The History of Business and Financial Mathematics (part 3)

IV-) The Banks

The emergence of banks is directly linked to the calculation of compound interest and the use of commercial and financial mathematics in general. By the time trade began to peak, one of the merchant's activities was also that of money trading: with gold and silver. In the various countries gold and silver coins were minted.

During the expansion of trade, as well as during the wars of conquest, the currencies of different countries were exchanged, but payment could only be made with money from the specific country. Consequently, within the borders of each country, foreign currencies should be exchanged for money from that country. On the other hand, traders and other wealthy people traveling abroad needed money from other countries, which they bought with national currency. Over time, some traders became very familiar with foreign currencies and began to accumulate them in large quantities. In this way, they dedicated themselves exclusively to money exchange, that is, to money trading.

Then came the division of labor within the field of commerce: in parallel with traders who were engaged in the exchange of common goods came the money changers, that is, traders dedicated to the exchange of a specific commodity: money.

In a relatively short period of time, fantastic sums of money have accumulated in the hands of money changers. Over time, they were busy with a new activity: saving and lending money. At that time, and due to the poor organization of the institutions responsible for social security of the individual, it was not advisable to have in his house many gold and silver coins. These people surrendered their money to the custodian of the rich money changer, who kept it and returned it to the owner when he asked. Imagine any money changer who has accumulated huge amounts of money in his coffers.

It was only natural that the following idea would occur: "Why will these large sums of money remain in my power without any profit for me?" Then you see that the word "profit" is directly intertwined with the concept of finance. It is likely that all homeowners, at the same time and on the same day, will demand the immediate return of all their money. I will lend part of this money to anyone who requests it, provided it is returned within a specified period. if you want during this time it is natural for me to get some advantage, so in addition to the money you borrow, you will have to give me an additional sum on the due date. "
We have seen that in this thought of the merchant, the idea of ​​profit already appears strongly.

Thus began the credit operations. Those who for some reason were out of money - merchants, feudal lords, and often the king himself or the national treasury - resorted to the money changer who lent them large sums of money at "reasonable" interest.

The interest was paid for the enjoyment of the money received or, more appropriately, was the "compensation for fear" of the borrower and thus exposed himself to great risk. However, in some cases this interest has reached incredible amounts: in ancient Rome users demanded from 50 to 100 per cent and in the Age. From 100 to 200 per cent, sometimes more, in direct relation to the need of the applicant or of the sum amount.

These interest were called - in all fairness - usurer, the money received borrowed from usurer capital and the creditor from usurer. The money changer was working on a wooden bench somewhere in the market. Hence the origin of the word "banker" and "bank". The first truth banks in history were created by the priests.

In the ancient world, among the Egyptians, Babylonians, and later among the Greeks and Romans, there was a widespread custom that wealthier citizens should entrust custody of their gold to priests.

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The Christian Church not only continued the tradition of the credit operations of the ancient priests, which it considered to be, but developed them on a large scale. The Catholic Church created the "Bank of the Holy Spirit", I ran a fabulous starting capital. Its true purpose was to expedite the exhortation to the faithful of the so-called "denarians of St. Peter" designed to satisfy the Pope's frugalities and to facilitate the payment of tithes and indulgences, as well as to carry out loan-related transactions, in other words, with usury.

At the same time, he launched anathema and condemned the citizens of the Inquisition who lent interest money, even if the interest was lower than what she demanded for her money. The Church forbade its faithful to charge interest for their money, invoking as authoritative the Holy Scripture, which reads: "Love therefore your enemies, and do good, and lend, expecting nothing" (St. Luke 6:35). In fact, this prohibition was motivated by a very "mundane" economic interest: the Church sought to secure for herself an absolute monopoly on interest-bearing.

Despite the curses and threats of eternal fire, the Church could not contain the greed for people's gains and profits, especially as the very development of commerce required the creation of a large banking network. The initiators of this activity were the vast city-states of Italy, whose range extended to the farthest reaches of the known world.

The first private bank was founded by the duke. Vitali in 1157 in Venice. After this, in the thirteenth, fourteenth and fifteenth centuries an entire banking network was created. The Church had no alternative but to accept the reality of the facts. Thus banks were one of the great practical drivers for the advancement of commercial and financial mathematics and economics during the tenth to fifteenth centuries. For without this motivation to improve calculations, perhaps this area of ​​mathematics would not have been so advanced today.