important as background for Chapter 14 but not particularly relevant for modern times, except for those concerned with Islamic banking. MONEY THEORY The classic Fisher (1911) ‘quantity theory’ of money is often stated by the formula MV=PT. This is a tautology in the sense that it must be true provided that the terms are consistently defined. If M (quantity of money) rises without any change in V (velocity of circulation of that money) and T (volume of transactions) then P (prices) will inevitably rise. This begs the question of the nature and direction of any causal relationship and specifically of whether velocity, V, is independent. It is perfectly possible that, in certain circumstances, an increase in the money supply, M, could simply be met by a fall in velocity, V. Similarly an increase in V would have an effect on prices even if M remained constant. Throughout history, and particularly during the period we are discussing, there is a tendency for the means of payment to be expanded. Coin is supplemented, first by bank notes and bills of exchange, and later by bank deposits, credit cards, and interest bearing current accounts. These become effective money substitutes and (arguably) money itself. Should we look at such a development as a change in the nature of M or a change in V? In an all-coinage economy the concept is simple. The quantity of money is measured by the number of gold sovereigns (or silver groats, or whatever) in circulation, and velocity is measured by the average number of times those coins change hands, in the literal sense, each year in the course of trade. Assume a gold coin changes hands ten times per annum: this may imply that a typical merchant finds it convenient to hold 10 per cent of his annual turnover (or a customer 10 per cent of his annual expenditure) in the form of coins. The velocity of circulation would be ten. With the growth of credit and trade bills in the fourteenth century it became possible to transact business between merchants without pieces of metal changing hands. Suppose that credit develops, and that for every transaction settled in coin another of equal value is settled by a credit transaction which is netted off without gold changing hands. Although the velocity of movement of coins remains the same, the effective velocity becomes, for our purposes, twenty. This mechanism works only if (as is probable) merchants now find it necessary only to keep 5 per cent of turnover in the form of coin. The credit mechanism has developed as a means of economising the holding of cash. In these circumstances it is probably still useful to say that the velocity of circulation has doubled. As MV has doubled so must PT. This mechanism is potentially inflationary but (in the fourteenth century) the movement of V was more likely to be a response to the growth of T and would therefore not increase P. The quantity of coin (or uncoined bullion which is not actually the same thing) was little changed, but had to support a growing volume of trade. INTRODUCTION 117 Merchants handling an increasing volume of trade on the same cash resources had to find ways of raising cash. Had they continued to require 10 per cent of turnover and cash balances, trade could have expanded only with a massive price deflation. (If in the twentieth century, one had continued to define ‘money’ in terms of the gold reserves of the Bank of England V would be a very high figure indeed.) It has become more useful to use various broader definitions of money, but we must recognise that for each definition of M there is a corresponding value of V so that at any time (tautologically) MV will be the same whatever definition of M we choose. Traders may respond to a restriction of one particular form of M by switching to substitutes, thereby economising the use on that particular M and increasing the value of V appropriate to the definition. This explains the familiar Goodhart’s Law’ which states that ‘whichever aggregate the monetary authorities attempt to control will prove to be the inappropriate one’. The Cambridge approach may throw light on certain periods of history distinguishing as it does between money held as convenience to trade and money held as a store of value. Historians might find it useful to adopt this approach and also perhaps to distinguish between the monetary transactions of merchants than those of private citizens. Usury At the beginning of the period, during the Commercial Revolution itself, the major issue was the concept of usury, the idea that it was unlawful, sinful and un-Christian to take a reward for lending money to others. The growing needs of commerce proved to be in conflict with the traditional doctrines of the Church: this conflict did much to shape the financial institutions and methods which were then developing. Whereas ‘the closed economy of the barbarian period allowed only the most unjustifiable form of usury, that practised at the expense of a needy neighbour borrowing the necessaries for the means of work’ they continued into …a world in which capital had once again assumed a function essential for the promotion of the major undertakings of trade by sea and land. Shipowners, manufacturers and bankers all required a considerable capital which they could not get from philanthropists content with the choice either of making the fortunes of others without a share themselves or of losing everything without any compensation. The relaxation of the rules might have been expected. It was the contrary which happened. (Cambridge Economic History of Europe vol. iii: 565) Ashley (1919:436–7) takes a more sympathetic view, while Henri Pirenne stresses the role of the Church as ‘the indispensable money-lender of the 118 A HISTORY OF MONEY period’. Monasteries supplied credit against land to neighbouring lords. Up to the mid-thirteenth century: …the loans were all loans for consumption…the money received would be spent at once, so that each sum borrowed represented a dead loss. When it prohibited usury for religious reasons, the Church therefore rendered a signal service to the agrarian society…. It saved it from the affliction of consumption debts from which the ancient world suffered so severely. Situations changed and …the revival of commerce, by discovering the productivity of liquid capital, gave rise to problems to which men sought a satisfactory solution in vain. Right up to the end of the Middle Ages society continued to be torn with anxiety over the terrible question of usury, in which business practice and ecclesiastical morality found themselves directly opposed, …it was evaded by means of compromise and expedients. (Pirenne 1936:121) On the whole it does seem that instead of adapting to change, the theological attitude to usury actually hardened. The point is not merely of interest to medieval historians and theologians. The legal and moral system was quite out of line with the needs of commerce. The story of how the business community adapted by inventing ‘loopholes’ which the canon lawyers then tried to close will sound only too familiar to anyone whose role it has been to guide business through the maze of tax, regulatory exchange control and other laws imposed by twentieth century interventionist states. The Christian view on usury The Council of Nicea (325) banned the practice of usury by the clergy and the prohibitions were extended to all church members by Leo I (died 461). The Decretum Gratiani (probably about 1140) which became the standard textbook on canon law, dealt with the point and there were other developments. The basis of the Christian objection to usury is to be found in two texts, whose brevity did not inhibit dogmatic discussions on interpretation. ‘Thou shalt not lend upon usury to thy brother: …Unto a stranger thou mayest lend upon usury but unto thy brother thou shalt not lend upon usury…’ (Deut. 23:19–20). The word brother was interpreted to mean all mankind but on this view, what could the writer have meant by strangers? The other text is found in Exodus: ‘If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer neither shalt thou lay upon him usury’ (Exodus 22:25). St Thomas INTRODUCTION 119 argued that this prohibition applied only to Jews amongst themselves, and that a Jew could exact interest from a gentile. The loopholes A number of loopholes were used to permit interest to be charged. Interest was permitted to indemnify the lender from actual loss, damnum emergens or opportunity loss, lucrum cessens i.e income foregone as a result of making the loan. A loan could be turned into a rent charge, and there were variations on the ‘partnership’ theme, leading to a rather ingenious form of organisation known as the Contractus Trinius. The Roman legal code of Justinian effectively defined ‘inter est’, that which ‘is in between’ the creditor’s actual position and what it would have been if the contract had been fulfilled. It was arguably, therefore, reasonable to demand a penalty if a loan was not repaid on time. This became formalised as a conventional penalty (poena conventionalis), written into the contract. A borrower would borrow, and would in due course be expected to repay exactly the same sum. Meanwhile, on each nominal repayment date he would pay over the penalty (effectively interest) and roll over for another period. Presumably if he actually repaid on the due date the creditor would have no claim for interest. Effectively, borrower and lender could agree a rate of interest provided that there was an initial interest free period, which could be very short. Could it be dispensed with altogether? Theologians could argue for hours on such points. The ‘Deed of Partnership’ was frequently used. Every act of financial participation entailed a risk, for which compensation was provided by the eventual profit; and, since the partner retained the ownership of the sum invested there was no question whatever of a ‘mutuum’. The Contractus Trinius, which appeared in the late fifteenth century, raised more difficulties: it consisted of three contracts simultaneously entered into between the same parties: 1. A sleeping partnership. The investor brings his money, the merchant his work and they divide the profits. 2. An insurance against all risks whereby the investor is given a guarantee against loss in exchange for a percentage of the eventual profit. 3. The sale by the investor, for a fixed sum to be paid to him each year, of his chances of profit above a certain level. All three, taken separately, bypass the usury provisions, but the overall effect is simply a loan for interest. The church authorities tried to look through the form to the substance, and over the years kept tightening up the rules. Ashley (1913: 411) suggests that the practice grew up independently of the need to avoid the usury laws. 120 A HISTORY OF MONEY Another form of transaction was the annuity or rent-charge, a kind of sale and leaseback. This could be achieved by a sale of a property with all its rights, including the right to receive the rent roll, and the near-simultaneous repurchase without this right. Later, this was extended as a common way of obtaining a fixed income. The owner of the property alienated against a perpetual annuity had a title which could be negotiated by its vendor, effectively by first ‘buying’ (or purporting to buy) a piece of land on this basis and simultaneously ‘selling’ it to parties who had entered a transaction which in substance amounted to an interest bearing loan on the security of the property. Pirenne (1936:137) refers to the creation of house rents as the most general form of medieval credit. He points out the distinction between a ‘live’ (vif) gage where rents contribute to the payment of principal and a ‘dead’ (mort) gage where it did not. An important source of capital for the municipalities was the sale of ‘life rents’ for one or two lives (annuities certain). These were a popular investment for prosperous citizens. ‘Neither municipal accounts nor individual memoranda recoil before the word “usury”, but in documents intended for the public the reality was dissimulated’ (Pirenne 1936:129). It appears that, as loopholes were invented, attitudes hardened (Nelson 1949). Specifically, although it was virtually impossible for the Church to restrict the use of Bills for genuine commercial transactions: i.e. where the Bill was originally drawn to pay for goods purchased and which were in transit, fictitious bills, drawn solely as a cloak for a money lending transaction, were another matter. This was known as dry exchange or cambio secco, which the Church tried to outlaw. Profits derived by money-changers and bankers presented the moralists with a problem. Transfers from one currency to another…were an opportunity for usurious speculations…. Nevertheless the cambium was a necessity for the Apostolic Chamber no less than for those who frequented fairs…. Theologians…in spite of reservations… generally admitted a premium which was justified by the money changer’s time and trouble and the risks attending carriage. (Cambridge Economic History of Europe vol. iii 1971:568–9) Islam Moslems today use the mudaraba, a simple, but apparently flexible partnership between investor and entrepreneur, or the musharaka, where profit is distributed pro rata to capital. Islamic banks offer ‘deposit account’ holders a share in the profit of a pooled fund, with the bank acting as fiduciary agents, charging an agreed management fee. Depositors can apparently share in the profit of the bank itself. INTRODUCTION 121 14 CREDIT AND THE TRADE FAIRS INTRODUCTION The commercial revolution, the dramatic revival of trade and commerce which began in Western Europe around 1150, was to a large extent the creation of merchants who, starting with the simple concept of a trade fair as a meeting place, developed what was virtually a separate political and legal system. They negotiated rights of trade, passage and protection with rulers whose archaic laws were quite unsuited to the needs of the developing society, and simply put their own system in its place. This, surely, was a quicker and more effective means of creating the framework needed for a market economy than waiting for, or trying to engineer, changes in the complex web of feudal and ecclesiastical law and custom of the time. Chapter 3 has described how the coinage towards the end of the twelfth century consisted of no coin larger than a penny (in most countries, other than England and Scotland, even that was sadly debased), and Chapter 4 explained how gold and large silver coins were then introduced to meet the needs of trade. There was a parallel development. This period also saw the growth of credit as the means of settling large international transactions without the physical expense and risk of transporting coined or uncoined bullion. In due course various types of bills of exchange would develop into paper money, while the concept of banking also has its roots in this period. This book is about the history of money, which is separate from, though intimately connected with the history of trade, of public finance and financial capitalism, and of banking institutions. This chapter in particular will need to look a little beyond the narrower subject. THE HISTORY AND PURPOSE OF THE TRADE FAIRS The medieval trade fairs, in their classic form, grew to prominence as trade revived in the 1100s, reached a peak in about 1250, and had effectively served their main purpose, from the point of view of the history of money, by about 1400. These trade fairs were quite different in purpose from the local fairs and markets which have a far longer history and which are still to be found today (Postan 1973). The trade fairs were meeting places for professional merchants, open to all regardless of nationality or the type of goods they wished to buy and sell. ‘They may perhaps be compared with international exhibitions, for they excluded nothing and nobody; every individual, no matter what his country, every article which could be bought and sold, whatever its nature was assured of a welcome’ (Pirenne 1936: ch. iv, part ii). Since the middle of the twelfth century, cloth merchants and others had been coming to trade fairs in Champagne and Flanders. Rulers, notably the Counts of Champagne, set out deliberately to offer conduits des foires (safe conducts and protection) to visiting merchants and to encourage their activities. Custodes nundiarum, ‘guards of the fairs’ maintained order. Treaties with neighbouring potentates, such as the Duke of Burgundy, extended protection for the journey to and from the fair. Bautier (1971 ch. iv) describes how trade between Flanders and the South expanded from 1169, as testified by receipts at the Bapaume toll-house. In 1174 Milanese merchants began attending the Champagne trade fairs, where they bought, for export to the Orient, cloth brought from Flanders and Arras. They were soon joined by others, and by 1180 the pattern was established. In Champagne there was a regular series of six trade fairs staggered over the year in Lagny, Bar, Provins, and Troyes, the last two having two annual fairs each. These are not, and were not, particularly important towns in their own right but became great trading centres. Much of the trade seems to have been between Flanders and Italy and thence East. The Flemish drapers would set up their tents and exhibit their cloth. ‘Clerks of the fairs’ could travel freely, carrying correspondence, between Champagne and Flanders. Each of the six fairs had a fairly standard pattern: to begin with there was a week during which merchandise was exempt from taxes; then there was the cloth fair, then the leather fair and the avoirs du poids (goods sold by weight: wax, cotton, spices etc.); finally came the concluding stage when debts incurred during the fair were settled. The complete cycle lasted from fifteen days to two full months for each fair. (Bautier 1971:111) A particular privilege was the ‘franchise’: exemption from legal action for crimes committed, or debts incurred, outside the trade fair. It also suspended lawsuits and their execution for so long as the peace of the fair lasted. Pirenne says the most precious of all was the suspension of the prohibition of usury, but it may not have been quite as simple as that. Eventually, contracts made at one trade fair were valid, and could be enforced, anywhere in the system ‘sur le corps des foires’ or supra corpus nundiarum (Bautier 1971:113) and the fairs developed their own legal system CREDIT AND THE TRADE FAIRS 123 for the settlement and arbitration of claims. Although merchants were protected from outside claims during the ‘peace of the fair’ obligations entered into within the trade fair system were strictly enforced by what was effectively a substantial and well staffed private enterprise legal or arbitration system created by the merchants themselves. If a merchant refused to recognise the jurisdiction, the dispute was reported to his own city or state. If they failed to enforce a judgment the fair officials could pronounce the ‘interdict of the fairs’ against the offending city, all of whose merchants, and not only the offender, would be banned. This sort of lay excommunication was a very powerful deterrent. The general community of merchants had a strong interest in enforcing the system: in a closely knit community self regulation works splendidly. (Some interesting examples of the similar powers of the Hanseatic League are given in Bautier 1971:126. He refers to them as a ‘boycott’ in contrast with the ‘interdict’ of Champagne.) Groups of merchants from one city or area doing business in a particular foreign market tended to form themselves into a ‘hanse’ using their collective power to negotiate concessions, and to achieve a certain degree of self- government. Bautier points out that the Italians from independent and often mutually hostile cities assembled as a ‘nation’, which ‘perhaps gave birth to the idea of nationhood’ (Bautier 1971:112–13 and Carus-Wilson 1967: p. xvii ff). There was ‘a fantastic rise in the cloth industry of north-western Europe’ now sold via Italian merchants into Italy and to the East. In Florence, an expanding industry dyed and prepared the cloth. The action was not only in Champagne. Other rulers, particularly those controlling alpine passes, sought a share of the potential revenue. The merchants, though competing vigorously between themselves, ‘formed a kind of users’ syndicate’, used collective bargaining to play off rivalries and to secure reductions in tariffs and substantial road improvements, including the effective opening of the St Gotthard pass in 1225 (Bautier 1971: 116–17). Marseilles became an important port and Louis IX of France (St Louis) tried to create an export harbour under his own control at Aiguesmortes. Northern trade developed along similar lines. From Flanders and Bruges there were connections via Cologne, and a close link developed with the English wool industry via trade fairs in St Ives (Clapham 1957:151), St Giles, Winchester and St Botolph, Boston. The English monarchy replaced full free trade with a ‘system of export licences, associated with personal safe-conducts for the merchants, and levies of “reasonable” taxes’ (Bautier 1971:120). The German Hanse was an alliance of mercantile cities in the Baltic who came together to safeguard their position in the trade between Bruges and Novgorod. Lübeck was founded in 1150. Its inhabitants were exempt from tolls throughout Saxony. Fur, honey and wax from Russia were exchanged for the ubiquitous Flemish cloth. New towns were founded along the Baltic including Rostock (1200), Wismar (1228), Straslund (1234), Stettin (Szczecin) (1237) and Danzig (Gdansk) (1238). These, and many other towns, some 124 A HISTORY OF MONEY inland, enjoyed the privileges of Lübeck. In 1251, the Germans founded Stockholm as a base for trading with Sweden (Bautier 1971:122–4). As with the network of mainly Italian merchants based on the Champagne Fairs, the merchants of these cities obtained a substantial degree of self governance, independent economic power and freedom from political restrictions in their commercial activities. Allied in various leagues, they eventually came together at the end of the thirteenth century in the Hanseatic League. They acquired privileges from, among others, the English crown, and had their own enclave, the Steelyard, in the City of London (Clapham 1967:150). Clearly…the political organisation of the free Hanse towns was far more effective than that of the surrounding territorial states. This was the unique objective of Hanseatic external policy, while royal or ducal governments had to play a game complicated by dynastic entanglements, greed for military glory, social privileges and territorial disintegration. (Cambridge Economic History 1971 vol. iii: 389) Later, the fairs (in this form) began to decline. In part this was because there was less need for the fairs, thanks to the system’s very success. Merchants, instead of travelling personally, came to stay more at home and to operate through a network of correspondents. (They could use the credit mechanisms which had developed during the trade fairs.) Goods, which had previously been transported overland across Europe, could now be sent by ship from Italy and the East to England and Flanders. There was also a sharp decline in actual trade. After a century of peace there started in 1294 the series of conflicts constituting the so called Hundred Years War, while the Black Death of 1348 reduced the population of Europe by 30 or 40 per cent. This brought a serious check to economic development, but not to the development of business and financial techniques. When the concept of the fairs was revived, the aims were different. The towns put on entertainments and facilities, and generally sought to encourage merchants to foregather, in the hope of stirring up lucrative tourist trade. The role of the fairs in monetary history A major problem, during the Commercial Revolution, was how to reconcile the attitude of the Church to usury with the need of merchants to borrow (Chapter 13). An important loophole, in terms of the development of the money economy, was to be found at the trade fairs, which thus had a major role in the history of money as well as of trade. Payments between merchants were often settled by promises to pay at a future date. Originally these took the form of notarised contracts, often expressed in foreign currency, but in due course these became formalised and standardised as bills of exchange. Payment was usually expressed to be made at a particular fair, and in some CREDIT AND THE TRADE FAIRS 125 cases settlement of debts became a major function of the fair, with money changers and bankers joining the throng of merchants. There were two major advantages, quite apart from access to the merchants’ own trusted legal system. First, a clearing house could be set up within the fair. Debts due could be netted off. Coin need only be transported (a perilous activity) to meet any trade deficit or surplus between areas. Merchant A from Venice, owes money for imports, while B is owed for exports. They can be brought together, and settle cash back home. To begin with, physical presence at the fair, in person or through an agent, was needed but in due course correspondent networks could achieve the same end. It became apparent that payments from one place to another could be made more simply quickly and cheaply by sending bills of exchange, rather than coin. This saved the expense of heavily armed escorts, of reminting to local currency (at about 2 per cent, this was not quite as steep as what the banks charge today for retail foreign exchange transactions) and of delay itself. The bills could in due course be netted off and cleared through the trade fair system, and meanwhile constituted an acceptable store of value. The Church used the system for collecting St Peter’s Pence (the contributions of the faithful) and disseminating its funds: this core business helped establish the preeminence of the Italian merchant bankers of this time (O’Sullivan 1962; de Roover 1948). Although it was eventually necessary to settle differences with coin (there were regular trade flows) transport could often be associated with a visit by a king or an ambassador who in any case needed an armed guard. Second, properly drawn trade bills in a foreign currency could bypass the usury laws. Today, if a banker is offered a bill of exchange for $10,000 due in three months, and is asked for immediate sterling, he will first convert the value into sterling using not the spot, but the ‘forward’ exchange rate. He will then ‘discount’ this amount to allow for three months’ interest. A medieval banker might, indeed almost certainly would, make this two stage calculation, but would quote only a ‘forward exchange rate’ which would include a carefully concealed element of interest. A great deal of trouble would be taken to disguise the true nature of the transaction and to placate the theologians. In some cases, the main purpose of the fair became to exchange bills, often bills created for the sole purpose of arranging a commercial loan outside the scope of the usury laws. Genoa bankers found it advisable to carry on operations through bills on the Besançon market, while the Florentines used Lyons. For a time, the foreign exchange markets of London and Bruges were dominated by Italians, who needed to carry on their money lending business in a foreign currency. The ‘fair’ period therefore ushered in a revolution in methods of money transmission between countries, and of the use of (concealed) debt instruments. It was the foundation on which the future history of banking was to be based. 126 A HISTORY OF MONEY [...]... Wealth of Nations was published in 1776, also the year of the American Revolution and the start of another exciting period of financial upheaval Smith’s main concern was with trade: David Hume (1 752 ) in a few succinct essays, probably had more influence on monetary thought The development of a permanent National Debt had been a major factor in the birth of the Bank of England—and of the South Sea Bubble... associated with the American and French Revolutions The currency was stably based on the UK recoinage of 1696 and its equivalents elsewhere Paper money was used, but still as a convenient means of money transmission, rather than a major component of money supply The period was also a great age of European music and drama and (more relevant) of economic thought Tidily, the seminal work on economics, Adam... establishment of the Bank of England can be treated, like many historical events great and small, either as curiously accidental or as all but inevitable Had the country not been at war in 1694 the government would hardly have been disposed to offer a favourable charter to a corporation which proposed to lend it money Had Charles Montague, Chancellor of the Exchequer, not thought that out of several... covered, in far more detail, in histories of banking, and of particular banks (notably the Bank of England) as institutions The South Sea Bubble is covered in more detail in Chapter 16: the present chapter gives a selection of events relevant to the history of money as such THE BANK OF AMSTERDAM Arguably the first real bank, as we understand the term, was the Bank of Amsterdam, founded in 1609 and described... intrinsic value that had been paid The Amsterdam precedent was quickly followed by other major cities The Bank of Hamburg was formed in 1619 and the Bank of Sweden in 1 656 (Melon 1738:347) The Bank of Sweden made the first issue of actual bank notes in Europe, in 1661 Heckscher (van Dillen 1964:169) admits that ‘the 130 A HISTORY OF MONEY certificates issued before that time by the Italian banks had some of. .. streamlined and there was a sinking fund to pay off the principal One disadvantage of the old annuities was that although the holder received 5 per annum for (typically) ninety-nine years, he did not receive a return of his principal at the end of that period Anyone with a pocket calculator can today demonstrate the promise of a return of the original £100 investment at the end of a ninety-nine year... Sea Bubble was an exercise in corporate finance That aspect is analysed in detail in Neal (1990) ‘The Rise of Financial Capitalism’ and Dickson (1967) There is also a wealth of information in Scott (1912) The superficially similar ‘bubble’ at the same time in France had far more important implications for the development of money, and is discussed in Chapter 23 The aftermath Inevitably, there was a. .. crisis and no collapse’ in London ‘although the Bank’s August statement showed’ what a nice thing it had been with metal reserves (including till money and other earmarked amounts) down to £367,000 against a note circulation of 5, 3 15, 000 There was a disruption of international monetary links, and it was perhaps the first case of a crisis largely involved with the private rather than public finance... financial operations of his syndicate, including George Caswell, Elias Turner and Jacob Sawbridge Daniel Defoe, by far the best of what we would call ‘investigative financial journalists’ of the day, referred to them as the ‘three capital sharpers of England…together a complete triumvirate of thieving’ (Carswell 1960:34) In 1707, when the Bank of England’s charter came up for renewal, the Sword Blade... England itself had been granted its charter in 1694 in return for providing a loan of £1.2 million, and in 1696 the ‘ingrafting of tallies’ had converted another £1 million The East India Company had been chartered in 1698 in return for a loan of £2 million, and the Sword Blade Company had itself undertaken a similar operation in 1702 The distinguishing feature of the 1711 South Sea proposal was not . to avoid the usury laws. 120 A HISTORY OF MONEY Another form of transaction was the annuity or rent-charge, a kind of sale and leaseback. This could be achieved by a sale of a property with all. of a trade fair as a meeting place, developed what was virtually a separate political and legal system. They negotiated rights of trade, passage and protection with rulers whose archaic laws were. be made at a particular fair, and in some CREDIT AND THE TRADE FAIRS 1 25 cases settlement of debts became a major function of the fair, with money changers and bankers joining the throng of merchants.