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After a time, when the goldsmith was convinced that his customers did not want what he owed them, namely gold, except in rare cases, but that they were willing to pay him interest on his lOUs, which were supposed to represent gold, this gave the goldsmith a brilliant idea. He thought that if the people are willing to pay him interest on the money he owes them, namely, on his paper receipts (his lOUs), he could become the richest man in the entire world.
This was too good to be true. Sooner or later some smart fellow would find out what he was doing and tell the king. And once the king would realize that he could issue his own paper receipts (lOUs) to pay for his government's expenditures, he may even go so far as to issue enough receipts to supply the whole economy. If this were to happen the goldsmith knew his profitable game would be over. So the goldsmith set out to find the wisest man in the village and told him his story of how he could become the richest man in the world if only there were some way that he could get a monopoly on the storing of gold as a reserve and on the issuing of paper receipts (lOUs, or in other words, paper money) and the loaning of them for the purpose of collecting interest. The wise man said, "You know, that may just be possible while the king is still ignorant about money matters. The king like everyone else runs short of money. When he does and he comes to you to borrow money, you ask the king to give you, as the goldsmith, the exclusive right to issue paper receipts (your lOUs) against gold reserves. However, it may be wise for you to include the rest of the goldsmiths in your scheme. With their support the extent of your profits and power will be unlimited. Once you and the other goldsmiths have the exclusive right to issue all the paper receipts against the gold reserves, then your lOUs will become paper money." The wise man warned, "Never issue interest free paper money with which people can pay their interest. They must pay the interest with GOLD. This will soon put all the gold into the hands of the goldsmiths. Then no one, not even the king, can issue paper money, simply because he will have no gold to use as reserves. Furthermore, once the people have used all their gold to pay interest, they will have no choice but to pay the interest with the principal of paper money they borrowed from you, or to borrow the money to pay the interest. Therefore, you (the goldsmiths) must be sure never to pay your expenses, nor build new buildings with newly created money, because money spent into circulation will be interest free and could be used by your borrowers to pay their interest. This would make the system work without creating a shortage of money. However, if no interest free money gets into circulation, then your customers have no choice; they must pay you the interest using some of the principal they borrowed, or borrow the money with which to pay the interest. THIS IS COMPOUNDING. In either case a shortage of money will continue to be created because the payment of interest will reduce the money supply and will force the people, the businesses, and finally the government into a debt they cannot pay. This will mean you can foreclose on the collateral (houses, farms, or factories) of individuals and businesses and you will have control not only of all their money but of their property as well. The government will become nothing but a tax collecting agency with the purpose of levying taxes on the people to pay you interest on the government debt. Finally, you can get control of even the government. The government must do your bidding, and your system will be secure. The government will be acting on your behalf rather than on behalf of the people." The goldsmith said, "Oh my, oh my, oh my, you are a wise man. Thank you, thank you, thank you. Should you ever be in need of money, just come to me and I will repay you well." Here the fable ends. Whether the goldsmiths acted on the advice of the wise man or on their own initiative matters little. The fact remains that this evolved into our present banking system. The evil of not being able to pay both debt and interest is still with us, and has now grown into a MONSTER threatening to destroy our economy and our country. Once the goldsmiths had the exclusive right to issue all paper money (lOUs) against gold reserves, our modern banking system came into existence. The 1965 Encyclopedia International under "Money and Monetary Systems" says: The goldsmiths learned from experience that although their notes were payable on demand, in practice not every noteholder came in to ask for redemption at once. As a result, the goldsmiths always had a stock of metal on hand. Taking advantage of this fact, they wrote extra notes to borrowers. The goldsmiths thus created money by writing notes against which they had only a fractional reserve. Thus began the banking business, and for a long time anyone could become a banker just as easily as he could be a grocer or a barber. |
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