Banks have always aroused distrust. Suspicions about banks extend back to the beginning of the modern banking system, in 17th-century Europe. The era witnessed the emergence of central banks and fractional reserve banking as well as the proliferation of negotiable credit instruments. The first effects of these innovations were practical. In countries like the Netherlands and England, banks rose in tandem with constitutionalism. Governments that respected the rule of law inspired more confidence from lenders. Banking also increased states’ powers to fund wars and establish empires.
The Financial Revolution brought important ideological consequences. It promoted new ideas about the relationship between credit and money. Though tolerated in practice, lending money at interest had for centuries officially been prohibited in the West. It was viewed as exploitative and unnatural in a world where wealth was considered finite and static. Usury was a sin in the eyes of religious authorities, and classical political economy since Aristotle had believed money to be ‘barren’ and therefore unable to ‘breed’ through interest. This view found expression in Dante’s Inferno, where moneylenders are punished, alongside homosexuals, for their shared crime of ‘unnatural’ copulation. In the 16th century, the Protestant Reformation, and steady commercial growth, gradually diminished the opprobrium attached to usury, but moneylending still carried a tinge of the unnatural. Early proponents of the power of banks to create money on credit used alchemical principles – that is, the principles of magic – to compare the transmutation of base metals into precious ones, and the transformation of specie into paper money.