Thursday, March 27, 2008


Banking! What a wonderful term!
When ancient economists like Adam Smith, Ricardo, Malthus, John Stuart Mill etc. invented their theories, they considered Economics as a 'Science of Wealth'.
Medieval economists like Marshall promoted their theory that Economics is a 'Science of Welfare'.
Modern Economists like Robbins more aptly defined Economics as 'A Science, which studies human behaviour as a relationship between Ends and Scarce means, which have alternative uses'. How precise!
When Walker has given his definition of money (the smallest defition given to define a mammoth phenomenon) as 'Money is what money does' also, there was no Money! And there was no Banking! (wonder whether this statement is true!).
When it was more appropriately described as 'Money is a matter of functions four--A medium (of exchange), a measure (of value), a standard (for deferred payment), and a Store (of value), A METAL, discovered by then, i.e. nothing other than GOLD, was found to satisfy the four functions--probably Banking has also started!
It is learnt, in those days, (would you believe?) Stone tablets, Branches of trees, Trunks of small trees, Barks of trees were used as instruments of Banking!
Later, with the development of civilization, when the forward countries started trading with other countries, and as the economies developed, after so much research, the Coin was invented and developed, which was issued by the respective Kings or Governments, basing on the Gold Standard. In older times, things like Sea Sheells were used as coins! The high value coins were prepared with Gold; Silver; Copper; Bronze etc. according to the value of the metal used for the coin. At times, things like Animal hides etc. were used to print the Coins! Probably they were the first form of the now famous 'Currency'.
During these times, the 'Banking' grew from strength to atrength and became the nerve centre of the economies.
With growth in Banking, there was also the advent of Banks facing bankruptacy; people running on the Banks at times; Misutilization of the monies collected through deposits by the Banks etc.
In order to have a check on such things and to do Banking with other countries, need for setting up of Central Banks was felt and each country set up its own Central Bank.
Among the functions of the Central Bank were Control of the economy of that country; Issue of Currency; Controlling the Banks in that country; acting as 'lender of the last resort' to the Banks etc.
Even after the Central Banks were established, some of the Banks have gone to the Wall! That is a different story.
When the growth of Banking was enormous, the Gold Standard was abolished which paved the way for the advent of modern Banking.
----(more to come)