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by David Summers
......"Fabian told them what he was doing and emphasized 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.".............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 of the 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 governments 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. etc. The small printing costs were paid for by the goldsmiths.
The notes were much easier to carry and soon they became accepted by the people. Despite their popularity however, these new notes and coins were only used for 10% of transactions. The records showed that the cheque system accounted for 90% of all business. The next part of his plan commenced. Until now, the 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 cheques himself, he was able to demand $45 in interest, i.e. 5% on $900. When the loan plus interest was repaid i.e. $945, Fabian kept the $45 interest. He was therefor quite happy to pay the 3% interest on the original $100 deposited which had never left the vaults at all. This meant that for every $100 that he held in deposits, it was possible to make 42% profit, most people believing that 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. Fabians 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 money that someone else had deposited, but it was very strange that no ones deposits ever decreased when a loan was advanced. If everyone had tried to withdraw their deposits at once, the fraud would have been exposed. This has happened even in the financial world today. i.e. BCCI, State Bank Australia, and many others world wide. When in financial trouble, first a merger is initiated before collapse. Top secrecy is kept to stop panic and uproar in society.
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. He said,
"This interest charge is wrong. For every $100 you issue, you are asking $105 in return. This extra $5 can never be paid since it doesn't exist."
Farmers produce food, industry manufactures goods, and so on, but only you can 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 that the total purchasing power is $90 + $10 twice, i.e. $200. Yet to pay you we must sell our produce at $210. If one of us succeeds and sells all our 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. Your money cannot make the world go around forever!"
The man continued, "Surely you should issue 105 i.e. 100 for me and 5 for 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 our country has "developed", how our production and society 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 their 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 to 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 except Fabian and the banks - the fertile soils, the great forests, the minerals and cattle. They could think only of the money which always seemed so scarce. But 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. This is called merger or bankruptcy.
The economic system 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 days work, and everyone was blaming everyone else. The Governors could not come up with the 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 is done by taking the money directly from the wage earner before he gets his pay. This made the people very angry, they believed in the old fashioned idea of helping one's neighbour by voluntary effort. "These laws are nothing more than legalised robbery - to take something off a person against his will, regardless of the purpose for which it is to be used. It is no different to stealing." But the Banks and Government continued to "tax" the public and each man felt helpless and was afraid of the jail sentence which was threatened for failing to pay.
These welfare systems 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 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 be able to repay. Parents could no longer afford to pay teachers for their children - they couldn't pay their doctors - and transport operators were going out of business.
to be continued.....
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