The history of banking began with the first prototype banks which were the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BC in Assyria, India, and Sumeria.
The banking system failed because loans were given based on the merit system; however, some kings did not pay their debts.
Banks Become Institutionalized Under the Roman Empire
The Romans were the first culture to institutionalize banking, taking it from the temples to formal banks, backed by the full power of the law. The law was certainly on the side of the bankers in the early days, with nonpayment of debts a crime, as well as debts being passed along to one’s descendants, sometimes for several generations.
The Evolution of Banking Over Time
Alexander Hamilton conceived of the [central] bank to handle the colossal war debt — and to create a standard form of currency. Up to the time of the bank’s charter, coins and bills issued by state banks served as the currency of the USA.
FEDERAL RESERVE
The Federal Reserve is the central bank of the United States and even though it acts as an independent agency, it’s still part of the federal government. Some people call it the bank for banks.
Their goal is to encourage high employment and economic growth while also keeping inflation under control.
To accomplish this outcome, the Fed has a number of tools it can use, but one key tool is its control over interest rates—which is the cost of borrowing money.
In the same way, people borrow money from banks, banks need to borrow money from somewhere as well. That’s where the Fed comes in. And when banks borrow money from The Fed – The Fed gets to decide what interest rate banks will pay on their loans.
When The Fed raises or lowers interest rates for banks – the rate that banks charge consumers for everything, including credit cards, auto loans, and home mortgages is affected; but how does this impact the economy?
If the economy is not doing well, The Fed will likely lower interest rates to encourage business expansion and increase consumer spending, which can help kick-start a sluggish economy. And if an economy is growing too fast—and inflation goes up—the Fed can increase rates so growth can be slowed and stabilized.
These decisions, along with other policy choices, are made by twelve leaders within The Fed called the Federal Open Market Committee.
The Federal Open Market Committee is made up of The Fed Chairman who is appointed by the President, the Fed Board of Governors, and a rotating group of regional Federal Reserve Bank Presidents.
WEALTH
Since its founding, the United States has developed systems and structures that encouraged entrepreneurship, innovation, and opportunity which enabled many people to create a good quality of life. It created a robust business environment where 99% of businesses employ less than 500 people, but collectively employ half of all U.S. workers. It has weathered global conflicts and economic disasters and come out stronger by making choices that enabled full recovery.
Forty-some years ago, we started making different choices, the kinds of choices that created today’s record-high income and wealth inequality, significant racial and gender disparities, and a job market where the bulk of new positions are low wage and low quality. These choices were driven by shareholder primacy—the belief that the sole purpose of a corporation is to deliver a return for its shareholders, at the expense of the environment and the workforce. Businesses aggressively cut costs by offshoring jobs, restructuring, and eliminating resources for employee training and development, to the point where in-house training is a distant memory in many companies. Ironically, today these same companies decry a lack of skilled workers to fill critical positions.
The current trajectory is unsustainable, but global business leaders are starting to catch on. Last year the Business Roundtable redefined the purpose of a corporation beyond mere profit, and the conversation at the recent World Economic Forum in Davos was all about stakeholder capitalism.
We need to create economy-boosting jobs where the average worker feels valued and earns enough money to comfortably spend in their community and to enhance the well-being of their families. When workers can do that, everyone benefits. Henry Ford was right – his assembly line workers needed high enough wages to allow them to buy the cars they built.
It’s time to build a comprehensive, transformative movement – using the levers of capitalism – to drive fundamental changes that boost the economy and repair some of the damage done by shareholder primacy.
Business and community leaders need to prioritize and incentivize the creation of economy-boosting jobs and have those who provide access to customers, talent, and capital develops a plan to operationalize this framework. We know that many small and mid-sized businesses will need help redesigning better jobs. We will need to activate a network of technical assistance providers to build their capacity. These proactive steps will set us on the path to transforming communities in ways that benefit everyone – and without government regulation.
Reference: National Fund for Workforce Solutions