It is stated upon high authority that among the bankers of the Roman world there existed a certain method or means of effecting payments abroad.
Mr. Lawyer: Here is what one author, Wilbur Aldrich, says:
"From the beginning of the Christian era the Jews became dispersed and, shut out from other trades and occupations, became usurers, or money-lenders at interest, a business which by the Canon law was forbidden to Christians. The Jews were united by such strong ties that their business assumed almost a corporate aspect. They bought, sold and transferred for collection part of the many debts constantly owed to them, and became practically an international exchange community. Their practice gradually evolved the Bill of Exchange.
"Rivals of the Jews, and more given to money changing, Lombard and other Italians naturally also became exchangers. Many large Italian houses included whole families, and had branches in many cities widely separated. The financiers from each city in Italy and from associated leagues of such cities, frequently united for exchange purposes. Italian finance thus grew into a great system of international exchange. Among the great fairs of the Middle Ages, under the influence of the Italians, some became connected chiefly with the business of exchange; Piazenca, the most noted of the fairs of exchange, was practically a clearing house for foreign exchanges.
"The Bill of Exchange was already in frequent use in the middle of the thirteenth century, but at this time its form was that of a document certified before a notary. At the end of the fourteenth century, it had approached the form now in use. It should be added that the Bill of Exchange was drawn only by the money changers and the bankers that had branches or agents.
"The business of bill broking grew up in England towards the end of the fourteenth century. The issuance of Bills of Exchange, based upon genuine business sales of goods, was recognized as a legitimate source of gain by the Canonists; or the ecclesiastic lawyers."
Mr. Banker: You see, Mr. Manufacturer, from what Mr. Lawyer has just read, Bills of Exchange, in practically the same form that we now have them, have been in use about 500 years. However, we are not now so much interested in a post mortem of the Bill of Exchange as we are in its place in our commerce. What we are most interested in is, just what part the Bill of Exchange is playing in the trade and commerce of today. What we want to get clearly fixed in our minds is what it is, and what it does, as distinguished from other instruments of trade.
First: For the purpose of a definite idea of just what exchange is, let us remember that exchange includes every written promise or order to pay money that is used to substitute one credit for another credit, or to make one debt pay another debt.
Second: That Bills of Exchange (sometimes called drafts, or acceptances, indiscriminately) are promises or orders to pay money which are used to substitute one credit for another credit, or to make one debt pay another debt, at some distant city. If the cities are in the same country, the Bills of Exchange are called Domestic Exchange. If the cities are in different countries, the Bills of Exchange are called Foreign Exchange.
Third: Let us agree, gentlemen, that so far as we are concerned we should not, and shall not, consider the acceptance of any draft by a bank as legitimate, unless the draft has grown out of an actual sale and shipment of goods. In other words, what I want to impress upon you is that if the draft is the economic title to goods, which are moving from the producer to the consumer, the liability of a bank upon an acceptance is reduced to a minimum. Acceptances of drafts growing out of sales and shipments of goods will never be a source of dangerous expansion, because they will liquidate, or pay themselves out, as the goods will be wanted to eat, to wear, to use, or to go into other manufactures, almost immediately.