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Gain, property, usury … the algorithmic flash trading of derivatives.




The idea of gain as positive social good is a relatively modern one. Throughout most of recorded history it has been conspicuous by its absence. Even our Pilgrim forefathers considered the notion of “buying cheap and selling dear” nothing short of satanic doctrine. Nonetheless, a genuine middle class appeared as a social force in the Mediterranean region during the course of the 14th century. Its development coincided with an increase of trade occasioned by two related discoveries. The first was the invention of the technique of tacking against the wind, a procedure that made sailing much less subject to the whims of nature than it had been before. The other was the compass. Marco Polo had brought one of these magical instruments back from Cathay in 1295 (although it does seem to have been known in Europe a century earlier), and general use of the device by mariners made navigation a good deal more certain than it would otherwise have been. Soon new trade routes opened up all over the world. Surplus capital came into existence and, with it, new ambitions. By the beginning of the 15th century a number of merchants had become wealthier than any king. The fortune established by one of these, Giovanni de’ Medici (1360-1429), created what we know as the Florentine Renaissance. The history of the city of Florence was for centuries the history of the banking house of the Medici. For the Medici became the discreet dictators of the city – ostensibly a republic – without ever holding public office. The Medici were bankers to all of Europe. Their home base, Florence, became a cultural center to rank with the Athens of ancient Greece.

—John Adkins Richardson



In his marvelous book The Structures of Everyday Life: Civilization and Capitalism 15th-18th Century, historian Fernand Braudel wrote of the gradual insinuation of the money economy into the lives of medieval peasants: “What did it actually bring? Sharp variations in prices of essential foodstuffs; incomprehensible relationships in which man no longer recognized either himself, his customs or his ancient values. His work became a commodity, himself a ‘thing.’”

While early forms of money consisted of anything from sheep to shells, coins made of gold and silver gradually emerged as the most practical, universally accepted means of exchange, measure of value, and store of value.

Money’s ease of storage enabled industrious individuals to accumulate substantial amounts of wealth. But this concentrated wealth also presented a target for thieves. Thievery was especially a problem for traders: while the portability of money enabled travel over long distances for the purchase of rare fabrics and spices, highwaymen often lurked along the way, ready to snatch a purse at knifepoint. These problems led to the invention of banking – a practice in which metalsmiths who routinely dealt with large amounts of gold and silver (and who were accustomed to keeping it in secure, well-guarded vaults) agreed to store other people’s coins, offering storage receipts in return. Storage receipts could then be traded as money, thus making trade easier and safer.

Eventually, by the Middle Ages, goldsmith-bankers realized that they could issue these tradable receipts for more gold than they had in their vaults, without anyone being the wiser. They did this by making loans of the receipts, for which they charged a fee amounting to a percentage of the loan.



Initially the church regarded the practice of profiting from loans as a sin – known as usury – but the bankers found a loophole in religious doctrine: it was permitted to charge for reimbursement of expenses incurred in making the loan. This was termed interest. Gradually bankers widened the definition of “interest” to include what had formerly been called “usury.”

The practice of loaning out receipts for gold that didn’t really exist worked fine, unless many receipt-holders wanted to redeem paper notes for gold or silver all at once. Fortunately for the bankers, this happened so rarely that eventually the writing of receipts for more money than was on deposit became a perfectly respectable practice known as fractional reserve banking.

It turned out that having increasing amounts of money in circulation was a benefit to traders and industrialists during the historical period when all of this was happening – a time when unprecedented amounts of new wealth were being created, first through colonialism and slavery, but then by harnessing the enormous energies of fossil fuels.

The last impediment to money’s ability to act as a lubricant for transactions was its remaining tie to precious metals. As long as paper notes were redeemable for gold or silver, the amounts of these substances existing in vaults put at least a theoretical restraint on the process of money creation. Paper currencies not backed by metal had sprung up from time to time, starting as early as the 13th century CE in China; by the late 20th century, they were the near-universal norm.

Along with more abstract forms of currency, the past century has also seen the appearance and growth of ever-more sophisticated investment instruments. Stocks, bonds, options, futures, long- and short-selling, credit default swaps, and more now enable investors to make (or lose) money on the movement of prices of real or imaginary properties and commodities, and to insure their bets – even their bets on other investors’ bets.

Richard Heinberg is the author of ten books including his latest, The End of Growth. Senior Fellow-in-Residence at the Post Carbon Institute, Richard is best known as a leading educator on energy supply issues and global resource depletion.

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