Chapter 4: Early Days.

 

The situation we are in today has evolved over many centuries. Economists had plenty of time and opportunity to comment – and comment they did. Only recently has it become highly controversial to notice that banks create money, let alone to discuss the implications.[1] This makes the comments of earlier economists particularly interesting – for their honesty and perceptiveness.

This chapter begins with economists commenting on the increasing power and influence of bank-credit. It finishes with a fascinating (and very modern) suggestion from 1707 of how money should be created, fairly and realistically for the benefit of all. The proposal is similar to many reform proposals being put forward today.

Here are some features of bank-money that writers on economics were reacting to (some unfavourably, some favourably):

  • Bankers create more in ‘credit’ than they have in ‘cash’.
  • Their credit becomes money when it circulates in making payments.
  • When bank-credit becomes money, interest siphons money from working and productive people to wealthy and powerful people.[2]
  • Money created by banks increases the powers of government and concentrates the power of capital in fewer and fewer hands.
  • Bank-credit feeds war, predatory nationalism and national debt.
  • Increased concentrations of power bring new moral values: neglecting justice in favour of social management, exploitation and direction from above.

For roughly two thousand years, from the days of Aristotle to the end of the Middle Ages, economists did not pretend to be ‘scientists’. First and foremost, they were moral philosophers. They wrote about money and power in relation to law and the morality of human well-being. Aristotle, for instance, believed that money should be a means of exchange, not allowed to ‘breed’ more money.[3] Money, he said, is a human invention. We must be careful that it produces good, not evil.

Later, during the Middle Ages, economist/philosophers were employed by the Christian Church, which held a great deal of worldly power. Sword-wielding bishops went into battle, Popes led armies, papal territories grew and shrank: but mostly (and more to the point) the Church’s authority relied on its assertion of a moral order. The Church was made up of human beings, so of course it was open to the usual corruptions of greed, hypocrisy and ambition. In certain respects, its moral precepts are different from those we would live by today, but they carried weight. Its pronouncements were backed up by a system of Church Law capable of meting out horrible punishment and also by threat of damnation – which for many was a serious consideration.

The Church strongly disapproved of usury: that is, of charging interest on loans. It now seems one of the great ironies of history that Christian economists (the ‘Scholastics’) ignored Christ’s apparent recommendation (in the Parable of the Talents) that money SHOULD be lent at interest.[4] In keeping with more ancient Greek and Jewish traditions, the Scholastics maintained that charging interest was wrong, full stop.[5]

Merchants, moneylenders and bankers found ways round these laws. They used several arguments: money charged for lending was not interest, it was compensation for the money they would have made if they had not lent the original sum (‘lucrum cessans’), or compensation for risking their capital (‘periculum sortis’). They also used exchange rates and currency transactions to confuse the authorities.[6] Monarchs and princes ignored the laws.

At this point, it is worth emphasizing the differences between money-lending and banking. Money-lending is the straightforward lending of money that already exists. Banking creates new money in the form of credit (see Chapter One). In medieval times, money-lending was allowed by Christian authorities to Jews under the authority of monarchs (who would then habitually rob the moneylenders of their accumulated wealth). Banking, on the other hand, grew out of a practice (the Exchanges) which was forbidden to Jews: it was ring-fenced not only by social and racial prejudice, but also by the compulsory taking of Christian oaths.[7]

Bankers lent a great deal of credit based on very little gold. This made it much cheaper for borrowers (and more profitable for lenders) because a small amount of gold would support many times its value in credit – in effect, the same gold could be lent several or many times over, depending on how adventurous the banker was. During the late Middle Ages, bankers drove out money-lending from the most lucrative markets.[8] Banks were lending credit-money, newly-created for the rich; money-lenders were lending pre-existing money, at higher rates of interest and mostly to the poor. The pattern survives today.

Preoccupied with law and ethics, Scholastic economists barely analysed credit-creation.[9] They concentrated on moral and philosophical reasonings about lending at interest. Under what circumstances is it acceptable to break the fundamental rule, that money lent should be returned without increase? The writings of St. Thomas Aquinas are a good example.[10] As time went on, the Scholastics, caught between the realities of banking and the tyrannical theories of Church doctrine, ‘were sucked deeper and deeper into a quagmire of contradictions.’[11]

The Spanish Scholastic Luis de Molina did at least recognise that bank-credit was a form of money. ‘Though many transactions are conducted in cash, most are carried out using documents which attest either that the bank owes money to someone or that someone agrees to pay, and the money stays in the bank.’[12] But he appears not to have investigated the consequences.[13]

The Venetian banker and Senator Tommaso Contarini was perfectly happy to describe in 1584 that a banker effectively creates money “by merely writing two lines in his books”.[14] Many economists even today are in denial of this simple, long-established truth, and insist that bankers are merely intermediaries between savers and borrowers.

During the fifteenth, sixteenth and seventeenth centuries, medieval society diversified from a society composed of ‘those who work, those who fight, and those who pray’ to a more complex world. The most significant development was the emerging power and influence of a class centred on enterprise, trade and capital. People outside the Church began writing on economics: humanist philosophers, public administrators, merchants and financiers. Such people, living in the practical worlds of administration and business, were bound to notice that banks were creating lot of credit on rather few assets.

These practical economists are today known as ‘Mercantilists’. Mercantilists disagreed with each other about most things, including the desirability of banking. But they were agreed on one thing: a State should maintain a healthy balance of trade, both to accumulate money for emergencies such as wars, and to avoid running out of coin.[15] They observed that shortages of coin were made worse by bankers hoarding coin as a basis for credit.

For the Mercantilists, money-creation by banks was a familiar fact. A sentence written in the 1560’s (perhaps by Elizabeth I’s diplomat-financier Sir Thomas Gresham) that bankers ‘do greate feates having credit and yet be nothing worth’ was repeated almost word-for-word by the businessman Gerard de Malynes in 1622: bankers ‘do great feats having credit and yet be nought worth’. Malynes explained that bank-credit rested on very little hard cash. ‘What is this credit? – or, what are the payments of the Banks, but almost or rather altogether imaginative or figurative?’ He went on to explain in detail how payments are made in-bank, and how bankers quickly amass deposits: ‘without that any money is touched, but remaineth in the bankers’ hands, which within a short time after the erection of the Bank cometh to amount unto many millions.’[16]

Malynes called banking the ‘Canker (cancer) of England’s Commonwealth’. He listed some undesirable results of bank-created credit: it fuels wars, it raises prices, allows bankers to engrosse (amass) commodities and trade for their own benefit and to manipulate the exchanges for profit.[17] A pro-banking opponent, Thomas Mun, replied in another pamphlet that Malynes’ objections were mostly ‘all one matter’ and ‘such froth also, that every Idiot knows them’. Since anyone with good credit can borrow and do the same, Mun argued, why pick on bankers?[18] We see here the beginning of an argument that might be had today – if the simple facts of banking were publicly and openly acknowledged.[19]

The Mercantilists were publishing their pamphlets just before the birth of modern banking –the creation of negotiable credit authorised and supported in law. That birth happened in seventeenth century England, helped on by the fact that conditions in England were different from those on the Continent in several respects. Banking in England was only recently established; Parliament had only recently become supreme in the land; and English lawyers were busy adapting and absorbing the law of merchants into the native system of common law. This shifting ground in practice and law gave banking a chance to legally establish itself. And so it was in England that credit first achieved full negotiability.[20]

This development happened it tandem with the expansion of England’s power. The seventeenth-century in England was a time of wars: Civil War at home, and wars abroad with the Dutch and the French. For a while (1649-60) England dispensed with Kings and Queens altogether, and found itself under a military dictator: Oliver Cromwell. Parliament sent a humble deputation imploring him to take the Kingship, because at least people knew the limits of a King’s power: no one knew the limits of ‘Lord Protector’ Cromwell’s.[21]

Another ‘humble offering’ was put to Cromwell by a certain ‘Samuel Lamb, merchant’: a proposal to set up a national bank. Cromwell’s response is not known, but the proposal survives. A national bank, Lamb said, was desirable for the same characteristics that made foreign banks undesirable: they could monopolise and sell at a profit; they could create credit out of nothing, rather than having to pay for it; they could finance war by means of ‘imaginary money’; and even, in what seems a very modern touch, they could purchase natural resources abroad thereby ‘saving our own timber here, until a time of need’.[22] Fast-forward a few hundred years and we see Japan, still heavily-forested, having stripped many Pacific Islands of their trees.

Gerard de Malynes and Samuel Lamb both saw banks as weapons of predation. They differed only in their attitudes: where Malynes was moralistic, Lamb was pragmatic: for national self-defence, what the neighbours have, we must have too. Later (1816) Thomas Jefferson would describe banks as ‘more dangerous than standing armies’. None of these observers would be surprised today to see the peoples of certain Mediterranean countries and many others brought to their knees by predatory credit.

The next character in economic history is an almost cartoon-style foretaste of modern power. Sir William Petty is known as the founder of modern statistical economics. Petty was a man of immense energy and imagination, obsessed with mathematical calculations and schemes for the general improvement of humanity. He made an enormous fortune out of what was perhaps the first modern genocide. By Petty’s own calculation, 504,000 people, more than a third of the people of Ireland, ‘perished and were wasted by sword, plague, famine, hardship and banishment, between the 23rd of October 1641 and the same day 1652’ – that is, during Cromwell’s war of attrition and depredation in Ireland.[23] Petty was on the spot: his job was to survey the newly-emptied lands and allocate them to Cromwell’s soldiers and ‘adventurers’ – people who had invested in the war to make a profit. Many of these people sold their plots to Petty on the cheap, not wanting to settle in a land far from home where the remaining natives hated them.[24]

With Petty, we emerge from economics as a branch of moral philosophy into the economics of the modern world, guided by a completely different set of values: command of resources, maximisation of productivity, and social control. Petty, at the very outset of this development, expressed himself in an unusually direct manner on the new ethics of contempt and exploitation. The labouring class, he said, being ‘licentious only to eat, or rather to drink,’ should be restricted in what they could consume. Surplus goods should be put in storehouses rather than wasted in over-feeding the ‘vile and brutish part of mankind… and so indisposing them to their usual labour.’[25] Independence and freedom were for the few; social management was for the rest.

‘Supernumeraries’ – that is, humans not needed in Petty’s system of maximised productivity – should be paid to do entirely useless things like building pyramids: ‘at worst, this would keep their minds to discipline and obedience, and their bodies to a patience of more profitable labours when need shall require it’ (Keynes repeats this in slightly different words in Book Three of his 1936 General Theory).[26] Maximized productivity should be pursued not to provide plenty for everyone, says Petty, but to increase the wealth and strength of the nation. And once that is achieved, Petty asks himself: ‘What then should we busy ourselves about? I answer: in ratiocinations upon the Works and Will of God.’[27] One can’t help wondering: what sort of God was floating around in Petty’s mind?

Petty recognised that banking increased the money supply and recommended it for that reason. In a pamphlet titled Quantulumcunque he asks himself: ‘What remedy is there, if we have too little money? – We must erect a bank, which well computed, doth almost double the effect of our coined money: and we have in England materials for a bank which shall furnish stock enough to drive the trade of the whole Commercial World.’ His ‘almost double’ was a low estimate, but his prediction that English banking would ‘drive the trade of the whole commercial world’ proved pretty much true. Three hundred years later, a banking historian could write: ‘By 1914, the great loan-issuing houses could not unjustly claim that it was largely by their efforts that Britain held in fee not only the Gorgeous East, but the greater part of the rest of the world as well.’[28]

Petty made no assessment of how the new money might advantage some and disadvantage others. His preoccupation was: will it be put to productive use? – if so, good: or will it be frittered away in idle consumption? – if so, bad. This way of thinking has come to dominate economic thinking. It is a good example of a moral code built to suit its inventors.

A third possibility of how newly-created money can be used to make a profit, not mentioned by Petty and often ignored since in economic literature, is sheer speculation. This potential would soon show itself in the Mississippi and South Sea Bubbles, both of which burst in 1720.

Petty died in 1687. Soon after came two developments, both central to subsequent history and both remarked on in Chapter Two: the establishment of the Bank of England in 1694 (as a privately owned bank) and the Promissory Notes Act of 1704.

The Tonnage Act (1694) which established the Bank of England, privileged a private corporation to create credit-money for use by the government. The Bank of England was set up to lend the government paper money, and the same Act of Parliament increased taxes by more than enough to pay interest on the loan.[29] Shares in the Bank – effectively ownership of public debt – were transferable: they could be bought and sold.[30] This was the beginning of modern-style National Debts, raised on the security of the tax-payer, and freely negotiable.[31] Many people at the time expressed a worry that government would soon become a mere poodle to the power of finance, and no longer act in the public interest.[32]

The Bank of England came under repeated attacks from rival bankers and political opponents. In 1696 (when coin was scarce because of re-coining) the Bank was almost driven under, in a run organised by its enemies. Then, in 1704, Parliament passed the Promissory Notes Act to settle all disagreement about whether the law should support negotiable debt.

The Promissory Notes Act 1704 opened the most corrupt century in British history.[33] It was also, for better or worse, the foundation of the commercial and military British Empire, financing not just war but also ownership of foreign assets.[34] Today, other countries rival and outdo Britain in the race to ‘internationalise’ their currencies, i.e. use them as value-creating machines for international predation.

One year later, in 1705, there was a proposal to replace the private Bank of England with a public institution of National Credit, as explained in a remarkable pamphlet: An Essay Upon the National Credit of England (1706). It was published anonymously but was probably the work of John Broughton (1674-1720).[35]

This proposal foreshadows many later proposals, for instance that made by Henry C. Simons more than three centuries later during the Great Depression. It is also similar to the proposals of many monetary reform groups today.

Broughton suggested that the government, not private banks, should introduce money into circulation by paying contractors and suppliers with its own notes. These notes would circulate as money on the security and surety of the assets and labour of the English people – who would then reap the benefits.[36]

Broughton saw economic realities in the following terms:

  • Money represents a claim on the produce of those among whom it circulates. It is therefore a sort of credit-property, founded on the wealth and integrity of the nation.[37]
  • Credit-money, therefore, should not be rented out at interest, but paid out for work done: that is, towards an increase in the wealth of the nation.[38]
  • Money created by the government would save renting money off private bankers and preserve the country from rule by those who lend it money.
  • Notes, being paid out for work and services across the country, would stimulate prosperity across the nation, rather than centralize wealth and prosperity in London.
  • The credit of the Bank, being ‘diffused among the people’, would promote inclusion, involvement, and commitment to the national prosperity. ‘Present methods’, on the other hand, involve ‘monied societies’ – commercial banks – ‘engrossing and commanding the whole cash as well as the credit of the kingdom.’
  • Broughton suggested that to begin with, notes should be convertible to gold or silver on demand; but later, he speculates on the possibility of a pure paper currency.[39]
  • Paper currency could begin to pay off the National Debt, which was already becoming a drain on national resources.[40]
  • A pure paper currency would maintain its value by being (1) underpinned by the produce of the people, (2) acceptable for payment of taxes, and (3) restrained in quantity by Parliament.[41]
  • By circulating from the start among traders and customers, notes would stimulate industry and trade directly (in modern parlance ‘from the bottom up’): whereas bank-credit creates pools of profit that lie dormant, waiting for the next investment.
  • Broughton foresaw that objectors in the main would be ‘people who have large incomes and make great gains by the present methods.’ (Indeed! – And such people were the ruling party, the Whigs!)
  • Broughton’s plan offered complete transparency in how much credit is paid out: as a result, it would be more likely to be put to good use. ‘Instead of being more liable to a misapplication than money, it will in reality be much less.’ ‘The accounts will be more intelligible and obvious upon inspection, than they seem to be at least in the present methods.’

How little things have changed!

At this point, it is worth pointing out that there are two very distinct meanings to the word ‘credit’, which add to the confusion around money. ‘Credit’ is Latin for ‘believes’. Today, the word’s principle meaning is ‘money in the bank’. For Broughton and many others of his time, the principle meaning of credit was ‘money that has some credibility despite being based only on paper and numbers.’ Perhaps a more realistic definition is ‘fake debt’.

Broughton points out differences between his National Credit, which is money created and spent by the government, and government borrowing. These differences, if not exactly ‘froth known to any idiot’, would have been easily understood by people in public life. When the government creates money responsibly and spends it into the economy, it is increasing the general prosperity of the nation. When a government borrows from banks or wealthy people, it is creating valuable debt for lenders and committing taxpayers to pay the interest: a drain from working people into the pockets of lenders.[42]

Broughton points out that the government, by issuing notes, will not be issuing credit ‘as a banker does’ but ‘as a merchant does’.[43] Confidence in the credit of merchants rests upon their trustworthiness and solvency; the same would be true of National Credit, which must rest on the honesty, solvency and hard work of ‘the Parliament and Estates of England’ – ‘Estates’ meaning people of all ranks and occupations.[44]

National Credit is suitable for use as money, he says, when governments are strong but limited, honest and not ‘arbitrary’. His final words are an attempt to flatter the government into agreeing with his scheme. The Government he says, is ‘admirably qualified to assist, and equally restrained from oppressing, those under its happy influence.’ His flattery did not get him very far. He predicted that objectors to his scheme would mostly be ‘people who have large incomes and make great gains by the present methods.’ How right he was! Considering that such people were the ruling power, did he really think his proposal would be accepted? In retrospect, its rejection was inevitable. It was perhaps as great a missed opportunity as England’s failure to develop institutions of local democracy.[45]

Plans like Broughton’s have occasionally been put into operation elsewhere. Sometimes governments have issued too much money: this has happened mostly in times of war, revolution or bad government. For instance, the French revolutionary government issued assignats and the American revolutionary government issued Continentals, both to excess, both of which caused massive inflation.[46] Responsible issues, however, made by sober governments in peace time, have been very successful.[47]

How much notice was taken of Broughton’s suggestion at the time? His Essay was published and re-published, and thirty years later the influential philosopher and economist Bishop Berkeley repeated its propositions in a book that consisted of a series of questions.[48] In a second edition of the book, another fifteen years later, Berkeley omitted the questions. The reading public, it seems, were not interested. Berkeley added, concerning the omission: ‘It may be Time enough to take again in Hand, when the Public shall seem disposed to make Use of such an Expedient.’ Perhaps the time is now, some three hundred years later, when the results are extreme and damaging for all to see – and when voting is not confined to the rich.

Great reforms in society and politics take time. How long, after all, did it take to abolish slavery?

 

 

[1] A widely-reported communication from economist Paul Krugman to Bernard Lietaer: “Didn’t they warn you about not touching the monetary system? If you insist on talking about it, it will kill you academically.”

[2] In the words of John Taylor, ‘transferring property from the people to capitalists’. Tyranny Unmasked (1821) p. 40.

[3] Politics, Book I Ch. ix and Ethics, Bk V Ch. v.

[4] Some Christian commentators argue the contrary: that the Parable was about a bad, not a good master.

[5] Aristotle, Politics Book One, Part X; and Plato, Laws v. 742. Benjamin Jowett made an interesting comment on the passage in Aristotle: ‘It has been customary, since Bentham wrote, to denounce Usury Laws on the ground I) that they are ineffectual, or worse, and 2) that they are unjust both to lender and borrower, because they interfere with the natural rate of interest. But in a simple agricultural population where the want of capital is greatly felt, and land is the only security, the usurer becomes a tyrant: hence the detestation of usury. The other and better side of usury, that is to say, the advantage of transferring money at the market rate from those who cannot use it to those who can, was not understood by Aristotle.’

[6]  Different authorities notice different evasions, which varied over time and place. There are several interesting essays on the Scholastics in Raymond de Roover, Business, Banking, and Economic Thought in Late Medieval and Early Modern Europe (1974).

[7] The historical remnants of this separation linger today in the different kinds of institution that call themselves ‘bank’. Commercial banks (along with their governments) create money in a legally privileged and protected procedure; ‘merchant banks’ lend it. The name ‘merchant bank’ is itself a misnomer, assumed by merchant moneylenders at a time when the word ‘bank’ was more respectable than the word ‘moneylender’. Extremists who blame the systemic robbery of banking on ‘the Jews’ are ignorant as well as malevolent.

[8] Although not always understanding the reason: see for instance M.V. Clarke, The Medieval City State (1926) pp 22-23.

[9] ‘The Doctors, theologians as well as jurists, approached economics from the legal and ethical point of view and proceeded by deduction from a few premises, but paid scant attention to the operation of the economic system.’ Raymond de Roover, Business, Banking, and Economic Thought in Late Medieval and Early Modern Europe (1974) p. 357.

[10] They can be looked at here: http://oll.libertyfund.org/pages/aquinas-on-usury

[11] Raymond de Roover, Business, Banking, and Economic Thought in Late Medieval and Early Modern Europe (1974) p. 318.

[12] From Tratado sobre los cambios (1597) quoted in Huerta De Soto, Money, Bank Credit and Economic Cycles (1998).

[13] That is, as far as I can tell without having read his thousands of untranslated pages in medieval Latin.

[14] W.S. Holdsworth, A History of English Law Vol 8 (1925) p. 179: ‘A promise by a banker of good repute to pay on demand was as good as money and was taken as money. Thus in 1584 Contarini said that a banker could accommodate his friends, without payment of money, merely by writing a brief entry of credit; and that he could “satisfy his own desires for fine furniture or jewels by merely writing two lines in his books.” Thus, to use modern terms, the Italian banks had become not only banks of deposit, but also banks of issue.’

[15] The rarity and expense of metals used for coin was often (in the 19th C.) blamed as partially responsible – or at least, providing an opportunity – for the development of the two-tier system, cash and credit, which now dominates the world.

[16] These remarks are from his pamphlet The Canker of England’s Commonwealth (1601), repeated in Lex Mercatoria (1622).

[17] The Canker of England’s Commonwealth (1601), pp 26 ff.

[18] Thomas Mun, 1571-1641, England’s Treasure by Foreign Trade. 1895 edition, p. 67.

[19] As observed in Chapter One, credit-creation favours those with lots of money. The Bank of England leaves this out of its account: ‘Banks can create new money because bank deposits are just IOUs of the bank; banks’ ability to create IOUs is no different to anyone else in the economy. When the bank makes a loan, the borrower has also created an IOU of their own to the bank. The only difference is that for the reasons discussed earlier, the bank’s IOU (the deposit) is widely accepted as a medium of exchange — it is money.’ http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneyintro.pdf

[20] Daniel Coquillette, The Civilian Writers of Doctors’ Commons, London : three centuries of juristic innovation in comparative, commercial, and international law (1988). Also John H. Munro: England’s banking deficiency ‘may paradoxically have provided the major wellspring for England’s precocious contributions to negotiable credit.’ ‘The International Law Merchant’, paper X in Banchi pubblici, banchi privati e monti di pietà (1991).

[21] Conrad Russell, The Crisis of Parliaments 1509-1660 (1974) p.395.

[22] Included in Somers’ Tracts (1811) vol. vi, p. 454.

[23] Tracts, Chiefly Relating to Ireland (1769, pp 312-3). Petty published his estimate to counter a widespread and even more extreme opinion, that ‘not one eighth of them (the Irish) remained at the end of the wars.’

[24] Tracts, Chiefly Relating to Ireland, and The Life of Sir William Petty by Lord Edmond Fitzmaurice.

[25] Political Arithmetick in Tracts, Chiefly Relating to Ireland (1769, p 240).

[26] ‘Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better.’ General Theory, Chapter 10.

[27] ‘Verbum Sapienti’ (1664) in The Economic Writings of Sir William Petty ed. Hull v.1. p. 119.

[28] W.J. Thorne, Banking (1948).

[29] John Broughton, Remarks upon the Bank of England, 1705, p. 6.

[30] ‘This loan differed from previous forms of public borrowing in two important respects. Although it was in principle a perpetual loan (no express arrangement was made for repaying the principal), creditors would be able to recover their investment at will simply by selling their shares in the bank (in effect their part of the loan) to someone else.  And, for the first time ever in England, the loan was to be paid over to the government in the form of paper currency rather than in gold and/or silver coin as had until then been the custom.’ Richard Kleer, ‘“Fictitious Cash”: English Public Finance and Paper Money, 1689-97’ in Money, Power and Print (2008) p 72.

[31] See John H. Munro, ‘The Medieval Origins of the Financial Revolution: Usury, Rentes, and Negotiability’. In The International History Review, Vol. 25, No. 3 (Sep., 2003) p.506.

[32] For instance, John Broughton: ‘…it can never be the true Interest of any Englishman (Churchman or Dissenter) to have the Legislature (or which is all one, the Command of it) misplaced in the Hands of those, who will ever have a separate Interest from the main Body of the People of England.’ Remarks upon the Bank of England (1705), p 39.

[33] ‘Never before in English history had so much money passed so quickly through so many hands and, inevitably, some of it stuck as it passed.’ Henry Roseveare, The Financial Revolution 1660 – 1760, p 44. See also Patrick Brantlinger, Fictions of State (1996).

[34] For ‘war’ see Dickson, The Financial Revolution in England (1993); for ‘resources’ see W.J. Thorne, Banking, 1948 p. 31 (also pp 97-9 for a simple description of how bank-loans create deposits).

[35] https://archive.org/details/essayuponnationa00daveuoft It has also been ascribed to Charles Davenant (1656-1714) but it does not seem compatible with his other writings.

[36] ‘The Proposal, of which this Paper is to give some short and general Account, relates to the Establishing and Extending of a National Credit in England to the great and mutual Benefit both of the Government and People of this Kingdom. (p.1) …. It will certainly be an exact piece of justice, to make the credit of the public beneficial to the public, instead of its being diverted into other methods for the benefit of private persons; and that too, not without danger, as well as loss to the public.’ (p.20).

[37] ‘Everyone will know who is to answer for it; that is, the Credit of Parliament and the Estates (people and produce) of England.’ (p.13).

[38] ‘The Benefit of it to the Person or Society credited, is apparent from hence, that it does (for some Time) the Work of Money; during which time, the Owner of that Credit does, in effect, borrow Money without paying Interest for it, and may easily make his Advantages accordingly.’ (p.2).

[39] Broughton does this by telling a story, in A Letter to a Member of the Honourable House of Commons (1705) which ends with the words: ‘I cannot forbear saying, Happy were England, could this story be told of us!’

[40] Pp 20-1.

[41] In Broughton’s time, there was a clearer distinction between lawmakers and the executive. Parliament would determine how much should be issued, to prevent the executive from abusing its power. He contrasted this with the ‘boundless power of bankers’ to ‘extend the credit’. Here his proposal differs from that of Henry Simons (referred to above) who proposed an independent authority, governed by single objective of keeping the value of currency steady, commanding the government in how much money should be issued or withdrawn. During the intervening 250 years, elected legislatures had become less trusted!

[42] Pp. 20-21.

[43] P. 25.

[44] When Maitland addressed this question two hundred years later (from the point of view of creditors of the National Debt) he came up with almost exactly the same answer: ‘the creditor has nothing to trust but the honesty and solvency of that honest and solvent community of which the King is the head and ‘Government’ and Parliament are organs.’ See The Crown as Corporation; also Moral Personality and Legal Personality.

[45] For Maitland, it was the ‘great blunder of English law’ and a ‘national misfortune’ that the villages and townships of England did not become reservoirs of political independence and power. ‘It was a grave misfortune that English lawyers thought themselves forbidden to see and nurse into strength the flickering life of the village community.’ Cambridge University Library Archive Collection, Frederic William Maitland papers MS.Add.6999 ‘Lecture notes on corporations’ (1899), ff. 137-8.

[46] Andrew Dickson White, Fiat Money Inflation in France (1959) and William A. Berkey, The Money Question (1876) pp. 112-7.

[47] Many examples are detailed in William Berkey, The Money Question (1876). For instance (p. 43) he quotes Benjamin Franklin addressing the British Board of Trade: ‘In 1723, Pennsylvania was totally stripped of its gold and silver… The difficulties for want of cash were accordingly very great, the chief part of the trade being carried on by the extremely inconvenient method of barter, when, in 1723, paper money was first made there which gave new life to business, promoted greatly the settlement of new lands, whereby the province has so greatly increased in inhabitants that the export from thence thither [to England] is now more than tenfold what it then was.” Other examples can be found in Richard A. Lester, Monetary Experiments (1939).

[48] The Querist, 1735. Broughton’ suggestions are repeated in questions 199-275.