Not surprisingly, the interest paid to the merchants inspired them to increase the amounts they would lend, again increasing prosperity.

But periodically, hard times returned and those who borrowed were unable to pay back the loans, leading to recessions.

Since at least the 14th century, rather than lending out gold and silver, goldsmiths in Europe issued letters of credit. Then, in the 17th century, fractional reserve banking emerged as a common practice.

The concept was that a bank might lend out the majority of its deposits, retaining a small percentage for day-to-day business. But for many banks, at some point, the temptation to lend out more in promissory notes than the bank actually had on deposit became too great.

Periodically, there would be a market contraction and the banks would fail. Those who thought that they owned money found that they did not. It was gone.