From Goldsmiths to Bankers, from Money to Currency

And these are the things coming next along this trail: the correlated geneses of bankers and banks, and of an ambiguous type of money.

According to some historic reconstructions, after the “intrinsic” value was induced into “precious” metals such as gold and silver, those who used them as raw matter and who therefore begun to trade them were the goldsmiths. To this point, the goldsmith could be considered an ordinary profession, in that its profit had to be more or less of the same order than those of the other professions having to incur in costs and deliver a product, so not yet capable to boost its operators rapidly and dramatically above their fellows out of thin air. But it set the basis on which the next step could take place.

And the next step is the genesis of the “ambiguous” type of money. The induction of an “intrinsic” value into “precious” metals was just a starting point, even if promising, and it was bound to be brought quite further. To those who exploit it, the profit from intrinsic value induced in goods like precious metals has limits: the amount of those goods is limited, and procuring them has costs.

Goldsmiths issued receipts for the gold held in trust. Those receipts begun to catch on as more practical a medium of payment than gold. A tendency developed for gold to remain deposited and for its receipts to circulate in its place. The “gold standard” was born: paper backed by gold. An “I Owe You”, a promissory note: it does not have intrinsic value; it represents that which has the intrinsic value because it is redeemable in it at any time.

Once in existence, gold backed paper money could be traded, and particularly loaned, just as any goods; traded and loaned at its face value, and yielding an interest in ratio to its face value. A distant point on the horizon was beginning to show up: banking.