1.      FINANCIAL HISTORY

 

Financial history can be considered in terms of the origins of money, banking, international finance, the international financial system and capital markets more generally.

 

(1)    Barter and Exchange

 

Some form of barter has always been available even in the most primitive of societies. The difficulty with barter is that it is dependent on a ‘double coincidence of wants’ which makes it inconvenient for trade with money having to be developed as a common payment medium. More complex forms of barter in the form of countertrade in international trade still exist. Chinese coinage dates from between the 12th and 10th centuries and European coinage from the 7th century BC. The Greek city-states had their own currencies until silver coinage was made obligatory in the 5th century. Agricultural produce including specifically grain was often used for exchange purposes such as in Egypt.

 

(2)    Custody and Deposit Taking

 

Banking in the form of custody or the safekeeping of valuables can be considered to date from the Sumerians and Babylonians in the 2nd and 3rd centuries BC. Items of value including metals, livestock, tools or grain were kept in the temples or royal palaces with transferable receipts being used later. Wealthy families could also provide custody services using their strong rooms with standard terms and procedures being used by 1800 BC in Babylonia. Grain warehouses were in standard use in Egypt with sophisticated credit and accounts systems being developed to facilitate the transfer of value and payment. Early Greek moneychangers (trapezitai) developed exchange, deposit and credit facilities either on their own account or as brokers and using real and personal property as collateral. These practices were continued by the Roman argentarii until the collapse of the Roman Empire.

 

(3)    International Finance

 

Early account and clearing systems date from the Great Fairs across Europe during the 12th and 13th centuries. Merchants kept their own accounts with settlement being effected at the close of their fair. Payment could either be made in cash in the form of gold, silver or copper or through early forms of bills of exchange or promissory notes. A bill of exchange operated with a merchant (the drawer) issuing written directions to another party who owed him money (the drawee) to pay their creditor (the beneficiary). Promissory notes are written undertakings to make payment either at a fixed time or on demand. Banking notes developed out of the promissory notes issued by private banks and then central banks under monopoly rights of issuance. Cheques would emerge later which are simply bills of exchange drawn on a bank. 

 

Early double-entry bookkeeping was also used by the Knights Templar (Soldiers of Christ and of the Temple of Solomon) who developed cross-border money transfer mechanisms with receipts issued by any temple being capable of encashment at any other temple. The Order effectively created the first international banking network.

 

Certain trade merchants increasingly specialised in the provision of exchange, deposit and credit facilities for other counterparties with the growth of ‘merchant banking’ initially in the Italian towns of Siena, Lucca and Florence and then Venice and Genoa and later in The Netherlands, Germany and England. The term ‘banca’ referred to the bench on which the moneychangers or merchant bankers would sit. The first public clearing bank was the Casa de San Giorgio in Genoa in 1407 although public debt had been issued in Venice in the 1300s and Florence in the mid-1300s with the Monte Commune. The Monte de Paschi is reported to be the oldest surviving private bank in the world which was set up in Siena in 1472.

 

(4)    English Banking

 

English banking is considered to have emerged out of the deposit and receipt facilities provided by goldsmiths or jewellers and lapidaries (who work with stone, minerals or gemstones) and scriveners (scribes) or notaries. Early paper money included the repayment orders or ‘tallies’ issued by the Treasury which became assignable in 1667 although all private bankers issued their own money until a monopoly on issuance was conferred on the Bank of England under the Bank Charter Act 1844. The Bank had been established in 1694 although the Riksbank had been opened in Sweden in 1656 and then closed and reopened as the National Bank in 1668.

 

Early English banks were partnerships or unincorporated associations. The right to incorporate by registration was introduced in 1844 under the Joint Stock Companies Act and limited liability under the Limited Liability Act 1855. The use of joint stock banking companies was initially restricted with joint stock banking not becoming common until the end of the 19th century and a wave of consolidation at the beginning of the 20th century and again after the Second World War.

 

(5)    Securities

 

Trading in securities dates from the unregulated practices of merchants in coffee houses in the City of London from the 1700s. A number of the City of London’s major financial institutions began in such coffee houses as Garraway’s, St Paul’s, Jonathan’s, The Jerusalem and The Baltic. Intermediaries or brokers raising funds to invest in overseas trading expeditions and long-haul shipping voyages formed a club in Jonathan’s Coffeehouse in 1760 which became the Stock Exchange in 1773 with an original Deed of Settlement in 1802. Merchants and insurers met in Edward Lloyd’s Coffeehouse and then in The New Lloyd’s from 1769. Offices were lent at the Royal Exchange and later in Leadenhall Street in 1928 and then Lime Street in 1958. The Baltic Shipping Exchange began with meetings of merchants and ships captains arranging freight and shipping in the Jerusalem Coffeehouse and the Virginia and Maryland Coffeehouse which became the Virginia and Baltic and then the Baltic in 1810 with the Baltic Club regulations being produced in 1823. 

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