Goldsmiths from other towns became curious about his activities and one day they called to see him. He told them what he was doing, but was very careful to emphasize the need for secrecy.
If their plan was exposed, the scheme would fail, so they agreed to form their own secret alliance. Each returned to his own town and began to operate as Fabian had taught.
People now accepted the receipts as being as good as gold itself, and many receipts were deposited for safe keeping in the same way as coins. When a merchant wished to pay another for goods, he simply wrote a short note instructing Fabian to transfer money from his account to that of the second merchant. It took Fabian only a few minutes to adjust the figures.
This new system became very popular, and the instruction notes were called “checks”.
Late one night, the goldsmiths had another secret meeting and Fabian revealed a new plan.
The next day they called a meeting with all the Governors, and Fabian began. “The receipts we issue have become very popular. No doubt, most of you Governors are using them and you find them very convenient.” They nodded in agreement and wondered what the problem was. “Well”, he continued, “some receipts are being copied by counterfeiters. This practice must be stopped.”
The Governors became alarmed. “What can we do?” they asked. Fabian replied, “My suggestion is this – first of all, let it be the Government’s job to print new notes on a special paper with very intricate designs, and then each note to be signed by the chief Governor. We goldsmiths will be happy to pay the printing costs, as it will save us a lot of time writing out receipts”. The Governors reasoned, “Well, it is our job to protect the people against counterfeiters and the advice certainly seems like a good idea.” So they agreed to print the notes.
“Secondly,” Fabian said, “some people have gone prospecting and are making their own gold coins. I suggest that you pass a law so that any person who finds gold nuggets must hand them in. Of course, they will be reimbursed with notes and coins.”
The idea sounded good and without too much thought about it, they printed a large number of crisp new notes. Each note had a value printed on it – $1, $2, $5, $10 etc. The small printing costs were paid by the goldsmiths.
The notes were much easier to carry and they soon became accepted by the people. Despite their popularity however, these new notes and coins were used for only 10% of transactions. The records showed that the check system accounted for 90% of all business.
The next part of his plan commenced. Until now, people were paying Fabian to guard their money. In order to attract more money into the vault Fabian offered to pay depositors 3% interest on their money.
Most people believed that he was re-lending their money out to borrowers at 5%, and his profit was the 2% difference. Besides, the people didn’t question him as getting 3% was far better than paying to have the money guarded.
The volume of savings grew and with the additional money in the vaults, Fabian was able to lend $200, $300, $400 sometimes up to $900 for every $100 in notes and coins that he held in deposit. He had to be careful not to exceed this nine to one ratio, because one person in ten did require the notes and coins for use.
If there was not enough money available when required, people would become suspicious, especially as their deposit books showed how much they had deposited. Nevertheless, on the $900 in book figures that Fabian loaned out by writing checks himself, he was able to demand up to $45 in interest, i.e. 5% on $900.
When the loan plus interest was repaid, i.e. $945, the $900 was canceled out in the debit column and Fabian kept the $45 interest. He was therefore quite happy to pay $3 interest on the original $100 deposited which had never left the vaults at all.
This meant that for every $100 he held in deposits, it was possible to make 42% profit, most people believing he was only making 2%. The other goldsmiths were doing the same thing. They created money out of nothing at the stroke of a pen, and then charged interest on top of it.
True, they didn’t coin money, the Government actually printed the notes and coins and gave it to the goldsmiths to distribute. Fabian’s only expense was the small printing fee. Still, they were creating credit money out of nothing and charging interest on top of it. Most people believed that the money supply was a Government operation.
They also believed that Fabian was lending them the money that someone else had deposited, but it was very strange that no one’s deposits ever decreased when a loan was advanced. If everyone had tried to withdraw their deposits at once, the fraud would have been exposed.
When a loan was requested in notes or coins, it presented no problem. Fabian merely explained to the Government that the increase in population and production required more notes, and these he obtained for the small printing fee.
One day a thoughtful man went to see Fabian. “This interest charge is wrong”, he said. “For every $100 you issue, you are asking $105 in return. The extra $5 can never be paid since it doesn’t exist.
Farmers produce food, industry manufacturers goods, and so on, but only you produce money. Suppose there are only two businessmen in the whole country and we employ everyone else. We borrow $100 each, we pay $90 out in wages and expenses and allow $10 profit (our wage). That means the total purchasing power is $90 + $10 twice, i.e. $200.
Yet to pay you we must sell all our produce for $210. If one of us succeeds and sells all his produce for $105, the other man can only hope to get $95. Also, part of his goods cannot be sold, as there is no money left to buy them.
He will still owe you $10 and can only repay this by borrowing more. The system is impossible.”
The man continued, “Surely you should issue 105, i.e. 100 to me and 5 to you to spend. This way there would be 105 in circulation, and the debt can be repaid.”
Fabian listened quietly and finally said, “Financial economics is a deep subject, my boy, it takes years of study. Let me worry about these matters, and you look after yours. You must become more efficient, increase your production, cut down on your expenses and become a better businessman. I am always willing to help in these matters.”
The man went away still unconvinced. There was something wrong with Fabian’s operations and he felt that his questions had been avoided.
Yet, most people respected Fabian’s word – “He is the expert, the others must be wrong. Look how the country has developed, how our production has increased – we must be better off.”
To cover the interest on the money they had borrowed, merchants were forced to raise their prices. Wage earners complained that wages were too low. Employers refused to pay higher wages, claiming that they would be ruined. Farmers could not get a fair price for their produce. Housewives complained that food was getting too dear.
And finally some people went on strike, a thing previously unheard of. Others had become poverty stricken and their friends and relatives could not afford to help them. Most had forgotten the real wealth all around – the fertile soils, the great forests, the minerals and cattle. They could think only of the money which always seemed so scarce. But they never questioned the system. They believed the Government was running it.
A few had pooled their excess money and formed “lending” or “finance” companies. They could get 6% or more this way, which was better than the 3% Fabian paid, but they could only lend out money they owned – they did not have this strange power of being able to create money out of nothing by merely writing figures in books.
These finance companies worried Fabian and his friends somewhat, so they quickly set up a few companies of their own. Mostly, they bought the others out before they got going. In no time, all the finance companies were owned by them, or under their control.
The economic situation got worse. The wage earners were convinced that the bosses were making too much profit. The bosses said that their workers were too lazy and weren’t doing an honest day’s work, and everyone was blaming everyone else. The Governors could not come up with an answer and besides, the immediate problem seemed to be to help the poverty stricken.
They started up welfare schemes and made laws forcing people to contribute to them. This made many people angry – they believed in the old-fashioned idea of helping one’s neighbor by voluntary effort.
“These laws are nothing more than legalized robbery. To take something off a person against his will, regardless of the purpose for which it is to be used, is no different from stealing.”
But each man felt helpless and was afraid of the jail sentence which was threatened for failing to pay. These welfare schemes gave some relief, but before long the problem was back and more money was needed to cope. The cost of these schemes rose higher and higher and the size of the Government grew.
Most of the Governors were sincere men trying to do their best. They didn’t like asking for more money from their people and finally, they had no choice but to borrow money from Fabian and his friends. They had no idea how they were going to repay. Parents could no longer afford to pay teachers for their children. They couldn’t pay doctors. And transport operators were going out of business.
One by one the government was forced to take these operations over. Teachers, doctors and many others became public servants.
To be continued…
About the author:
This story was written by Larry Hannigan in 1971 – The sole purpose is to explain the simple maths of reality and the current Banking System – that is – 100 plus NOTHING does NOT equal 105 – and that charging interest on something that is created out of nothing, makes it impossible to repay, giving great power to those who do create money out of nothing – ie the Banks.
It will look like this: Give Me The Earth Plus 5% – Part II