ABSTRACT
One can see banking as a mediating institution based on trust. In a small pre-commercial society, trust is personal and credit markets quite limited and based on personal knowledge. In larger commercial societies, credit markets tend to expand, but this is not possible if they are based only on personal trust. Adam Smith's vision of banking may be interpreted as an example of an analysis of this mix of institutional and personal trust. As Smith points out, borrowing precious metals from other banks to redeem notes can be done on occasions but not regularly. Despite the personal reputation and responsibility of the bankers and the institutional checks of guaranteed convertibility, the development of an expanding banking system may generate a level of impersonality that may breed inefficiencies, crises, and injustice. Smith's analysis of banking may be interpreted as an example of analysis of institutional and personal trust. Complex commercial societies cannot thrive on an eitheror system of trust.
