How Modern Bank Originated: The London Goldsmith-Bankers’ Institutionalization of Trust

Abstract

London goldsmith-bankers’ development of paper credit-money in the seventeenth century ushered in the era of modern banking. This essay argues that this innovation of paper credit-money by goldsmith-bankers was the institutionalization of the double-ownership scheme known as trust. This trust scheme was at the centre of the custom or morality that underlay the political struggle between the Crown, landowners, and the bourgeoisie in early modern England, the struggle from which goldsmith-banking and, later, joint-stock banking developed. This double ownership remains a central feature of the present banking system. And during the financial boom of the late twentieth century, which ended in the present world financial crisis, the trust scheme was used extensively by many financial firms, such as mutual funds, pension funds, and asset-securitization trusts.

Keywords: goldsmith-banking; the origin of paper credit-money; trust; double ownership; the nature of demand deposit; permanent indebtedness