Development and Underdevelopment in the History of Economic Thought

Revisiting the history of commercial banking: case of Georgia

Eradze Ia, Center for Contemporary History Potsdam and Ilia State University

In today’s financialised world the functioning of financial institutions has been decoupled from development goals. Banks have left behind their initial function of a mediator between the depositors and borrowers, and engines of economic development. Instead, they have turned into the main vehicles of sophisticated financial products and profit making through financial activities. Though finance has been questioned since the global financial crisis, banks remain resistant to a structural change. Yet, a revision of forgotten historical ideas can challenge dominant truth regimes. Therefore, this paper engages with the case of Georgia and analyses the forgotten history of economic thought on commercial banking, in relation with development goals. The modern banking system emerged in Georgia with the break-up of the Soviet Union in the 1990s. Yet, this process was neither accompanied by substantial debates on the meaning of banks, nor were there specific expectations on their role in development; these institutions were regarded as an essential feature of transition to market economies. By now, Georgian commercial banks have turned into the agents of financialization, led to over indebtedness of households, and are hesitant to encourage the development of local economy. The historical knowledge on commercial banking in Georgia has not been recalled, so far. The first Georgian banks emerged in the 1870s, during the Russian Empire. At this point, banks were regarded as key transformative agents to foster the shift from feudalism to capitalism and empower former serfs, as well as nobles. Furthermore, the early debates from the 19th century reveal that banks had to play an essential role in nation-building and therefore, they had to contribute to social and cultural development of the society. Shedding light on early debates on banking in relation with nation building and economic development challenge the normalised perception about banks, as profit making private entities


Keywords: banks, development, nation-building, financialization