ABSTRACT
Each of these private mints would exist primarily to maximize its own profits, which could be generated in several ways. One would be by offering competitive minting fees. Another would be by developing a reputation for probity to reassure prospective customers that they would not be cheated. A third would be by innovation: mints would experiment with coins of new denominations, alternative metals, and so on. Any successful innovations would be imitated by other mints and would become widely adopted. It bears stressing that these mints would have no incentive -to cheat by overstating the weight of their coins, because such deception would be easy to detect, and this would harm the mint's reputation and hence its business. Furthermore, the law would classify such activity as fraud. 2
The goldsmiths would thus become bankers and begin to compete with each other for deposits. One way of doing this would be to offer interest on deposits, replacing the earlier fees charged depositors for the safe keeping of their money. More important, the goldsmith-bankers would also compete for deposits by offering guarantees to prospective depositors that the receipt notes issued by them would retain their value. Perhaps the most persuasive guarantee they could offer would be to make their notes 'convertible', that is, to promise to convert their notes back into specie. The goldsmith-bankers would in fact have offered such promises right from the start, of course, because no one would have placed deposits with them unless they were assured that they could withdraw them. These guarantees would have the status of legally binding contracts, and the violation of such a contract would therefore expose the banker to the legal penalty for default, which we will assume to be sufficiently high to make a banker careful to avoid it.
