process of circulation, of which banking is part. Banks produce nothing. They are really middlemen or custodians of idle capital which must be available as a hoard, as potential money capital waiting to be put to use. Their profit is made during the process of circulation. The difference between finance capital and industrial capital is that the owner of money capital who wishes to earn interest on that money throws it into circulation not as capital for himself, but so that others can use it, and consequently gains a profit by this service.Contrary to popular belief, banks do not dominate the capitalist system (The two largest corporations in the world are WalMart, bigger than the Pakistan and Exxon bigger than the New Zealand economies). This mistaken view is due to the fact that wealth is represented by enormous quantities of money. All wealth under capitalism expresses its value in the symbolic money form, but that form tends to conceal the fact that capital exists in the physical implements of the labour, factories, minerals, buildings, ships, etc. If for some reason, whether it be that the market is already overloaded and cannot absorb further commodities, or that over-production has already taken place, then production will be scaled down, curtailed, or in some cases halted entirely, and workers will be laid off. In these circumstances, there will be little prospect of profit, and as experience has shown a number of capitalists, the smaller ones, go bankrupt All the machinations of the banks, either by advancing or retarding credit, whether charging low-interest rates or not, cannot alter this. At the moment there is no shortage of cash available for investment. However, in a failing market, there is little incentive to the industrial capitalist to commit himself to paying interest when the prospects of earning surplus-value on the borrowed money are extremely remote.Speculation involves buying cheap and selling dear. When it comes to banking, what banks are doing is borrowing money cheap and lending dear, pocketing the difference as profit. Basically the same as any merchant who buys below value but above the cost-price of the producer of the commodity, and then sell above their own cost-price. There is nothing very specialk about banks; they are not wicked finance capitalists against whom the anger of workers should particularly be directed, just capitalists with their capital invested in a particular line of business, no more nor less reprehensible than the rest of the capitalist class.Apologies for this long post, some i am sure you are already aware of, Dan. But to end, just a comment on Iceland. As you said, much to the delight of many, Iceland let the big banks topple and prosecuted the bankers. But it was a painful process with severe austerity policies implemented. 2015 saw a series of strikes in Iceland (even the police walked out) as the price of solving the financial crisis, just as elsewhere, fell upon the working class. Wages suffered devaluation and stagnated even when business profits had recovered. Capitalism,as a whole, had prevailed and nothing really changed.
RE: Dan, i will concede that 1730 may not be as contemporary as we would hope but it is the earliest reference in English online and when it comes to other web sources, there is a serious lack of historical references and a reliance upon hearsay and assertion, (among them being the dubious out-of-context or even made-up quotations.} Your own inability to cite a similar source seems to suggest that there is an absence of such evidence to support your claims. As before, relying on contemporary accounts, one might as well say our condemnation of the Catholic inquistion is wrong, because contemporary accounts said it was justified. Again, there is more reason for the powers that be to lie during the time of the transgression; and this information is more, not less, likely to be false. For a pamphlet where the goldsmiths are alleged to have 'lent the king money that was not their own', one could look at The Mystery of the New-Fashioned Goldsmiths (1676). There are three or four other works around this time not hard to find on the Internet. Could be just more propaganda of the time against the goldsmiths.However, I prefer to look at concrete evidence such as the the money supply increasing faster than the increase of gold found in the new world, how bank runs where the bank ran out of gold could not possibly occur it there was no fractional reserve etc.etc. etc. Even human nature, where you know some goldsmiths are going to try this, unless for some incomprehesible reason only saints could become goldsmiths. I have read 'scholarly' works defending the goldsmiths, that maybe they were involved, but most as unwilling accomplices. Funny stuff, but anyways, time to look to the future and not the past, so I'm done here thanks.Dan
Many thanks for the tip The pamphlet can be found herehttps://www.gold.org/sites/default/files/documents/1676.pdf
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