Who has the power? The people with their ballot, or the bankers with their donations?

HOW IT HAPPENED - THE GOLDSMITH

Here is a short and simple story. It may be called a fable, but it is true in its portrayal of how our present monetary system evolved. A certain rich man wanted to go abroad for a two-year vacation. He owned in cash ten thousand shekels of gold. He could not take the gold with him because of its weight and the danger of being robbed; so he went to a goldsmith to ask whether he could leave his gold with him for safekeeping. The goldsmith, who had a large security vault, wanted to be paid to keep the rich man's gold. He asked for 10% - or 1,000 shekels. The rich man readily agreed to deposit his gold with the goldsmith and left on his trip abroad.

As soon as the rich man had left his gold and departed, the goldsmith told his helper to go and spread the word that his master had a few shekels of gold to loan to financially secure customers at 15% interest. Soon the borrowers came. One wanted fifty shekels, another one hundred, etc. In all cases the goldsmith wanted collateral as security. If the borrower defaulted, he would lose his collateral such as a house, a farm or business.

However, to the goldsmith's surprise most of the borrowers did not take delivery of the gold. Instead, all they wanted was the goldsmith's receipt saying "I owe you x number of gold shekels" which could be used to claim the gold when they wanted it. In modem terms they had what we call a demand deposit.

As the days proceeded, the goldsmith had loaned out his 1,000 shekels which were drawing 15% interest. Yet to the goldsmith's surprise nearly all the shekels were still in his vault. The only people who took their gold were a few of the small borrowers. The others wanted only receipts (lOUs) showing that the goldsmith held their gold and that they could have it when they needed it.

As time went on, the goldsmith found that the people were accepting his receipts (lOUs) in payment of goods and services rather than using the gold. When the occasional person did claim his gold and used it for the payment of goods, etc., the one who received the gold brought it back to the goldsmith for safekeeping and accepted an IOU.

This gave the goldsmith a terrific idea. If only the occasional person wanted the gold, and even then most of it would come back in a deposit, he could loan out the rich man's 9,000 shekels and collect interest on them for the next two years, as well as loan out his own 1,000 shekels and collect interest on them. Even if the rich man should come back sooner than expected, the goldsmith could pay him his 9,000 shekels, and the people who were using the goldsmith's lOUs and paying him interest would not even know the gold was no longer there.

So he proceeded to loan out the rich man's shekels and to his delight nearly all the rich man's gold stayed in his vault as did his own 1,000 shekels. In other words, the people were satisfied to use the goldsmith's lOUs as a medium of exchange believing that the gold was there if they wanted it.

When the rich man did return, the goldsmith paid him his 9,000 shekels. The 1,000 shekels of his own was enough to pay the occasional person who wanted gold, and he found that even most of that came back to him as a deposit for safekeeping. So now he was collecting interest of $1,500 on 10,000 shekels every year when he had only 1,000 shekels, or 10%, in reserve. (continued on next page)

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