Part 1: The Origins of Banking – From Trust to Debt

By Black Hills Financial Planning

When most people think of banking, they picture vaults of cash, tellers behind glass, and debit cards that magically make money appear at the checkout line. But banking didn’t begin this way. Its origins tell a fascinating story of how societies learned to manage money, how the concept of debt became embedded in economies, and why today so many Americans unknowingly spend most of their income servicing interest instead of building wealth.

Understanding the roots of banking helps us see not only where our financial system came from, but also why so many families struggle to “get ahead.”

From Goldsmiths to Early Bankers

Centuries ago, money was physical — gold and silver coins. Carrying and storing it was risky. Goldsmiths, who already kept secure vaults for their trade, began offering storage services. People would deposit their gold and receive a paper receipt in return.

Soon, these receipts became easier to trade than the gold itself. Instead of hauling around heavy coins, people could simply pass along the receipt. In time, these receipts began functioning as money.

But here’s the turning point: goldsmiths realized that not everyone would come back for their gold at the same time. So, they began issuing more receipts than the gold they actually held in their vaults — effectively lending out gold that didn’t exist. The practice worked because the system relied on trust. If no one questioned whether the receipts could be redeemed, the illusion held.

This early practice laid the foundation for modern banking: creating credit “out of thin air” and charging interest on it.

Usury and the Morality of Interest

For much of history, charging interest on loans — known as usury — was considered immoral. Ancient Jewish law, early Christianity, and Islamic teachings often prohibited it. The logic was simple: money itself does not produce anything, so charging for its use was unfair.

Medieval Europe, in particular, wrestled with this moral dilemma. While the Catholic Church officially banned usury, growing trade and state borrowing meant moneylending was unavoidable. Over time, exceptions were carved out, and by the Renaissance, powerful families like the Medicis built vast fortunes from banking and credit.

The shift in how societies viewed usury was crucial. What was once condemned as exploitation eventually became the engine of global commerce. Debt financed exploration, wars, and the rise of nation-states.

From Debt to Empire

As trade expanded in the 16th and 17th centuries, governments themselves became some of the largest borrowers. Kings and queens needed funds for wars, exploration, and administration. Private bankers stepped in to supply credit — often at high interest — in exchange for political influence and future repayment through taxes.

The Bank of England, founded in 1694, was a milestone. It allowed the government to borrow large sums by issuing bonds, backed not by treasure, but by the promise of future taxation. This was revolutionary: money was no longer tied primarily to gold, but to debt.

From that point forward, nations could finance far more than their treasuries held, fueling both prosperity and instability.

Fast Forward: Debt and the American Family

The consequences of this system echo down to our daily lives. The principle of lending money that doesn’t exist — then charging interest on it — is embedded in modern banking. Every dollar in circulation today originates as a loan from a bank. That means it must be paid back with interest, even though the extra money to cover that interest doesn’t exist until more debt is created.

This explains why the average American family feels like they are running in place. Studies show that three-quarters of household income goes toward interest and taxes, leaving little left over for building wealth. Mortgages, student loans, credit cards, and auto financing all funnel money into the financial system — keeping families in a cycle of debt while banks profit.

Why This Matters Today

Understanding the origins of banking helps us make sense of today’s financial challenges. What started as a system of trust and convenience — goldsmiths lending receipts — has become a massive global structure where nearly every dollar is tied to debt.

That’s why financial literacy is so critical. If you don’t understand how money really works, it’s easy to fall into the trap of thinking the only options are to take on debt, hope for pay raises, and stash money in accounts that barely keep up with inflation.

But history also shows another truth: those who understand the rules of money are the ones who break free.

Taking Back Control

At Black Hills Financial Planning, we believe in turning this knowledge into empowerment. Our approach is designed to help families:

• Eliminate debt in less than nine years without spending more than they do today.

• Pay less in taxes by structuring finances more strategically.

• Protect and grow wealth in ways that aren’t tied to Wall Street volatility.

We are an education-first firm, because we believe a knowledgeable client is the best client. Once you understand the system, you can choose to stop being trapped by it.

Conclusion

The story of banking is the story of how debt became money — and how ordinary people ended up working to pay interest to institutions that create money from nothing. But it’s also a story of opportunity. If families can flip the script — and start earning interest instead of paying it — they can build wealth that lasts for generations.

This is exactly what we help clients do.

👉 If you’re ready to learn how to break free from the cycle of debt and take back control of your money, schedule a free consultation with Black Hills Financial Planning today. There’s no cost, no obligation — just the chance to finally see your financial picture with clarity.