To understand the development of the law of bills, one must begin by considering how merchants actually used bills in early commerce and what issues of economic and social policy were raised by the transactions in which bills were used. The key to that inquiry is to begin not with bills themselves, but with the exchange transactions in which bills were used.

EXCHANGE TRANSACTIONS AS MEANS OF FUNDS TRANSFER

Accustomed as we now are to highly developed systems of communications and shipping, and specialized institutions for the settlement of financial transactions, it is easy to overlook how different the task of the merchant was in the era preceding all such developments. The French historian Fernand Braudel has pointed out that the problem of making returns is inherent in any form of trade. ‘Since exchange by definition means reciprocity, any journey from A to B must be balanced by a return journey – however complicated and roundabout – from B to A. The round trip, once complete, forms a circuit. Trade circuits are like electrical circuits: they work only when the connection is unbroken.’ In the modern world, the problem of ‘making returns’ is a macro-economic phenomenon ordinarily discussed only at the level of statistical measures of the aggregate flow of trade among nations or regions. In earlier times, the problem of making returns was a direct and immediate concern for every individual merchant.

In the earliest form of trade organization, making returns meant simply carrying back the fruits of one's trading journeys.