Financial History Review


Those dishonest goldsmiths   1

George Selgin

University of Georgia


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.

(Received April 05 2012)

(Revised June 25 2012)

(Accepted July 01 2012)

(Online publication September 11 2012)


  • bailments;
  • embezzlement;
  • fractional-reserve banking;
  • fraud;
  • goldsmiths

JEL classifications

  • G21;
  • K12;
  • N23


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