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    Goldsmith Bankers Essay

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    Goldsmith Bankers Contents Introduction3 Essential Functions of Goldsmith Bankers3 Advantages and Disadvantages of a Formal Banking System5 Conclusion6 Work Cited6 Introduction Goldsmith Bankers and moneylenders were essential functions in all places where formal banking had not yet taken root. (Black, Reading 4-3, p. 2) Edward Backwell was a prominent goldsmith banker during the seventeenth century who performed many functions that a bank would normally perform.

    He along with other goldsmith bankers assisted in laying the ground work for today’s formal banking system. In his dealings as a goldsmith banker he facilitated trade, funded the government, and provided money for the military. The evolution of the banking system brought with the change attributes that are good and attributes that are bad, as such there are advantages and disadvantages to the creation of a more formal banking system.

    Essential Functions of Goldsmith Bankers As the mercantile revolution began and merchants flocked to the shores of England with silks and spices from the orient goldsmith bankers were used by these entrepreneurs to store the vast amount of gold they collected, and the goldsmith bankers issued loans to traders in need of capital. “The history of money”, Wikipedia) Goldsmith bankers facilitated trade by changing foreign money, trading valuable items, accepting deposits of gold on which they paid interest and giving loans on which they charged interest. For the above transactions written paper receipts were issued and used for trade in the market place as this was safer and easier than carrying amounts of gold around in their person.

    These written receipts were used in the same manner that we would use currency today and their value depended on the reputation and well being of the goldsmith banker, “The goldsmith, transformed into a banker, made another discovery: he realized that putting plenty of receipts (credits) into circulation would accelerate business, industry, construction; whereas restriction of credits, which he practised at first in circumstances in which he worried about a run on the bank for gold, paralyzed business development. (The Goldsmith Who Became a Banker, a True Story) As these written receipts became the replacement for the physical trading of gold the goldsmith bankers realized that the gold in their safe houses/vaults were not being “moved” as much and since human greed can take roots notes could be written in excess of the value of gold on hand. With not enough gold backing the notes the written receipts could be discounted, that is would be worth less than its face value if the goldsmith banker wrote too many notes and did not have enough gold to satisfy claims against the gold, “To lend gold which does not belong to me, at interest, needless to say!

    Better still, my dear master (was he talking to Satan? ), instead of the gold, I will lend a receipt, and demand payment of interest in gold; that gold will be mine, and my clients gold will remain in my vault to back up new loans. ” (The Goldsmith Who Became a Banker, a True Story) Goldsmith bankers like Edward Backwell were highly important to the government as Mr. Backwell not only loaned money to the kings and government of his time but he also carried on international dealings on their behalf. Black, Reading 4-3, p. 5) This representation that was bestowed upon Blackwell probably stemmed from his business dealings and connections in France, Flanders (Belgium), and some of the German states, “Probably a result of his trade – arbitrage – in foreign coinage,” (Black, Reading 4-3, p. 5) The government settled claims on his behalf when he was abroad taking care of state business this emphasized the importance of Mr. Backwell (Black, Reading 4-3, p. ) and the power of “money” which he held over the state. He would turn down requests for loans that were made by the king and government and he showed no regard for their repayment rotation, since he would hardly wait his turn. (Black, Reading 4-3, p. 5) “He aimed his government loans at the protection of sea-routes and consequently of trade. ” (Black, Reading 4-3, p. 7) This appeared to be in the effort of self interest as Mr.

    Backwell’s business and status depended on his wealth which in turn depended on trade, both foreign and local. He was interested in becoming the treasurer of the Tangier Commission which would have put him in a position to influence England’s foreign policy. (Black, Reading 4-3, p. 7) Advantages and Disadvantages of a Formal Banking System The concept of banking has not changed over time, the means by which we conduct banking have changed the rules surrounding banking have changed, but not banking itself.

    The bankers still use our money to make their money. Greed still has a leading role in the industry of banking as revealed in the economic crisis, dare I say banking crisis that the United States of America recently experienced. Thankfully, the chartered banks are governed by rules that are a little more stringent, yet there is enough room for the banks to make large amounts of profit all within the handshake between the banks and the government.

    Some of the advantages of a formalized banking system are; it facilitates trade on a global scale, as money can be transferred from one institution to another anywhere in the world. The credit card system allows for some sense of security as visa and other such cards are accepted worldwide and can be used in emergencies, however when a person falls into the trap of credit card debt they usually need a rather large shovel to dig themselves out, this shovel is sometimes called bankruptcy.

    The informal banking systems such as the barter system of the goldsmith banker systems lent itself to the community, that is they knew the situation of the individuals and may have been willing to help, large institutions may be reluctant to operate in remote and/or poorer areas due to high operation cost. Conclusion Through out history and possibly into the future the desire for wealth in any form has dictated man’s actions, as such there are several powers that govern a society, the government, the law and religious bodies all keep man’s greed from creating chaos (Black, Reading 3-8, p. ) however the power that governs all the above powers is still money. Work Cited Black, James. Humanist Issues in Commercial Practice. HC1 Readings Book. 1st ed. Burnaby: Certified General Accountants Association of Canada, 2009. “The History of Money. ” Wikipedia (n d) Date of retrieval: July 3, 2010 “The Goldsmith Who Became a Banker, a True Story. ” Michael Journal (n d) Date of retrieval: July 6, 2010

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