A history of commerce

by Clive Day

136. Introduction of the bill of exchange.—It might not, however, always be convenient for a man to meet his obligations in this way; he might not have the commercial knowledge, or perhaps he might have no good opportunity to ship a ware. Behaim, in the case cited, had in fact resorted to the wax shipment only from necessity, after he found it impossible to make his payment by the means of remittance now become general, the bill of exchange.

Suppose that B. in Breslau owed the 1,000 gulden, to A. in Nuremberg, for spice; and suppose that D. in Breslau was the creditor of another Nuremberg merchant C, to the extent of 1,000 gulden, perhaps for furs. It would be absurd for B to ship the money or to go out of his way to ship wax to A, and for C to ship the same value to D, when the payments could be made to cancel each other. Why should not B pay to D in Breslau the 1,000 guldens due him, and tell C to pay the same amount to A in Nuremberg? This could be accomplished by means of bills of exchange; D could write out an order to C directing him to pay the money, and sell it to B, who would thus have the means of paying his debt in Nuremberg to A.

Such an operation implies, however, not only regular commerce of considerable volume but also mutual confidence among the participants. How could B know whether D actually had a correspondent in a distant place who would meet his obligations promptly? It was not, in fact, until the thirteenth century that bills of exchange were used to any considerable extent; then they were developed in Italy, and spread from there.

137. Development of banking in Italy.—In Italy, also, the money-changers developed other forms of banking. As they were dealers in money, business men in want of capital for their operations naturally sought it of them. The money-changers might lend it from their own stock or act as brokers and secure the money from some man who had a surplus. The short step from this to the common form of modern banking was made when merchants deposited their surplus cash with the money-changer, and he had thus a considerable stock, which he could lend so long as he kept sufficient reserve to meet the demands of depositors. It soon became unnecessary for money to pass at all in large transactions; a man could get a loan from a bank simply by having a deposit ascribed to him on the books, and could assign this loan to others as he chose to pay it out. The characteristic danger of banking, the attempt to make a great deal of credit out of a little capital, appears early in Italy, with its results of failures and crises. The advantages of the banking system, however, the economizing of time and money and the facilitating of business operations, were so clear that banking kept its place, and spread toward the close of the Middle Ages from Italy to other countries.

QUESTIONS AND TOPICS

There is, in the history of commerce, no topic more difficult and none more important than the development of the organization. The student who has learned the facts has made only a beginning; he must grasp the significance of the facts if he is to gain anything from his study. The teacher is advised, therefore, to enlarge on the advantages of association and cooperation, as they are treated, from one point of view, in Adam Smith’s celebrated discussion of the division of labor, and in many manuals of economics.

So much depends on the degree of advancement of the pupil, and on his particular environment in country, town or city, that it is difficult to suggest specific questions or topics. In general, the teacher should suggest the meaning of earlier development by constant reference to the present organization. Why have pedlers disappeared in so many districts, where do they still remain, and why? What is the proportion of retail and wholesale merchants in your city; how far has the specialization of wholesale trade progressed? Answers may perhaps be found in a business directory. The student who is competent to work out the history of business organization in his own town will not fail to get new light on the history of earlier development; and a report on the history of some particular branch of trade at home should be an excellent exercise to be worked out. Another exercise would be the history of the different forms of association (partnerships, joint-stock companies), and a study of the reasons lying behind the rise and fall of a particular form. The choice of questions and topics here must be left to the ingenuity and discretion of the teacher.

The history of the currency in England [see Cunningham] is an easier topic.

On the rise of credit instruments (bills of exchange, banking), the student will probably be best prepared if he is given reading, either in review or in anticipation, in some general manual which will enable him to appreciate the importance of credit institutions now, and will hence interest him in their origin. [Cf. Usher, The origin of the bill of exchange, Journal of Pol. Econ., Chicago, June, 1914, 22: 566-576.]

An exercise which should be profitable and rather easy is a report by the student on the life of some English merchant. [See Fox Bourne, or consult the Dictionary of National Biography on names like Richard Whittington, William Canynges, William de la Pole, etc. Further biographical material is provided by Alice Law, Some notable “King’s Merchants,” Economic Review, 1902, 12: 309 ff.; 1903, 13: 411 ff.]