Who controls all the money in the world? The Goldsmith’s tale
Now as I begin this series. It’s pertinent that I make a few claims.
Most of what I will be saying here will be facts. Verifiable facts. While some will be based on my own conclusions and opinions. Where it is fact I will say so. In fact you will know so. When it’s opinion, I will also state so.
So, for us to understand what’s going in today’s world, we need to know a little bit of history. How many of you have heard about the goldsmith’s tale? If you haven’t, it’s a great story. Actually a true story.
You see, it’s the story about the invention of our modern monetary and banking system. Back in medieval times in Europe, they used gold and other precious stones as means of exchange. But there was one problem. It was heavy. You had to carry bags of gold everywhere you went. And also, you were easily robbed.
So the goldsmith had an idea. Since he kept most gold for people for a fee, he decided to create receipts for his clients. They would drop their gold in his secured vault, and he would issue a receipt stating that that individual really had the stated amount of gold in the receipt. Either the client or whoever he gave the receipt to could redeem the ticket and get the gold. Pretty simple system right. Yeah it was. And it worked.
As more time passed, the Goldsmiths noticed that because people were trading these paper notes rather than the gold itself, people would rarely actually withdraw the real gold.
Being the enterprising type that he was, the Goldsmith saw an opportunity in this type of behavior. He thought that if he created more of these deposit receipts (which were being used as money instead of gold) he could then makes loans to people and charge them interest without actually having to have any additional gold in his vaults. He did this by printing and issuing additional deposit receipts without people actually depositing gold. So long as all of his depositors did not come to withdraw all of their gold at the same time and continued to trade the paper deposit notes rather than gold itself, he would not have a problem.
This worked well for a while, so much so that the Goldsmith became incredibly wealthy off this activity. He was simply lending gold that did not exist Eventually, he became so wealthy that his customers became suspicious that something untoward was going on. They thought that he was stealing their gold for his own use and so they came in their masses to withdraw their gold.
Of course because the Goldsmith did not actually possess much of the gold that he had made deposit receipts out for, he could not refund all of the gold that people came to withdraw. This indeed was the first of what is currently known as a ‘Bank Run’. For those who don’t know, a bank run (also known as a run on the bank) occurs when a large number of people withdraw their money from a bank, because they believe the bank may cease to function in the near future.
Now from this, mass riots did not occur, but rather the depositors said “Hey, you’re making all of this money off having our gold in your vault, but we get nothing. That isn’t fair, we want a piece of the action.” So in response to this, the Goldsmith agreed that he would pay them a certain percentage of their deposits in return for them keeping their gold in his vault and also for their silence. This was the birth of interest payments on deposits.
Once again, this structure was hugely successful and the Goldsmith became even more wealthy and powerful. Now with all of his depositors also profiting from this activity he had nothing to worry about. By this time all of this newly created money had made the European empire a bustling hive of progress and world power. Indeed this practice of money creation was one of the prime reasons that Europe progressed so quickly. However their whole nation and everything within it was now heavily dependent on this newly created money.
Given that everything was going so smoothly, and with no restrictions in place, there was nothing to stop the Goldsmith creating more and more of these deposit receipts and then loaning them to borrowers at interest. I mean why not? As long as there was someone was willing to borrow from him and accept these deposit receipts as money, his profits would go up and up. After some time, what we now know as Inflation was hugely in effect, people again became suspicious that something dodgy was going on and this time there was another bank run. This time the results were more extreme and the authorities stepped in to see what was happening…they discovered his scheme.
As I said this earlier, the European Empire had become so dependent on this new money that they could not just simply stop his practice of money creation, so rather they decided to make sure that there were limitations imposed. They said that you must have a certain level of gold in your vaults, proportionate to the loans that you are issuing. And with that, Fractional Reserve Banking was born. Broadly speaking it is the system that we are still using today, a system that is more than 400 years old.
Key points to note. The Goldsmith became, the lord of money. He could simply manufacture money and lend it with return as interests.
Secondly, debt is money. With this system in place. Debt creates money for the goldsmith or banks. If no one borrows money, they will be out of business.
Thirdly, because he kept printing new receipts, this made the old receipts to be worth less as there more receipts (currency) in circulation than actual gold. Another cause for inflation was that merchants would increase their prices to cater for the interest they had to pay. So everyone else increased prices too, causing prices of everything to keep going up.
In other words, since the goldsmith controlled the source or invention of this new money system, he controlled everything.
Ok. If you read this far, well-done. What did you learn so far? Was it interesting? Next we will be discussing how some brainy individuals used this new system to gain control of the world.