In the spring of 1692, an energetic young Scotsman named John Campbell started a new business in central London.
Campbell was a goldsmith, and his business sold jewelry and other crafted metals like plates and silverware.
But Campbell’s new company had another business line as well: banking. And the company he started eventually became Coutts & Co., a bank that still exists today in the UK.
Since the dawn of the Bronze Age thousands of years ago, metal workers (‘smiths’, from the word ‘smite’– to strike) were prominent, highly valued members of society.
Smiths were instrumental in construction, architecture, science, warfare, and art.
And they also provided some of the world’s earliest banking services.
For most of human history, money was metal– primarily gold and silver. And people knew that storing large quantities of gold and silver in their homes made their wealth prone to theft.
Goldsmiths already had tight security in their shops due to their significant inventories of precious metals.
So it was commonplace for other residents in town to store their own gold with the local smith, piggybacking on his security, in exchange for a nominal fee.
This was banking in its most traditional form: customer paid a fee to store wealth at a goldsmith’s shop.
By the time John Campbell set up his bank in the late 1600s, however, times had changed. Goldsmith-bankers had begun making loans… keeping only a small portion of their customers’ gold on reserve in the vault, and loaning out the rest at interest.
This is essentially the same model of banking that still exists today.
Giant institutions control trillions of dollars that we depositors dutifully provide to them.
Banks keep a tiny portion of this capital...