“I believe that banking institutions are more dangerous to
our liberties than standing armies. Already they have raised up a money aristocracy
that has set the government at defiance. The issuing power should be taken
from banks, and restored to the people.” Thomas Jefferson
Money was originally invented as a convenient alternative to barter, an alternative
without which a highly developed civilisation like ours could not exist.
Imagine trying to pay the taxi driver with a bag of coal or the grocery bill
with a box of spanners and a set of golf clubs. Imagine trying to carry all
that around with you when you go shopping. As societies grew more complex and
social roles became more specialised, the idea of money was conceived as a better
and more flexible way to exchange, and thereby distribute among men, goods and
Money is quite simply an idea agreed upon among people that some system of
tokens or symbols: discs of metal (coins) paper with symbols on it (notes) and
so on, will be used by them to represent or stand proxy for goods and services
and that those tokens can be exchanged for goods and services. One can then
exchange the tokens rather than bags of coal, boxes of spanners or what-have-you
and the tokens are easy to carry around. Its workability depends upon the participants'
confidence that those tokens are and will continue to be exchangeable for a
certain amount of goods or services.
That's all money is. It is no more complicated than that, although men may
try to make it seem complex and hard to understand. The truth however, as truths
tend to be, is simple; it is alterations of the truth - lies -that are complicated.
Many societies have used gold and silver coins as their tokens, then later
pieces of paper to represent gold and silver coins, and later cheques and ledger
entries to represent notes and coins and in modern times electronic money, the
shifting and balancing of numbers in computer memories, alongside or in place
of coins, notes and cheques. Thus when we receive a computer print-out of our
bank statement saying we have £500 in our current account we usually visualise
a stack of £l0 notes sitting in a vault somewhere, or perhaps a bag of
gold coins, although in reality there is no pile of notes or bag of coins, merely
the ledger-entry in an electronic memory Saying we have £500. Should we
then write a cheque in order to spend £50 of it, the numbers in our ledger
change to £450 and the payee's account increases by £50, although
no notes, gold or anything else move from one account to another.
Yet it works because we have confidence in it and trust it and we know we can
change that £500 for real notes, real coins or real goods or services
whenever we want to.
This evolution in the system of tokens we use to represent real goods and services
comes about through a succession of bright ideas in the direction of making
distribution and exchange more convenient, the movement of wealth between people
smoother and faster. However, anything can be used for money, provided people
agree to use it and have confidence in it. For instance dried yak dung was once
used in Tibet, notched pieces of wood in Medieval England, leather discs in
Medieval Europe and even cigarettes and tins of coffee in post-war Germany.
The money in use in a country is called currency, from the word current, meaning
prevalent, in circulation or in use.
Governments firm up that agreement and confidence by enshrining a particular
system of tokens in law and demanding those tokens in payment of taxes. A particular
system of creating, denominating, issuing and circulating money - currency -
where backed by law and deemed by law the only recognised system, and which
cannot be legally refused as payment of a debt, is called legal tender. Where
barter is no longer practised, one has to possess those tokens in order to acquire
goods and services from others. It is the medium of exchange. Tokens, be they
yak dung, metal discs or numbers with the '£' symbol in front of them,
are exchanged back and forth between people instead of goods and exchange does
now usually occur without the use of tokens or the promise of tokens on the
The way one acquires tokens is by producing something and then selling it to
someone who has expressed his want for it by offering us some of his tokens.
We do the deal and receive the tokens he has offered. Now we can go and exchange
those tokens for other products that we desire, which we do not produce ourselves.
Thus money enables goods and services to be exchanged among people and distribution
of those goods and services to occur naturally, and according to the needs and
wants of the participants.
The more of those tokens one possesses or is able to acquire through one's
production, the more one can if one wishes acquire goods and services from others.
One can also store money in a safe or bank account without having to build a
couple of warehouses in which to store container-loads of spare goods. Money
therefore confers exchange power or spending power on he who possesses it in
direct ratio to the amount of it he is able to offer up for exchange.
In the old days gold was minted into coins and those coins, along with silver
coins, formed the nation's currency. Goldsmiths had strongboxes and vaults in
which to securely store the precious metal with which they worked. It was natural
enough then that other people took to asking the goldsmith to store their gold
and gold coins in his vault and to pay the goldsmith for the service. A merchant
(for example) would entrust to the goldsmith £20 worth of his own gold
for safekeeping. When he handed over his gold, the goldsmith would provide him
with a receipt or note promising to hand back the gold (pay the bearer on demand)
whenever the depositor returned and presented the note. The receipt held by
the depositor was in fact as good as gold because he could exchange it for his
£20 worth of gold any time he chose. But the note was easier to carry
around than heavy and bulky amounts of gold and easier to conceal, so the depositor
was often content to leave his gold in the goldsmith's safekeeping for long
periods. In fact when the time came to pay for some commodity with his £20
of gold, instead of returning to the goldsmith, exchanging the receipt for the
gold and then using the gold to pay for his purchase, it was more convenient
for him simply to hand over his receipt to the seller. The seller was happy
to accept the receipt in lieu of actual gold because it was more convenient
to carry around and he knew that should he present it to the goldsmith, £20
of gold would be handed over to him.
Thus those gold receipts began to circulate and became the first paper money.
People were happy to exchange them back and forth rather than the cumbersome
gold they represented. The receipts had value because people were confident
that in the goldsmith's vault lay the gold, which they could redeem at any time.
Eventually the goldsmiths noticed that the gold left by depositors remained
in their vaults for longer and longer periods. People turned up wishing to exchange
their receipts for gold less and less often, and that the receipts they had
issued to depositors circulated in its stead. It seemed a shame to have that
gold just sitting there doing nothing. Why not lend some of it out for a while?
If it just sat there for year after year the owner, the holder of the receipt,
was not going to miss it if it were loaned to someone else for a period.
As long as there was enough gold in the vaults to satisfy anyone who did turn
up with a receipt, then no-one would be any the wiser. So depositor Joe would
leave £20 of gold with the goldsmith for safekeeping and depart with his
receipt which he would then use as money in lieu of the gold and it would circulate.
It might be years before anyone turned up with that £20 note asking for
£20 of gold. Meanwhile Tom would turn up at the goldsmith's asking to
borrow £20 of gold and the goldsmith would lend it to him, demanding that
it be paid back after a certain period at a certain amount of interest. But
instead of lending Tom actual gold, the goldsmith would draw up a £20
receipt, just like the one depositor Joe had been given. Tom was happy to take
the receipt in lieu of the gold because it was more convenient to carry around
and people were happy to accept such receipts in payment for things.
So Tom went off with his £20 note, content that through it he was now
in temporary possession of £20 of gold. But unbeknownst to Tom, Joe also
has a receipt representing that gold. In other words there are now two notes
in circulation representing the same £20 of gold! Clearly the goldsmith's
issuance of two receipts for the same amount of gold is fraudulent - particularly
when Tom repays the gold he believes he has borrowed in real gold. As each receipt
promises to hand over the same £20 of gold on demand, the goldsmith is
making a promise he knows he cannot keep.
Several things are clear at the moment the second receipt was issued and entered
circulation: new money has been created out of thin air; that new money has
been loaned into existence; as the loan has interest charged upon it, then a
debt has been created out of nothing that is greater than the amount of new
And another thing: Tom will eventually return to the goldsmith and repay his
£20 loan, say at 10% interest. He will therefore hand the goldsmith, £22
in real gold. In other words, the goldsmith, in creating that bogus receipt
and lending it to Tom, is creating for himself, albeit after a delay, real debt-free
gold worth more than the new money he loaned into existence! It gets worse.
After a while the goldsmith, seeing that his fraud is working pretty well,
thinks that if he can issue two £20 receipts against the same £20
of gold, then why not two, three or even four?
So Joe deposits £20 of gold and the goldsmith gives him his receipt.
In time four other people turn up at his shop wanting to borrow that £20
of gold. The goldsmith obligingly lends it to each of them at interest, giving
each a receipt purporting to represent that £20 of gold. There are now
five receipts in circulation representing the same deposit of gold, one for
the original depositor and one for each of the four borrowers. For that deposit
of £20, £80 (4x £20) of new money is created merely by writing
on a fancy piece of paper.
If(say) £2 of interest (10%) is charged on each loan, at the same time
that £80 of new money is created out of thin air, a debt of £88
is also created out of thin air.
Property is held as security against these loans so if the borrower fails to
repay with real gold the fraudulent piece of paper he borrowed, the goldsmith
takes his property.
Each time the goldsmith lends £20 of bogus gold he charges 10% interest
on the loan. By lending out £20 four times over and charging £2
interest on each loan, the goldsmith makes a whopping 40% (four times £2)
in interest on the £20 "reserves" that were not even his to
begin with! The goldsmith cannot lose and soon begins to amass a fortune from
his fraud. It is the greatest get-rich-quick scheme ever invented. And it is,
in essence, the basis of the modern banking system.
The goldsmiths of yesteryear became the bankers of today and although paper
money and latterly electronic money took over from gold, essentially the same
fraud is being run.
The business of lending pieces of paper pretending to be gold made the goldsmiths
very wealthy and very influential men. Their easy wealth enabled them to move
to upmarket premises. They became pillars of the community and some even became
international financiers, lending money to kings and governments.
In the seventeenth century conflict between the bankers of the day and the
Stuarts led the bankers to act in concert with bankers in Europe. They joined
forces with those in the Netherlands to finance the invasion of England by William
of Orange. William overthrew the Stuart Kings in 1688 and became King William
By the end of the 1600s England was in financial ruin, gold and silver supplies
were running low and a costly civil war followed by costly wars with France
and Holland, all in a fifty year period, had left her heavily in debt.
Government officials met with the financiers to negotiate the loans they needed.
King William was £20 million in debt and he could not pay his army. Apparently
it did not occur to William or anyone that if William needed to pay his army
or get the economy going, all he had to do was have the government print its
own money and use that to pay the troops -something that Abraham Lincoln would
do successfully during the American Civil war nearly two hundred years later!
King William's "friends", the bankers, were willing to loan him the
money he needed but the price they wanted for their "help" was high.
They wanted a government-sanctioned but privately owned central bank that could;
through fractional reserve lending, create money out of nothing and loan it
to the government.
They got their way. In 1694 the world's first privately owned central bank
was created. It was to be called the Bank of England. The Bank's charter included
the following immortal words: "The bank hath benefit on the interest on
all monies which it creates out of nothing."
Instead of exercising its right to create money and spend it into the economy,
the government had the bank create it, then lend it to the government so that
the government could spend it into the economy, then pay the loans back later
at interest. That completely unnecessary complication was to have devastating
consequences for the futures of the English people.
As well as delivering extraordinary power over the nation into the hands of
a privately owned business corporation, it began the National Debt, a debt that
would go on increasing remorselessly over the ensuing years until it had reached
around £380 billion in 1996, costs us around £30 billion a year
in interest payments and is still climbing.
By the end of the 17th century, the goldsmiths' scam had become respectable
banking. The role of the banks in issuing money through lending to individuals
and businesses had already become widely accepted. Thus there came to be established
two routes by which money was borrowed into the economy: private and commercial
borrowing on the one hand and government borrowing on the other. That combined
debt in the present day has now soared to well over one trillion pounds.
In 1704, just ten years after the creation of the Bank of England, the banks'
promissory notes, on the recommendation of the bankers and financiers who advised
the government, were declared legal tender.
Although the new central bank was an entirely privately owned corporation,
the name chosen for it led generations of Englishmen to believe that it was
part of their government, when it most certainly was not. Like any other privately
owned corporation the new central bank sold shares to create its initial capital.
Its investors - whose identities were never disclosed - were supposed to put
up a total of £1 ¼ million in gold coin to purchase their shares.
Only three quarters of a million was ever received.
Nevertheless, despite that minor technicality, the bank was chartered in 1694
and began the business of lending out several times the money it supposedly
had in its reserves.
In exchange for this unique and immensely profitable privilege, the bank would
very kindly lend the English, and later British, government as much money as
it wanted, at interest, provided the debt was secured by direct taxation of
THE MODERN INCARNATION OF FRAUD
What happens when you or I, or for that matter the government, borrow money
from the bank? Prepare yourself for a surprise.
Let's say we want to borrow a £100,000 mortgage on a house. The bank
or building society does what the goldsmith did and creates £100,000 out
of thin air. Instead of handing us a paper certificate, it simply credits our
bank account with the £100,000 and registers that £100,000 as a
debt, with (say) a further £100,000 interest over 25 years. The money
is simply penned into our account without any account anywhere being debited
the loaned money. New money is therefore created. Alongside it a debt (in this
case £100,000 plus the roughly £100,000 of interest) is created.
When we repay the debt, the interest is accounted as income for the bank. The
£100,000 we originally borrowed is withdrawn from circulation and is accounted
as collateral for further lending, loaned back into circulation when someone
Our house is held as security so if we fail to keep up our repayments, the
creditor takes possession of it. The repayments themselves can vary through
no fault of our own, according to interest rates set by the banking industry.
After 25 years of blood sweat and tears we finally pay back the last installment
of the £200,000 capital-plus-interest we owed and the house in finally
ours. It is not ours until that point.
The lender, who loaned us money which did not exist until the moment he created
it out of nothing, winds up with £100,000 of interest on the loan: that
is real, spendable income that comes courtesy of our real work and real wealth
creation. The numbers have been simplified to highlight the nature of the fraud
and in practise the process is hidden under a great deal of complexity but this
in essence is the process of money creation.
Each time the banks create money they create a debt that is greater than the
spending power they create. One can see too that each time they are creating
a debt for the borrower, they are ultimately creating debt free money for themselves.
Before the goldsmiths' scam began, the money in circulation was hard currency
- usually gold or silver minted into coins which then circulated as the tokens
used to represent goods and services. That minting and circulation of coinage
was usually administered by the government or king.
However as soon as the goldsmiths' certificates became used in lieu of gold,
paper money had made an appearance. As soon as the goldsmiths began issuing
paper notes for gold they did not actually have, the goldsmiths were themselves
creating new money and lending it into circulation.
One can see that this establishes debt as the basis of our currency. Where
once, long ago, the British pound represented something -so much gold or silver
- it now represents so much debt, which is not only nothing it is less than
Extracted from: Your Business Under Siege…and the reasons why. Published
by the BAMR, email: BAMR@bamr.fsnet.co.uk Tel: 01342410962 (UK)
“Whoever controls the volume of money in any country is absolute
master of all industry and commerce. And when we realize that the entire system
is very easily controlled, one way or another, by a few very powerful men
at the top, you will not have to be told how periods of inflation and depression
U.S. President James Garfield.
A few weeks after making this statement, he was assassinated on July 12, 1818.