> They made transactions easier, and in the process created new deposits and bills that increased the supply of money. This is the fundamental misunderstanding

> They made transactions easier, and in the process created new deposits and bills that increased the supply of money. This is the fundamental misunderstanding that the whole article is based on, in my opinion. Let me clarify. Gold and silver were money in this time period. Deposits receipts and bills of exchange are neither gold nor silver. They are derivatives, because they derive their value from allegedly being redeemable in gold/silver. Now, someone issuing either of these derivatives may very well be tempted to issue fraudulent notes (where “fraudulent” is defined as “no means or intent to repay in gold/silver), which is where the wonderful idea of “default” comes in. When a company is unable to honor its liabilities, it’s in default, and its assets are distributed amongst its creditors. So a private company (e.g. certificate of deposit-issuer, bill of exchange-issuer), and therefore its assets, is forcefully liquidated when it can’t live up to its promises. This is the solution to the problem. As long as we allow the process of default, and forced liquidation, the. if a company makes promises it can’t hold, it dies and disappears from the market. So, treating issuers of money-derivatives as regular private companies gives its creditors the ability to force it into liquidation, in case it’s unable to honor its promises. Except when government grants special privilege to private companies called “banks”, and make them exempt from living up to their promises. It’s an understandable reaction from government: short term gain (no turmoil from default), but a long term pain (private companies with government-granted freedom to issue fraudulent derivatives). Capitalism doesn’t work without recognizing the essential function of the death of a private company. This is the killer feature of capitalism: let unproductive/downright fraudulent companies die, and hand over their assets to its stakeholders. As long as we recognize deposit receipts, bills of exchange, etc. as simply a promise, and are willing to keep issuers honest, by being able to force default on the company if it can’t live up to its promises, derivatives and money are clearly separated. And no one can “increase the supply of money” by producing derivatives that are allegedly redeemable in this monetary unit, any more than someone can “increase the supply of oil” by issuing and selling oil futures contracts.