W.E.A. LECTURE.

Hawera Star, Volume XLVIII, 24 July 1924, Page 7

W.E.A. LECTURE.

‘ THE BANKING- AND CREDIT SYSTEM.” At the weekly mccf&ig of the Hawora .E.A. Class on Thursday evening last the tutor, Mr \Y. A. Sheat, 8.A., LL.R., lectured iqum some historical aspects of “The Hanking and Credit System.” Money and money-lending, said the lecturer, could be traced far back beyond the Christian era.. Athenian lawyers in the days of Demosthenes argued about mortgages on land and ships. But an investor of those days could not buy on a stock exchange shares in a company or invest in Government bonds of the Greek State. It had often been asked why the world made no steady progress in wealth until the eighteenth century, and why since then, in spit© of wars and armaments, plagues and famines, earthquakes and conflagrations, capital had accumulated at an everincreasing rate. Mr F. W. Hirst, a former editor of The Economist, had said: ‘‘l am inclined to think that among the various contributory causes an improvement of money, a development of credit, and a multiplication of investment (three closely connected facts) have played a decisive part. The establishment of sound and honest money comes first, for without this there can be no confidence, and without confidence trade cannot flourish and wealth cannot accumulate.” The element of mutual confidence was fundamental in the institution of credit. The whole social fabric, economic and commercial, was based on “the trust of the people, distributive!}* in people collectively”—the trust of the individual in the general good faith of the community. When Europe began to wake from the dark centuries that followed the fair of the Roman Empire, Italy took the lead not only in the renaissance of art and learning, but also in commerce. So Italy was the home of modern banking. The Bank of Venice is supposed to have been founded in 1157. In the fourteenth century the Florentines forged ahead, and "the Bank of the Medici became the financial centre of what little financial intercourse and com m ere© then existed between the principal countries. The fame and success of the Italian banks led to the foundation of small lending houses in other countries by Lombard merchants. A number settled in London, and gave their name to Lombard street, which was still the great financial centre of London. As the Italian cities declined those of Germany and Northern Europe rose, and the Hanseatic League flourished in the fifteenth and sixteenth centuries. After Holland threw off the Spanish yoke it became the great commercial nation. The famous Bank of Amsterdam was founded in 1609. This bank established the predominance of Holland as the great carrying and merchant country of Northern Europe. The main purpose of this bank was to provide a good mercantile currency to remedy the evils of worn and clipped coins, which harassed merchants everywhere and embarrassed specially the trade between Holland,and other countries. Money-changing was then the principal function of hanking at this eariest period.. This bank was also, however, a bank of deposit, and as such carried to considerable perfection the principle of written transfer of deposit, which was the foundation of the modern cheque system. The Bank of Amsterdam flourished for a century and a half, after which it declined in importance, while the commercial predominance of England began to assert itself England, indeed, bad at first made but slow progress in the art of economising money and manufacturing credit. The business of money-changing had been a Royal monopoly in the time of Henry 1., John, Edward 111., and some of their successors. An official called the Royal Exchanger had the sole privilege of exchanging foreign for English money. This office subsequent!v fell into disuse, but was revived by Charles 1.. much to. the dissatisfaction of the goldsmiths, who were making good profit by culling out heavy coins for melting or sale to the Dutch Mint. Another business, that of money-lending, was monopolised by the Jews from the Norman Conquest until their expulsion in 1290, when the Lombards succeeded to the craft, and proved equally usurious. There was a legal rate of interest fixed, the term “usury” being applied to any rate in excess of this legal rate. After Charles I.’s time the goldsmiths became the principal lenders and dealers in money. Then as Gilbart. the leading authority on English banking, explains, a new era began in the history of banking: “The goldsmiths, who "were previously only moneychangers. now became also ihoney-horrowers, and allowed

interest on the sums they borrowed. They lent money to the King on the security of the taxes. The receipts they issued for the money lodged at their houses circulated from hand to hand, and were known by the name of ‘goldsmiths’ notes.’ These may be considered as'the first kind of bank notes issued in England.” The banking goldsmith made way rapidly, because at this time -men of means were anxious, owing to the prevailing insecurity, to obtain a. place of safe deDosit for their surplus wealth, and the goldsmiths’ vaults offered such facilities. Previously it had been customary for merchants and others to keep their surplus cash at the Tower of London, but in 1640 Charles f, raided the money deposited there and appropriated some £130,000, thus destroying public confidence in the 'lower as a place of safe deposit and driving this business into the hands of the_ goldsmiths, furnishing them with a side line to their main business, which they were later enabled to develop intp a profitable banking business. The lecturer dealt in some detail with the influence of the goldsmiths on the development of early banking, and showed how in its origin tho bank was not so much an institution for borrowing and lending money as a manufactory of credit.