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Those dishonest goldsmiths1

  • George Selgin (a1)

London's seventeenth-century goldsmiths are routinely said to have pioneered fractional-reserve banking in England by clandestinely lending coin they were supposed to store – that is, by embezzling their clients. I draw upon both contemporary testimony and contemporary English law to show that the goldsmiths were almost certainly innocent of the crime for which they are so often accused. I then go on to speculate that the myth of the embezzling goldsmith may have its roots in confusion of that crime with (1) crimes other than embezzlement of which goldsmiths were accused by their contemporaries and (2) embezzlement of stored coin not by goldsmiths but by the British crown and by some merchants' servants.

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The author is grateful to Meir Kohn, Hugh Rockoff, Mike Rozeff and Stephen Quinn, as well as two anonymous referees, for their helpful suggestions.

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Financial History Review
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