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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: LindyBill who wrote (30662)	5/24/2002 8:27:44 PM
From: Ilaine	Read Replies (2) \| Respond to of 281500

Dr. Munro seems to be saying that there were multiple factors in increase in the monetary base in the 15th - 17th centuries -- he did not quantify which was the largest, and I have never seen anything on that. But he does state that he thinks as important, perhaps more important, a factor than gold or silver is the development of negotiable bills of exchange. The reasons for the Great Deflation of 1350-1500 and the Great Inflation of 1500-1700 are one of the things economic historians like to quibble about. I like the idea that negotiable instruments were an important source of price inflation. They are an early type of paper money. Here is a little thing I did for the class I just took. It's a picture of a cambium with the text and a translation by Raymond de Roover, a scholar who specialized in the history of money. The assignment was just to put up something that looked nice, not get into the substance. I will expand on the substance here. members.cox.net Cambiums were letters of credit. Merchant A in Town A who was travelling and did not want to carry money so he would not get robbed, would deposit money with someone who was probably another merchant but also acted like a banker. That person would give the merchant a piece of paper to carry to another town where he had a relationship with another rich merchant, who would pay him the amount stated on the piece of paper. In order to get around usery laws, the travelling merchant would pay the guy who gave him the cambium more than the face value of the cambium. It's like points, they act like interest but you pay them before you get the money, not afterwards. This type of device is ancient. The Babylonians had it. The Romans had it. The sea-faring Greeks had it. It's very similar to the Arabic hawala system. I believe it survives in Europe as gyro banking, money is transferred from account to account, not bank to bank. When these types of instruments became negotiable, this was the beginning of paper money. Notice that the paper money was still backed by gold in the vaults of the rich merchants. At some point, nobody really knows for sure, the rich merchants and goldsmiths who issued deposit slips realized that they could loan out more than they had on deposit. In this way, they could afford to pay their depositors interest. And this, I would argue, is the beginning of capitalism and the wealth of the West. People in India have accumulated much gold but they keep it on their persons or in their homes. They don't put it in banks where it can be loaned out to entrepreneurs and capitalists. That's one reason why they're poor. So says Hernando de Soto, Peruvian economist, and I agree with him. amazon.com amazon.com I need to research the history of usery laws. Maybe the reason Catholic countries developed later was stricter enforcement of laws against paying interest. It is certainly one factor that keeps the Muslims from developing.