Banking and Credit

B12　—　Cross-cutting theme

Credit is the ability to postpone payment. That is all it is.

Supervised by: Mitsuru Hayama　／　Reading time (main text): course text ~8 min + textbook ~48 min = ~56 min　／　Beyond the text: 10 exercises · 11 readings · 4 references

What this course teaches you to do

• You can restate "having credit" as a concrete action within a transaction.
• You can say, for each of exchange, bank note and central bank, what inconvenience it solved.
• You can explain the mechanism by which a bank run occurs.
• You can trace, with a real case, the route by which credit collapses across borders.
• Can explain the toolkit of early banking, from the etymology of “bank” to double-entry bookkeeping and settlement by account.
• Can narrate the absence, private substitution, institutionalization, and dysfunction of the “lender of last resort” using a timeline.

TEXTBOOK

Lessons (8)

1. Credit is an abbreviationCredit is an omitted check. The omitted check has not vanished; it has been moved to someone else.
2. Once a name is fixed, it becomes an institutionWhen a person's name hardens into the name of a type, money has become an institution.
3. A run is made of individually correct judgementsA run does not need irrationality. It cannot be stopped precisely because each person is being reasonable.
4. The thickest theme across all eight editionsMonetary history is less about metal than about credit. But counts carry the writer's interest as a bias.
5. The 'banco' or desk — where the word for bank was bornA bank is a desk, bankruptcy a broken desk. The history of these words contains the entire toolkit of early banking.
6. The Guardian Born of War — The Bank of EnglandNational bonds and the central bank were born as twins. The prototype of a system where national credit creates money.
7. The Central Bank That Was Killed Twice — America's 120 YearsThey created one, killed it, created another, killed it, learned their lesson from a crisis, and the third time built it in a form that "structured fear."
8. The Lender of Last Resort — A Winter Without, a Morning With.The existence of a system and its functioning are different. The lender of last resort is built not on structures, but on judgment and words.

Case studies — applied in the materials (11)

• The century of Antwerp　Netherlands　1531　Antwerp, the new exchange
  §1. Read in the original the dedication "for the use of merchants of every nation and every tongue."
• The name of sterling　Britain　from 1180　An English market
  §2. The story of a legend that did not change even when the king did.
• 1931　Britain　1931　The City of London
  §3. Check the scene where a run crosses a border.
• Churchill's mistake　Britain　1925　London, a study
  The pamphlet in which Keynes attacked the chancellor by name. Material for thinking about whose hands held the judgement of credit.
• Italy　Overview: 2,700 years of the world　the 14th century　Banco and Bankruptcy
  Section 5. Banco and banca rotta. The desk where the word for "bank" was born.
• The birth of finance　Overview: 2,700 years of the world　AD 1694　The Bank of England
  Section 6. A record of how national bonds and the central bank were born as twins.
• The Panic of 1907　United States　1907　New York, Morgan's library
  Section 7. The night a private individual decided the nation's financial destiny by lamplight in a study.
• 1929　United States　1930–1933　The Federal Reserve System
  Section 8. "You were right, we did it, and we will never do it again."
• The Table That Became a Bank　Greece　377–373 BC　Sanctuary of Apollo at Delos
  This is a ledger from an era when temples also served as banks. A record, carved in stone, has survived of loans made to thirteen city-states at a fixed rate of ten percent per year.
• Paying without carrying cash　India　17th–18th centuries　Money changer's shop
  Money changers issued bills of exchange, accepted deposits, and made remittances to distant places. This is a record of how, in the same era that banking was taking shape in Europe, a similar system grew out of similar needs in another place.
• The Deposited Key　Turkey　From 1863　A bank vault
  This is the record of a country that entrusted the key sovereign power of currency issuance to a foreign-capitalized bank for a thirty-year term. Please compare it with a neighboring country that established its own national bank in the same nineteenth century, and read to understand what was put up as collateral in exchange for importing credit.

Assessment

10 exercises in this course (7 check, 0 compare, 3 written). Progress is recorded by self-assessment.

References

• 'As Close as Lips and Teeth' — The Daiichi Ginko and Megata in Korea — MPRA (Munich Personal RePEc Archive)　Research paper on the monetization of Dai-Ichi Bank notes and the financial advisor Megata Tanetarō.
• An Analysis of the Bank of Chosen's Balance Sheet — Johns Hopkins IAE　Balance sheet analysis of the Bank of Chosen (parity with the yen, reserve composition).
• Details of the Bank of England loan to the government in 1694 — Bank of England　Record of the 1.2 million pound loan to the government in 1694.
• Who owns the Bank of England? — Bank of England　The history of how it was established as a private bank and later took on the role of a central bank.

Only works and primary sources whose existence has been verified are listed.