(An article of Louis Even, first published in the October, 1936 issue of “Cahiers du Crédit Social.”)
If you have some imagination, go back a few
centuries to a Europe already old, but not yet progressive. In those days, money
was not used much in everyday business transactions. Most of those transactions
were simple direct exchanges, barter. However, the kings, the lords, the
wealthy, and the big merchants owned gold, and used it to finance their armies'
expenses or to purchase foreign products.
But the wars between lords or nations, and
armed robberies, were causing the gold and the diamonds of the wealthy to fall
into the hands of pillagers. So the owners of gold, who had become very nervous,
made it a habit to entrust their treasures for safekeeping with the goldsmiths
who, because of the precious metal they worked with, had very well protected
vaults. The goldsmith received the gold, gave a receipt to the depositor, and
took care of the gold, charging a fee for this service. Of course, the owner
claimed his gold, all or in part, whenever he felt like it.
The merchant
leaving for Paris or Marseille, or travelling from Troyes, France, to Amsterdam,
could provide himself with gold to make his purchases. But here again, there was
danger of being attacked along the road; he then convinced his seller in
Marseille or Amsterdam to accept, rather than metal, a signed receipt attesting
his claim to part of the treasure on deposit at the goldsmith's in Paris or
Troyes. The goldsmith's receipt bore witness to the reality of the funds.
It also happened that the supplier, in
Amsterdam or elsewhere, managed to get his own goldsmith in London or Geneva to
accept, in return for transportation services, the signed receipt that he had
received from his French buyer. In short, little by little, the merchants began
to exchange among themselves these receipts rather than the gold itself, so as
not to move the gold unnecessarily and risk the attacks from robbers. In other
words, a buyer, rather than getting a gold plate from the goldsmith to pay off
his creditor, gave to the latter the goldsmith's receipt, giving him a claim to
the gold kept in the vault.
Instead of the gold, it was the goldsmith's
receipts which were changing hands. For as long as there were only a limited
number of sellers and buyers, it was not a bad system. It was easy to follow the
peregrinations of the receipts.
The gold lender
But the goldsmith soon made a discovery,
which was to affect mankind much more than the memorable journey of Christopher
Colombus himself. He learned, through experience, that nearly all of the gold
that was left with him for safekeeping remained untouched in his vault. Hardly
more than one-in-ten of the owners of this gold, using their receipts in their
business transactions, ever came to withdraw any precious metal.
The thirst for gain, the longing to become
rich more quickly than by handing jeweller’s tools, sharpened the mind of our
man, and he made a daring gesture. “Why,” he said to himself, “would I not
become a gold lender!” A lender, mind you, of gold which did not belong to him.
And since he did not possess a righteous soul like that of Saint Eligius (or St.
Eloi, the master of the mint of French kings Clotaire II and Dagobert I, in the
seventh century), he hatched and nurtured the idea. He refined the idea even
more: “To lend gold which does not belong to me, at interest, needless to say!
Better still, my dear master (was he talking to Satan?), instead of the gold, I
will lend a receipt, and demand payment of interest in gold; that gold will be
mine, and my clients' gold will remain in my vaults to back up new loans.”
He kept the secret of his discovery to
himself, not even talking about it to his wife, who wondered why he often rubbed
his hands in pure joy. The opportunity to put his plans into motion did not take
long in coming, even though he did not have “The Globe and Mail” or “The Toronto
Star” in which to advertise.
One morning, a friend of the goldsmith
actually came to see him and asked for a favour. This man was not without goods
— a home, or a farm with arable land — but he needed gold to settle a
transaction. If he could only borrow some, he would pay it back with an added
surplus; if he did not, the goldsmith would seize his property, which far
exceeded the value of the loan.
The goldsmith got him to fill out a form, and
then explained to his friend, with a disinterested attitude, that it would be
dangerous for him to leave with a lot of money in his pockets: “I will give you
a receipt; it is just as if I were lending you the gold that I keep in reserve
in my vault. You will then give this receipt to your creditor, and if he brings
the receipt to me, I will in turn give him gold. You will owe me so much
interest.”
The creditor
generally never showed up. He rather exchanged the receipt with someone else for
something that he required. In the meantime, the reputation of the gold lender
began to spread. People came to him. Thanks to other similar loans by the
goldsmith, soon there were many times more receipts in circulation than real
gold in the vaults.
The goldsmith himself had really created a
monetary circulation, at a great profit to himself. He quickly lost the original
nervousness he had when he had worried about a simultaneous demand for gold from
a great number of people holding receipts. He could, to a certain extent,
continue with his game in all security. What a windfall; to lend what he did not
have and get interest from it, thanks to the confidence that people had in him —
a confidence that he took great care to cultivate! He risked nothing, as long as
he had, to back up his loans, a reserve that his experience told him was enough.
If, on the other hand, a borrower did not meet his obligations and did not pay
back the loan when due, the goldsmith acquired the property given as collateral.
His conscience quickly became dull, and his initial scruples no longer bothered
him.
The creation of credit
Moreover, the goldsmith thought it wise to
change the way his receipts were set out when he made loans; instead of writing,
“Receipt of John Smith...” he wrote, “I promise to pay to the bearer...”. This
promise circulated just like gold money. Unbelievable, you will say? Come on
now, look at your dollar bills of today. Read what it written on them. Are they
so different, and do they not circulate as money?
A fertile fig tree — the private banking
system, the creator and master of money — had therefore grown out of the
goldsmith's vaults. His loans, without moving gold, had become the banker's
creations of credit. The form of the primitive receipts had changed, taking that
of simple promises to pay on demand. The credits paid by the banker were called
deposits, which caused the general public to believe that the banker loaned only
the amounts coming from the depositors. These credits entered into circulation
by means of cheques issued on these credits. They displaced, in volume and in
importance, the legal money of the Government which only had a secondary role to
play. The banker created ten times as much paper money as did the State.
The goldsmith who became a banker
The goldsmith, transformed into a banker,
made another discovery: he realized that putting plenty of receipts (credits)
into circulation would accelerate business, industry, construction; whereas
restriction of credits, which he practised at first in circumstances in which he
worried about a run on the bank for gold, paralyzed business development. There
seemed to be, in the latter case, an overproduction, when privations were
actually great; it is because the products were not selling, due to a lack of
purchasing power. Prices went down, bankruptcies increased, the banker's debtors
could not meet their obligations, and the lenders were seizing the properties
given as collateral. The banker, very clear-sighted and very skillful when it
came to gain, saw his chances, his marvellous chances. He could monetize the
wealth of others for his own profit: by doing it liberally, causing a rise in
prices, or parsimoniously, causing a decrease in prices. He could then
manipulate the wealth of others as he wished, exploiting the buyer in times of
inflation, and exploiting the seller in times of recession.
The
banker, the universal master
The banker thus became the universal master,
keeping the world at his mercy. Periods of prosperity and of depression followed
one another. Humanity bowed down before what it thought were natural and
inevitable cycles.
Meanwhile, the scholars and technicians tried
desperately to triumph over the forces of nature, and to develop the means of
production. The printing press was invented, education became widespread, cities
and better housing developed. The sources of food, clothing, and comforts
increased and were improved. Man overcame the forces of nature, and harnessed
steam and electricity. Transformation and developments occurred everywhere —
except in the monetary system.
And the banker surrounded himself with
mystery, keeping alive the confidence that the captive world had in him, even
being so audacious as to advertise in the media, of which he controlled the
finances, that the bankers had taken the world out of barbarism, that they had
opened and civilized the continents. The scholars and wage-earners were
considered, but secondary in the march of progress.
For the masses, there was misery and
contempt; for the exploiting financiers, wealth and honours! Like his worthy
successor Herbert Holt (the chairman of a large Canadian bank in 1936),
honoured, flattered, he demanded respect from the people that he bled: “If I am
rich and powerful, while you are suffering the stranglehold of poverty and the
humiliation of social assistance; if I was able, at the peak of the Depression,
to make 150% profits each year, it is foolishness on your part, and as for me,
it is the fruit of a wise administration.”
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