The invention of banking preceded that of coinage by several thousand years. Banking appears to have originated in Ancient Mesopotamia. Receipts in the form of clay tablets were used to record transfers between parties. Among some of the earliest recorded laws (Code of Hammurabi), pertain to the regulation of the banking industry in Mesopotamia.

The development of banking in Mesopotamia is quite interesting. It illustrates that all the modern practices such as deposits, interest, loans and letters of credit existed from the time of the first great civilizations on earth. In effect, these clay tablets were the forerunner of our more modern paper money systems that emerged in China by 900 AD and in Western culture by the 18th century. The distinction appears to be that these clay tablets were more of a bank draft or money order issued by the private sector rather than by the state. In that respect, they were a function of the banking system that facilitated the development of an officially sanctioned form of standardized monetary system.

Egyptian sources also show that a vibrant banking industry emerged whereby the state provided warehouses in which farmers deposited their grain. In turn, the farmer would receive a “deposit receipt” reflecting how much wealth was held by the bank in question. Such written receipts eventually became used as a general method of making payment of debts to third
parties during the Ptolemy era including trade, taxes and donations to the gods.

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Throughout the monetary history of the world, leverage has provided through the means of credit the boom and the bust effect within the economy. With it, the business cycle inevitably over-expands and over-contracts aid largely by credit.

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Kondratieff’s work was compelling and contributed greatly to the Austrian School of Economics that first began to develop the concept of a business cycle. While the general central principle of the Austrian Business Cycle Theory is concerned with a period of sustained low interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment. Within this context, the theory supposes that the business cycle unfolds whereby low interest rates tend to stimulate borrowing from the banking sector and this then results in the expansion of the money supply that causes an unsustainable credit ­source boom that leads to a diminished opportunity for investment by competition. Therefore, at the top, this causes speculative misallocation of resources that manifests into a bubble-top. The decline unfolds as a “credit-crunch” creating the speculative bust and recession. This contraction in credit shrinks the money-supply complete the cycle to return to its prior state.


This theory is merely an observation of a single slice of the complex dynamic adaptive system that constitutes the economy. It is not correct for interest rates will rise during the bull cycle phase. There is no empirical evidence that supports the theory from a quantitative formulae perspective. In other words, the real true operation of interest rates is that people will continue to borrow even when rates rise depending upon their expectations of profits. It is not the simplistic direction of interest rates nor is it an easily defined sustained level of what is low or high. The problem is merely attempting to reduce the entire complex system to a single and simplistic cause and effect.

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The issue of INTENSITY seemed to revolve around periods of 51.6 years, which was in reality a group of 6 individual business cycles of 8.6 years in length. Back testing into ancient history seemed to reveal that the business cycle concept was alive and well during the Greek Empire as well as Rome and all others that followed. It was a natural step to see if one could project into the future and determine if its validity would still hold up.

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