The Theory of Banking: Why Banks Exist and Why We Fear Them

Niccolo Leo Caldararo
2011 Social Science Research Network  
Banks are generally considered by most people to be utilities that allow the transmission of value on a daily basis in modern society, but they also seem to create devastating events like credit crises by the manufacture of credit. How this power originated in human society is of interest. Most animals produce some degree of savings, either in caching from one season to the next or for later in one season. Often these savings are an intergenerational transfer for the initial survival of young
more » ... in some wasps, or in a later use by the same individual who produces the savings either in the same year or the next as in many birds. The evolution of the bank, of institutions for organizing the savings of groups of humans has had a number of separate points of origin in history in various societies in antiquity and most recently during the Middle Ages in Europe. The history of banking illuminates the nature of contemporary fears about banks. Why banks are seen as necessary and deserving of saving or protecting during economic crises often seems a matter of faith or dogma than of necessity. This explains why neither Bush nor Obama's advisors, nor the EU have crafted as bold actions in the present crisis as FDR took in his Bank Holiday and that regarding the Gold Standard. Similar actions are necessary as is massive employment, but attitudes towards banking prevent such measures. Instead central banks are lending free money to banks who buy government bonds and make profits from the interest, any yet they fail to lend to produce work. This failure is inherent in the nature of reverence of banks.
doi:10.2139/ssrn.1908310 fatcat:fimw6nuuznezba4il6cir2auza