8. the Commercial System of Payments and Remittance Means of Payment during the Commercial Revolution

1 ©Meir Kohn 2014 8. THE COMMERCIAL SYSTEM OF PAYMENTS AND REMITTANCE Merchants constantly needed to make and receive payment—often in large amounts. They did so when buying and selling goods and services, when borrowing and lending, when paying tolls and taxes, and when discharging debts and distributing profits. Also, because merchants operated in multiple locations distant from one another, they frequently needed to remit funds from one place to another. The costs of payment and remittance were a significant part of transactions costs. The means of payment and remittance available initially—coin and bullion—were quite inadequate to the needs of commerce. So commerce developed its own system of payment and remittance based on the transfer of IOUs. This system developed where the need was greatest—in the organized markets of major commercial cities. We will examine how this system of payment and remittance evolved—first its initial development during the Commercial Revolution, and then its continuing evolution in subsequent centuries. We will conclude by asking how the evolution of this system contributed to the development of commerce and to economic progress in general.