> On the other hand, if you are aligned with the mainstream of economics, the entire premise of the paper is easily dismissed. In that view, money can never be separated from banks, the paper is basically nonsense.
So, did banks invent gold? Or did gold give rise to banks?
How can banks even exist in the first place unless we already have a common medium of exchange (gold), which can deposited into said banks?
Actually, the first banks, along with the first money and the first markets, developed from the palace economies of early city states. Originally the proto-bank maintained records of what each person had deposited with the temple, what had been given to various people, and what was available to give. Those ledgers recorded each type of deposit (wheat, cloth, olives, etc.) with a different unit; the innovation that gave rise to money was the transition to a single unit of account.
That’s really interesting! Were these banks private enterprises? I assume people voluntarily deposited commodities in exchange for a common medium of exchange.
The problem arises when depositors can’t redeem their medium of exchange for the commodities they originally deposited, or something of equivalent value.
By the way, I’m convinced Bitcoin will not function without credit instruments, just like was the case with gold. I’d argue there’s a huge difference between redeemable and irredeemable credit instruments, though. The latter being an artifact of government regulation.
Sort of; at that time it the boundaries were less clearly defined between what was governmental and what was private. The basic economic structure was for a large temple to store the various goods people produced, and to give the goods out to people as necessary. For example, a farmer would deposit grain, and the grain would be redistributed throughout the city-state; the farmer would receive other things from the temple, like clothes and tools. The record-keeping served two purposes: to keep track of what was available for distribution, and to keep track of who was contributing what. This was the "palace economy:"
The bible makes reference to such a system in the story of Joseph (which is ancient enough that palace economies still existed when the story was first written), who was the administrator of such a system in Egypt:
"I assume people voluntarily deposited commodities in exchange for a common medium of exchange."
Not originally and not universally. It was more like a system of 100% taxation in some of the early palace economies, where everyone deposited everything they produced with the temple, and then received things as they were needed. You were basically not allowed to live in the city without contributing something (he who does not work shall not eat), though a person could always work for the temple itself e.g. as a sacred prostitute. Of course the specific laws and economic organization varied from city to city, and plenty of people lived far outside the cities and had their own ways to manage goods; the specific details varied with different places and periods of time.
What you received for your deposit was often just an update to the temple's ledgers clearing a debt you owed the temple (i.e. indicating you paid your taxes; often referred to as "offerings" in the biblical legal code) and possibly offset future taxes. If you were unable to make good on that obligation, your land could be seized and you could become a slave until the king declared a general amnesty (not uncommon in the ancient world; the biblical legal code requires slaves to be given amnesty after 7 years of service, and a similar amnesty provision is in the code of Hammurabi). The story of Joseph also indicates that this exact scenario had played out under Joseph's administration in Egypt: the farmers were forced to turn their lands over to the government during a famine (I am not suggesting that the bible is historical; rather, in ancient Israel at the time that story was written, people were familiar with the situation).
As the economies became better developed and the scale increased, money (i.e. a single unit of account that serves as a common medium of exchange) and markets (i.e. trade between inhabitants of the same city) began to replace the temple economy system, at which point private banking enterprises became more clearly defined. For example:
So, did banks invent gold? Or did gold give rise to banks?
How can banks even exist in the first place unless we already have a common medium of exchange (gold), which can deposited into said banks?