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Money and Banking

We have determined that to correct method for a man to earn his living is by work. We have also determined that a man must be free to keep the rewards of his work. In a simple society men can live by bartering goods that each makes but a society does not have to be very large to need some form of token that can be exchanged for goods so that each may buy what he needs in small finite amounts but produce a small range of goods in much larger amounts. This is the principle known as specialisation and can lead to spectacular increases in the wealth of a society.

The first such tokens of wealth ranged from feathers and stones through shells and scraps of metal. Hundreds of different artifacts have been used as money and, indeed, in modern prisons, cigarettes form a common currency. The modern money we know began in the workshops of goldsmiths. They had produced gold and silver coins for centuries. In medieval times the wealth of each nation began to increase together with increases in knowledge and populations. More money was needed to finance the increased production of wealth.

It is necessary to distinguish carefully between money and wealth. Money is not wealth but is a very necessary token of its value. Wealth is the artifacts that we require and want to maintain our civilised life. Imagine trying to live without the things in your house. Imagine no chairs. Imagine no bed. Imagine no clothes. That was how man lived only about 10,000 years ago. Those things are wealth. Money is just a, very convenient, token of that wealth.

The goldsmiths had to have safe places to keep their very valuable gold and soon found that other people wanted to use their safe places to store their money. Other traders would store their money with the goldsmith who would give them a receipt. The receipts soon became tradable and became promissory notes. That is the goldsmith promised to redeem the gold upon presentation of the note. Hence the writing on a note "I promise to pay the bearer on demand. " Hence developed the monetary system that we still use.

Eventually the bankers found that relatively few people came to claim their gold at the same time so they could safely issue far more promissory notes than they had gold. This led to the concept of what we now call Fractional Reserve Banking. The banks need only keep a certain percentage of their funds in the bank. The rest can be leant to other people. This is rally a confidence trick and it soon led to some real problems. Banks were brought under the control of parliament very quickly and licensed to operate.

The confidence trick is that the system only works as long as the people trust that the banks can pay them. The licences under which the banks work are supposed to protect the depositors, the people, from bad practices and fraud. Ha ! If you or I set up such a scheme we would be called loan sharks or forgers and thrown into jail.

Around the year 1750 a boy was born in Frankfort called Mayer Anselm. He was a jew and lived in the the ghetto in the Red House in which lived many families. He was poor but was astute and worked hard and in less than fifty years inherited the whole wealth of the local Landgrave. The Langrave had supplied soldiers to the British to fight in the American Revolution in return for money and Mayer inherited the contracts when the Langrave was banished for this act. The Langrave had given him the additional name Rothschild.

Mayer soon went to London and established himself there and then handed his business there over to his son Nathan. Soon the family had branches in forty cities across Europe. Nathan made a huge fortune gambling with English bonds on the outcome of the battle of Waterloo where he had made arrangements to ride back to London a day earlier than the official news carriers. The Rothschild bank was dissolved in 1901 but had shown the world how to do it. Mayer Rothschild was credited with saying " allow me to supply the currency of a country and I care not one whit for its laws" . He clearly understood just how powerful banking is.

The Bank of England was set up to fund the British government and to control the production and issue of money into the economy. You probably think the Bank of England is controlled by the government but you would be completely wrong. The terms of the licence - to print money - have been re-negotiated so often that it is actually very hard to find out just how the bank works. It is effectively a secret society.

That, of itself, would not be a problem but the consequence is that money is not produced and issued by the Bank of England but by the commercial banks. They produce money by issuing loans to individuals as debt. They only have to keep around ten percent of their funds in hard cash. If they have a million pounds in the bank they can issue loans to the extent of ten million pounds. If they have a billion in the bank they can create ten billion.

Then they lend that ten billion to you or me at interest. it costs them nearly nothing to create the money but they get to earn very handsome interest on their loans which they can leverage up by a factor of ten with ease and legality. Then they get to charge you handsome fees for their services - for "setting up" the loan which costs them nearly nothing. What costs them - or rather you - is the legal agreement that they demand you enter into to mortgage your property, business, home and soul to them.

Their justification for charging interest is that they are taking a risk but if you or I default they will take our business, home, chattels and anything else they can get and leave us penniless. They take very little risk. The risks they actually do take are quite different. They use their ability to create debt to create it for themselves and then use it to gamble on the stock exchange. If anyone else did so it would be the biggest illegal scam ever attempted - but the banks do it all day , every day.

When their bets pay off they pocket the proceeds in huge salaries, bonuses and pensions and when their bets fail they demand that the state bail them out with hard-earned taxpayer's money - yours and mine. Their justification for this is that they provide a vital service to society; but most of do that. The reality is that the banks are confidence tricksters who were once granted a licence by the people, through the government, to issue the currency that is vital to the livelihood of us all. They have re-negotiated the terms of their licence to the point that they are simply Robber Barons holding to our head the threat of refusing to issue money and keep the economy running.

Banking is far too important to society to be left to the bankers. The people, through their elected government, have a complete and absolute right to dictate the terms and conditions of the monopolies granted to banks. The solution to this problem is several fold. Firstly it is necessary to reduce drastically the "Reserve Ratio". The essence of banking is that people put their personal reserves into savings which should have a safe place.

It is desirable both that people should be able to earn modest interest on their savings - they have value and if lent to others should be paid for. It is desirable that the saved store of wealth in a society should be used to further enhance that society. This can be achieved by lending the savings at modest interest. This works well both ways and benefits all who participate and all those who are thereby enabled to work or develop a business.

Thus the concepts of savings, loans and interest are perfectly good things but what is not good is that loans should be exclusively created by banks by means of debt and high interest rates and forbidding penalties for default. A good solution for this is that money should be created by the government and lent to small businesses and individuals at modest interest. The returns on this activity would provide sufficient government income to make a rationally constructed government financially self sufficient. Taxation would be unnecessary. To augment this a voluntary insurance scheme for legal protection for businesses would provide a handsome income.

The essence of this is that big government is not necessary. Everything done in this country has to be done by a person and there is no logical reason why any job should be controlled directly by the government. The government should stick to its constitutional purpose - to create good law.

There is a large body of political writing about Monetary Reform, from where I have gleaned many of my ideas, but it has one major flaw. Its analysis of the problem is generally very good but its solutions are invariably socialist in that they demand that money must be created by government and spent into circulation by public expenditure. This is a huge mistake and is the reason they are not taken seriously.

The government should certainly control the creation of money or credit. Some try to distinguish between the two but there is no need. They are interchangeable. The government should then lend the money, as the banks do now, but at reasonable interest rates and on reasonable terms. An organisation to do this would be needed and we would probably cal it a bank; but it would be under proper control of the people - of the people and for the people. We already have the mechanisms in place - we call them banks - all we have to do is re-negotiate the terms of their monopolies in favour of the people. Job done!

The government would create the money and the reformed banks put it into circulation much as they do now. But several abuses would be removed. The small businessman and private borrower would no longer be milch cows of the banks. interest rates would much better reflect the need of the economy to increase or slow down. But most of all there would no longer be a need to continually grow the economy to pay the punitive interest to the greedy bankers.

The bankers skim a percentage - varying from one half to twenty percent - of every transaction ever made on the face of the earth. The few that don't are called "the black economy" when a much better term would be "the true economy". The bankers have no right to their unearned skim - they are simply very posh - and rich - loan sharks. They are destroying the economies of every nation, raping the people and destroying the ecology of the planet. it is time to put a stop to them.

28th March 2011

Colin Walker

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