I Promise

Did merchants use trust when they used negotiable instruments of credit?

Merchant networks frequently operated with reputation at the forefront of transactions. If a merchant had a weak reputation or was unestablished, any credit he obtained is likely to have been at a higher rate of interest, to reflect potential risk. Altruistic trust didn't feature in any prominent sense in these networks; there was inevitably a large measure of calculation involved based on repeated transactions of the past. In family firms, the reputation of the firm as a whole was paramount, such that any absconding or disreputable actions by agents or representatives of the firm were held as damaging to the firm's overall reputation, even if such parties were not family members.




In this backdrop, the 'promise' to pay that was intrinsic to all negotiable instruments of credit, particularly bills of exchange, was built on a foundation of calculative trust as well as normative codes of conduct. While honour and integrity were important in maintaining good relations with other merchants, defaulting on a promise was detrimental to the reach and depth of a merchant's capital.

With a modern currency note, this 'promise' to pay is backed up by the sovereign or government's authority, providing it with legal tender, and also promoting even higher negotiability and acceptance. There are few occasions when a country's treasury would be sufficiently called into question so as to warrant people losing faith in them. In the past, only events such as war, or the collapse of government, or shortages in bullion reserves could create such uncertainty.