----- Original Message -----
From: "Kerry Spencer-Salt" <[EMAIL PROTECTED]>
To: <Recipient list suppressed>
Sent: Tuesday, 11 January 2000 7:42 AM
Subject: Where Does Money Come From ?
The following is a bit long but worth the read.
Extract from
I Want The Earth Plus %5
By Larry Hanigan
Fabian was excited as he once more rehearsed his speech for the
crowd certain to turn up tomorrow. He had always wanted prestige
and power and now his dreams were going to come true. He was a
craftsman working with silver and gold, making jewelry and
ornaments, but he became dissatisfied with working for a living. He
needed excitement, a challenge, and now his plan was ready to begin.
For generations the people used the barter system. A man supported
his own family by providing all their needs or else he specialized
in a
particular trade. Whatever surpluses he might have from his own
production, he exchanged or swapped for the surplus of others.
.................
Market day was always noise and dusty, yet people looked forward
to the shouting and waving, and especially the companionship. It used
to be a happy place, but now there were too many people, too much
arguing. There was no time for chatting - a better system was needed.
Generally, the people had been happy, and enjoyed the fruits of their
work.
In each community a simple Government had been formed to make
sure that each person's freedoms and rights were protected and that
no man was forced to do anything against his will by any other man,
or any group of men. This was the Government's one and only
purpose and each Governor was voluntarily supported by the local
community who elected him.
However, market day was the one problem they could not solve. Was
a knife worth one or two baskets of corn? Was a cow worth more
than a wagon and so on. No one could think of a better system.
Fabian had advertised, "I have the solution to our bartering
problems,
and I invite everyone to a public meeting tomorrow."
...................
The next day there was a great assembly in the town square and
Fabian explained all about the new system which he called "money".
It sounded good. "How are we to start?" the people asked.
"The gold which I fashion into ornaments and jewelry is an excellent
metal. It does not tarnish or rust, and will last a long time. I
will make
some gold into coins and we shall call each coin a dollar."
He explained how values would work, and that "money" would be
really a medium for exchange - a much better system than bartering.
One of the Governors questioned, "Some people can dig gold and
make coins for themselves", he said.
"This would be most unfair", Fabian was ready with the answer.
"Only those coins approved by the Government can be used, and
these will have special marking stamped on them." This seemed
reasonable and it was proposed that each man be given an equal
number. "But I deserve the most," said the candle-maker. "Everyone
uses my candles." "No", said the farmer, "without food there is no
life, surely we should get the most." And so the bickering continued.
Fabian let them argue for a while and finally he said, "Since none of
you can agree, I suggest you obtain the number you require from me.
There will be no limit, except for your ability to repay. The more
you
obtain, the more you must repay in one year's time. "And what will
you receive?" the people asked.
"Since I am providing a service, that is, the money supply, I am
entitled to payment for my work. Let us say that for every 100 pieces
you obtain, you repay me 105 for every year that you owe the debt.
The 5 will be my charge, and I shall call this charge interest."
There seemed to be no other way, and besides, 5% seemed little
enough charge. "Come back next Friday and we will begin."
...............
Fabian wasted no time. He made coins day and night, and at the end
of the week he was ready. The people were queued up at his shop,
and after the coins were inspected and approved by the Governors
the system commenced. Some borrowed only a few and they went
off to try the new system.
They found money to be marvelous, and they soon valued everything
in gold coins or dollars. The value they placed on everything was
called a "price", and the price mainly depended on the amount of
work required to produce it. If it took a lot of work the price was
high, but if it was produced with little effort it was quite
inexpensive.
In one town lived Alan, who was the only watchmaker. His prices
were high because the customers were willing to pay just to own one
of his watches.
Then another man began making watches and offered them at a
lower price in order to get sales. Alan was forced to lower his
prices,
and in no time at all prices came down, so that both men were
striving to give the best quality at the lowest price. This was
genuine
free competition.
It was the same with builders, transport operators, accountants,
farmers, in fact, in every endeavor. The customers always chose
what they felt was the best deal - they had freedom of choice. There
was no artificial protection such as licenses or tariffs to prevent
other
people from going into business. The standard of living rose, and
before long the people wondered how they had ever done without
money.
..................
At the end of the year, Fabian left his shop and visited all the
people
who owed him money. Some had more than they borrowed, but this
meant that others had less, since there were only a certain number of
coins issued in the first place. Those who had more than they
borrowed paid back each 100 plus the extra 5, but still had to borrow
again to carry on.
The others discovered for the first time that they had a debt. Before
he would lend them more money, Fabian took a mortgage over some
of their assets, and everyone went away once more to try and get
those extra 5 coins which always seemed so hard to find.
No one realized that as a whole, the country could never get out of
debt until all the coins were repaid, but even then, there were those
extra 5 on each 100 which had never been lent out at all. No one but
Fabian could see that it was impossible to pay the interest - the
extra
money had never been issued, therefore someone had to miss out.
It was true that Fabian spent some coins, but he couldn't possibly
spend anything like 5% of the total economy on himself. There were
thousands of people and Fabian was only one. Besides, he was still a
goldsmith making a comfortable living.
.........................................................
At the back of his shop Fabian had a strong room and people found it
convenient to leave some of their coins with him for safekeeping. He
charged a small fee depending on the amount of money, and the time
it was left with him. He would give the owner receipts for the
deposit.
When a person went shopping, he did not normally carry a lot of gold
coins. He would give the shopkeeper one of the receipts to the value
of the goods he wanted to buy.
Shopkeepers recognized the receipt as being genuine and accepted it
with the idea of taking it to Fabian and collecting the appropriate
amount in coins. The receipts passed from hand to hand instead of
the gold itself being transferred. The people had great faith in the
receipts - they accepted them as being as good as coins.
..................
Before long, Fabian noticed that it was quite unusual for anyone to
actually call for their gold coins.
He thought to himself, "Here I am in possession of all this gold and
I
am still a hard working craftsman. It doesn't make sense. Why there
are dozens of people who would be glad to pay me interest for the
use of this gold which is lying here and rarely called for.
It is true, the gold is not mine - but it is in my possession, which
is all
that matters. I hardly need to make any coins at all, I can use some
of
the coins stored in the vault."
At first he was very cautious, only loaning a few at a time, and then
only on tremendous security. But gradually he became bolder, and
larger amounts were loaned. ...................
One day, a large loan was requested. Fabian suggested, "Instead of
carrying all these coins we can make a deposit in your name, and then
I shall give you several receipts to the value of the coins." The
borrower agreed, and off he went with a bunch of receipts. He had
obtained a loan, yet the gold remained in the strong-room. After the
client left, Fabian smiled. He could have his cake and eat it too. He
could "lend" gold and still keep it in his possession.
Friends, strangers and even enemies needed funds to carry out their
businesses - and so long as they could produce security, they could
borrow as much as they needed. By simply writing out receipts
Fabian was able to "lend" money to several times the value of gold in
his strong-room, and he was not even the owner of it. Everything was
safe so long as the real owners didn't call for their gold and the
confidence of the people was maintained.
He kept a book showing the debits and credits for each person. The
lending business was proving to be very lucrative indeed.
His social standing in the community was increasing almost as fast as
his wealth. He was becoming a man of importance, he commanded
respect. In matters of finance, his very word was like a sacred
pronouncement.
..................
Goldsmiths from other towns became curious about his activities and
one day they called to see him. He told them what he was doing, but
was very careful to emphasize the need for secrecy.
If their plan was exposed, the scheme would fail, so they agreed to
form their own secret alliance. .................
Each returned to his own town and began to operate as Fabian had
taught.
People now accepted the receipts as being as good as gold itself, and
many receipts were deposited for safe keeping in the same way as
coins. When a merchant wished to pay another for goods, he simply
wrote a short note instructing Fabian to transfer money from his
account to that of the second merchant. It took Fabian only a few
minutes to adjust the figures.
This new system became very popular, and the instruction notes were
called "cheques". ....................
Late one night, the goldsmiths had another secret meeting and Fabian
revealed a new plan. The next day they called a meeting with all the
Governors, and Fabian began. "The receipts we issue have become
very popular. No doubt, most of you Governors are using them and
you find them very convenient." They nodded in agreement and
wondered what the problem was. "Well", he continued, "some
receipts are being copied by counterfeiters. This practice must be
stopped."
The Governors became alarmed. "What can we do?" they asked.
Fabian replied, "My suggestion is this - first of all, let it be the
Government's job to print new notes on a special paper with very
intricate designs, and then each note to be signed by the chief
Governor. We goldsmiths will be happy to pay the printing costs, as
it
will save us a lot of time writing out receipts". The Governors
reasoned, "Well, it is our job to protect the people against
counterfeiters and the advice certainly seems like a good idea." So
they agreed to print the notes.
"Secondly," Fabian said, "some people have gone prospecting and are
making their own gold coins. I suggest that you pass a law so that
any
person who finds gold nuggets must hand them in. Of course, they
will be reimbursed with notes and coins." ....................
The idea sounded good and without too much thought about it, they
printed a large number of crisp new notes. Each note had a value
printed on it - $1, $2, $5, $10 etc. The small printing costs were
paid
by the goldsmiths.
The notes were much easier to carry and they soon became accepted
by the people. Despite their popularity however, these new notes and
coins were used for only 10% of transactions. The records showed
that the check system accounted for 90% of all business.
....................
The next part of his plan commenced. Until now, people were paying
Fabian to guard their money. In order to attract more money into the
vault Fabian offered to pay depositors 3% interest on their money.
Most people believed that he was re-lending their money out to
borrowers at 5%, and his profit was the 2% difference. Besides, the
people didn't question him as getting 3% was far better than paying
to
have the money guarded. ...................
The volume of savings grew and with the additional money in the
vaults, Fabian was able to lend $200, $300, $400 sometimes up to
$900 for every $100 in notes and coins that he held in deposit. He
had to be careful not to exceed this nine to one ratio, because one
person in ten did require the notes and coins for use.
If there was not enough money available when required, people
would become suspicious, especially as their deposit books showed
how much they had deposited. Nevertheless, on the $900 in book
figures that Fabian loaned out by writing checks himself, he was able
to demand up to $45 in interest, i.e. 5% on $900. When the loan plus
interest was repaid, i.e. $945, the $900 was canceled out in the
debit
column and Fabian kept the $45 interest. He was therefore quite
happy to pay $3 interest on the original $100 deposited which had
never left the vaults at all. This meant that for every $100 he held
in
deposits, it was possible to make 42% profit, most people believing
he
was only making 2%. The other goldsmiths were doing the same
thing. They created money out of nothing at the stroke of a pen, and
then charged interest on top of it.
True, they didn't coin money, the Government actually printed the
notes and coins and gave it to the goldsmiths to distribute. Fabian's
only expense was the small printing fee. Still, they were creating
credit money out of nothing and charging interest on top of it. Most
people believed that the money supply was a Government operation.
They also believed that Fabian was lending them the money that
someone else had deposited, but it was very strange that no one's
deposits ever decreased when a loan was advanced. If everyone had
tried to withdraw their deposits at once, the fraud would have been
exposed.
When a loan was requested in notes or coins, it presented no
problem. Fabian merely explained to the Government that the
increase in population and production required more notes, and these
he obtained for the small printing fee. .......................
One day a thoughtful man went to see Fabian. "This interest charge is
wrong", he said. "For every $100 you issue, you are asking $105 in
return. The extra $5 can never be paid since it doesn't exist.
Farmers produce food, industry manufacturers goods, and so on, but
only you produce money. Suppose there are only two businessmen in
the whole country and we employ everyone else. We borrow $100
each, we pay $90 out in wages and expenses and allow $10 profit
(our wage). That means the total purchasing power is $90 + $10
twice, i.e. $200. Yet to pay you we must sell all our produce for
$210. If one of us succeeds and sells all his produce for $105, the
other man can only hope to get $95. Also, part of his goods cannot be
sold, as there is no money left to buy them.
He will still owe you $10 and can only repay this by borrowing more.
The system is impossible."
The man continued, "Surely you should issue 105, i.e. 100 to me and
5 to you to spend. This way there would be 105 in circulation, and
the debt can be repaid."
Fabian listened quietly and finally said, "Financial economics is a
deep
subject, my boy, it takes years of study. Let me worry about these
matters, and you look after yours. You must become more efficient,
increase your production, cut down on your expenses and become a
better businessman. I am always willing to help in these matters."
The man went away still unconvinced. There was something wrong
with Fabian's operations and he felt that his questions had been
avoided. ...................
Yet, most people respected Fabian's word - "He is the expert, the
others must be wrong. Look how the country has developed, how our
production has increased - we must be better off." ..................
To cover the interest on the money they had borrowed, merchants
were forced to raise their prices. Wage earners complained that wages
were too low. Employers refused to pay higher wages, claiming that
they would be ruined. Farmers could not get a fair price for their
produce. Housewives complained that food was getting too dear.
And finally some people went on strike, a thing previously unheard
of. Others had become poverty stricken and their friends and
relatives
could not afford to help them. Most had forgotten the real wealth all
around - the fertile soils, the great forests, the minerals and
cattle.
They could think only of the money which always seemed so scarce.
But they never questioned the system. They believed the
Government was running it. ..................
A few had pooled their excess money and formed "lending" or
"finance" companies. They could get 6% or more this way, which
was better than the 3% Fabian paid, but they could only lend out
money they owned - they did not have this strange power of being
able to create money out of nothing by merely writing figures in
books.
These finance companies worried Fabian and his friends somewhat,
so they quickly set up a few companies of their own. Mostly, they
bought the others out before they got going. In no time, all the
finance
companies were owned by them, or under their control.
..................
The economic situation got worse. The wage earners were convinced
that the bosses were making too much profit. The bosses said that
their workers were too lazy and weren't doing an honest day's work,
and everyone was blaming everyone else.The Governors could not
come up with an answer and besides, the immediate problem seemed
to be to help the poverty stricken.
They started up welfare schemes and made laws forcing people to
contribute to them. This made many people angry - they believed in
the old-fashioned idea of helping one's neighbor by voluntary effort.
"These laws are nothing more than legalized robbery. To take
something off a person against his will, regardless of the purpose
for
which it is to be used, is no different from stealing."
But each man felt helpless and was afraid of the jail sentence which
was threatened for failing to pay. These welfare schemes gave some
relief, but before long the problem was back and more money was
needed to cope. The cost of these schemes rose higher and higher
and the size of the Government grew. ...................
Most of the Governors were sincere men trying to do their best. They
didn't like asking for more money from their people and finally, they
had no choice but to borrow money from Fabian and his friends.
They had no idea how they were going to repay. Parents could no
longer afford to pay teachers for their children. They couldn't pay
doctors. And transport operators were going out of business.
One by one the government was forced to take these operations over.
Teachers, doctors and many others became public servants.
Few obtained satisfaction in their work. They were given a reasonable
wage, but they lost their identity. They became small cogs in a giant
machine.
There was no room for personal initiative, little recognition for
effort,
their income was fixed and advancement came only when a superior
retired or died.
............................................................
In desperation, the governors decided to seek Fabian's advice. They
considered him very wise and he seemed to know how to solve
money matters. He listened to them explain all their problems, and
finally he answered, "Many people cannot solve their own problems -
they need someone to do it for them. Surely you agree that most
people have the right to be happy and to be provided with the
essentials of life. One of our great sayings is "all men are equal"
- is it
not?"
Well, the only way to balance things up is to take the excess wealth
from the rich and give it to the poor. Introduce a system of
taxation.
The more a man has, the more he must pay. Collect taxes from each
person according to his ability, and give to each according to his
need.
Schools and hospitals should be free for those who cannot afford
them."
He gave them a long talk on high sounding ideals and finished up
with, "Oh, by the way, don't forget you owe me money. You've been
borrowing now for quite some time. The least I can do to help, is for
you to just to pay me the interest. We'll leave the capital debt
owing,
just pay me the interest."
They went away, and without giving Fabian's philosophies any real
thought, they introduced the graduated income tax - the more you
earn, the higher your tax rate. No one liked this, but they either
paid
the taxes or went to jail. ....................
Merchants were forced once again to raise their prices. Wage earners
demanded higher wages forcing many employers out of business, or
to replace men with machinery. This caused additional unemployment
and forced the Government to introduce further welfare and handout
schemes.
Tariffs and other protection devices were introduced to keep some
industries going just to provide employment. A few people wondered
if the purpose of the production was to produce goods or merely to
provide employment. ...................
As things got worse, they tried wage control, price control, and all
sorts of controls. The Government tried to get more money through
sales tax, payroll tax and all sorts of taxes. Someone noted that
from
the wheat farmer right through to the housewife, there were over 50
taxes on a loaf of bread.
"Experts" arose and some were elected to Government, but after each
yearly meeting they came back with almost nothing achieved, except
for the news that taxes were to be "restructured", but overall the
total
tax always increased. ...................
Fabian began to demand his interest payments, and a larger and larger
portion of the tax money was being needed to pay him.
Then came party politics - the people started arguing about which
group of Governors could best solve the problems. They argued
about personalities, idealism, party labels, everything except the
real
problem. The councils were getting into trouble.
In one town the interest on the debt exceeded the amount of rates
which were collected in a year. Throughout the land the unpaid
interest kept increasing - interest was charged on unpaid interest.
Gradually much of the real wealth of the country came to be owned
or controlled by Fabian and his friends and with it came greater
control over people. However, the control was not yet complete.
They knew that the situation would not be secure until every person
was controlled. ...................
Most people opposing the systems could be silenced by financial
pressure, or suffer public ridicule. To do this Fabian and his
friends
purchased most of the newspapers, T.V. and radio stations and he
carefully selected people to operate them. Many of these people had a
sincere desire to improve the world, but they never realized how they
were being used. Their solutions always dealt with the effects of the
problem, never the cause.
...................
There were several different newspapers - one for the right wing, one
for the left wing, one for the workers, one for the bosses, and so
on.
It didn't matter much which one you believed in, so long as you
didn't
think about the real problem.
Fabian's plan was almost at its completion - the whole country was in
debt to him. Through education and the media, he had control of
people's minds. They were able to think and believe only what he
wanted them to. ..................
After a man has far more money than he can possibly spend for
pleasure, what is left to excite him? For those with a ruling class
mentality, the answer is power - raw power over other human beings.
The idealists were used in the media and in Government, but the real
controllers that Fabian sought were those of the ruling class
mentality.
Most of the goldsmiths had become this way. They knew the feeling
of great wealth, but it no longer satisfied them. They needed
challenge and excitement, and power over the masses was the
ultimate game.
They believed they were superior to all others. "It is our right and
duty to rule. The masses don't know what is good for them. They
need to be rallied and organized. To rule is our birthright."
....................
Throughout the land Fabian and his friends owned many lending
offices. True, they were privately and separately owned. In theory
they were in competition with each other, but in reality they were
working very closely together. After persuading some of the
Governors, they set up an institution which they called the Money
Reserve Centre. They didn't even use their own money to do this -
they created credit against part of the money out of the people's
deposits.
This Institution gave the outward appearance of regulating the money
supply and being a Government operation, but strangely enough, no
Governor or public servant was ever allowed to be on the Board of
Directors. ...................
The Government no longer borrowed directly from Fabian, but began
to use a system of I.O.U.'s to the Money Reserve Centre. The
security offered was the estimated revenue from next year's taxes.
This was in line with Fabian's plan - removing suspicion from himself
to an apparent Government operation. Yet, behind the scenes, he was
still in control.
Indirectly, Fabian had such control over the Government that they
were forced to do his bidding. He boasted, "Let me control the
nation's money and I care not who makes its laws." It didn't matter
much which group of Governors were elected. Fabian was in control
of the money, the life blood of the nation. ..................
The Government obtained the money, but interest was always
charged on every loan. More and more was going out in welfare and
handout schemes, and it was not long before the Government found it
difficult to even repay the interest, let alone the capital.
And yet there were people who still asked the question, "Money is a
man-made system. Surely it can be adjusted to serve, not to rule?"
But these people became fewer and their voices were lost in the mad
scrabble for the non-existent interest. ...................
The administrations changed, the party labels changed, but the major
policies continued. Regardless of which Government was in "power",
Fabian's ultimate goal was brought closer each year. The people's
policies meant nothing. They were being taxed to the limit, they
could
pay no more. Now the time was ripe for Fabian's final move.
...................
10% of the money supply was still in the form of notes and coins.
This had to be abolished in such a way as not to arouse suspicion.
While the people used cash, they were free to buy and sell as they
chose - they still had some control over their own lives.
But it was not always safe to carry notes and coins. Checks were not
accepted outside one's local community, and therefore a more
convenient system was looked forward to. Once again Fabian had the
answer. His organization issued everyone with a little plastic card
showing the person's name, photograph and an identification number.
When this card was presented anywhere, the storekeeper phoned the
central computer to check the credit rating. If it was clear, the
person
could buy what he wanted up to a certain amount. ..................
At first people were allowed to spend a small amount on credit, and
if
this was repaid within a month, no interest was charged. This was
fine for the wage earner, but what businessman could even begin? He
had to set up machinery, manufacture the goods, pay wages etc. and
sell all his goods and repay the money. If he exceeded one month, he
was charged a 1.5% for every month the debt was owed. This
amounted to over 18% per year.
Businessmen had no option but to add the 18% onto the selling price.
Yet this extra money or credit (the 18%) had not been loaned out to
anyone. Throughout the country, businessmen were given the
impossible task of repaying $118 for every $100 they borrowed - but
the extra $18 had never been created at all.
Yet Fabian and his friends increased their standing in society. They
were regarded as pillars of respectability. Their pronouncements on
finance and economics were accepted with almost religious
conviction. ....................
Under the burden of ever increasing taxes, many small businesses
collapsed. Special licenses were needed for various operations, so
that
the remaining ones found it very difficult to operate. Fabian owned
and controlled all of the big companies which had hundreds of
subsidiaries. These appeared to be in competition with each other,
yet
he controlled them all. Eventually all competitors were forced out of
business. Plumbers, panel beaters, electricians and most other small
industries suffered the same fate - they were swallowed up by
Fabian's giant companies which all had Government protection.
Fabian wanted the plastic cards to eliminate notes and coins. His
plan
was that when all notes were withdrawn, only businesses using the
computer card system would be able to operate.
He planned that eventually some people would misplace their cards
and be unable to buy or sell anything until a proof of identify was
made. He wanted a law to be passed which would give him ultimate
control - a law forcing everyone to have their identification number
tattooed onto their hand. The number would be visible only under a
special light, linked to a computer. Every computer would be linked
to a giant central computer so that Fabian could know everything
about everyone.
________________________________________________________
The story you have read is of course, fiction. But if you found it to
be disturbingly close to the truth and would like to know who Fabian
is in real life, a good starting point is a study on the activities
of the
English goldsmiths in the 16th & 17th centuries.
For example, The Bank of England began in 1694. King William of
Orange was in financial difficulties as a result of a war with
France.
The Goldsmiths "lent him" 1.2 million pounds (a staggering amount in
those days) with certain conditions:
1. The interest rate was to be 8%. It must be remembered that Magna
Carta stated that the charging or collecting of interest carried the
death
penalty. 2. The King was to grant the goldsmiths a charter for the
bank which gave them the right to issue credit. Prior to this, their
operations of issuing receipts for more money than they held in
deposits was totally illegal. The charter made it legal.
In 1694 William Patterson obtained the Charter for the Bank of
England.
� Larry Hannigan, Australia
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