Payments and the Development of Finance in Pre-Industrial Europe

Abstract

The principal driving force in the development of the financial system of pre-industrial Europe was not lending per se, but payments. Trade among strangers required the development of methods of payment that did not require mutual acquaintance and trust. The two principal financial innovations of pre-industrial Europe - the deposit bank and the bill of exchange - evolved to address this need. Lending initially developed as an adjunct to the payments system and then expanded to fill other functions.

Keywords: Payments, deposit banks, bills of exchange, merchant banks, settlement, netting

JEL Classification: G10, G21, N23, O17