Millionaire - Janet Gleeson [5]
Of all money’s chameleon masks, gold and silver are its most recognizable, widespread, and enduring. Ancient Mesopotamians used precious metals according to standards set by the king and the temple and invented the earliest forms of writing to keep accounts; Egyptians measured their pharaoh’s wealth or a servant’s worth in Nubian gold, silver, and copper ingots and slivers. In ancient Greece gold and silver were similarly esteemed. Herodotus claimed that the first coins—pieces of metal of a standard weight and fineness—were invented in the sixth century B.C., in ancient Lydia, the kingdom of Croesus, whose name still signifies riches beyond compare. In fact, archaeologists have since discovered coins from a century earlier used by Ephesians, and that coins were similarly employed by Greeks in the realm of Ionia.
Banking, too, had its origins in the ancient past. The first bankers lived three millennia ago in the ancient city of Babylon, a site in modern Iraq; in ancient Athens in the fifth century B.C., there were bankers who changed foreign visitors’ money and accepted deposits, and in ancient Rome money lending bankers wielded huge political clout. The first modern banking institutions were born in the great medieval Italian trading cities of Genoa, Turin, Pisa, and Milan. The word “bank” comes from the Italian banco, meaning the bench used by money dealers. But in a world in which coin was made from precious metals, the system’s overriding disadvantage was that sources of precious metals were finite, whereas greed and aspiration were not.
A breakthrough came with what the eminent economist J. K. Galbraith has called “the miracle of banking”: the discovery of credit. If money was lodged in a bank vault for safe-keeping, the person who owned it could take away a piece of paper testifying to his ownership of the sum, which he could use as a form of currency, while the guardian of the cache could lend part of it to others (keeping some reserve to pay to those who wanted to withdraw their deposits for whatever reason) and profit by charging interest for the service he offered. In this way money could be multiplied and the problems of limited supplies of gold and silver overcome. The only pitfall was an outside event that intervened to make everyone want to withdraw their deposits at once. Then the guardian of the treasure would find himself unable to repay the depositors because the reserves would be exhausted—much of their money would still be on loan and therefore inaccessible—and he would be bankrupt. Thus, it was realized, political stability and healthy reserves were the key to successful money dealing.
Britain was far from enlightened when it came to credit. Moneylending for profit was called usury, a crime against God; its perpetrators were hanged, drawn, and quartered. During medieval times the trade was thus monopolized by foreigners, first by Jews and later by entrepreneurial gold merchants from Italy, known as the Lombards. In London, the early Italian financiers were permitted to lend and trade in money, provided they confined themselves and their businesses to a London street that still bears their name. Lombard Street remains to this day at the heart of international financial dealing. Many of the Lombards who set up their businesses in medieval London were also goldsmiths, using surplus bullion to make objects from