Around 1000 CE, the goldsmiths in Britain began the tradition of modern banking by taking custody of gold deposits from the general public, and storing those deposits in their own vaults. A paper ‘credit note’ was then issued to the owner of the gold deposit, which recorded (in writing) the ‘value’ (i.e. ‘weight’) of the gold, which was believed to easier (and safer) to carry around. A credit note could be lost or stolen, but the gold deposit itself remained safely hidden away – at least in theory. Originally, the goldsmiths issued credit notes that exactly expressed the amount of gold that was held in their vaults, but over-time, they realised that they could issue credit notes on the value of gold that they did not possess, and that nobody outside of the goldsmith industry had the ability to understand what was happening. Goldsmiths could issue vast loans to private individuals or businesses, charge ‘interest’ on the repayment of the loans, and no one within British society was the wiser. This is the birth of ‘fractional banking’, whereby the banking system accepts deposits, or makes loans or investments, whilst only required by law to hold reserves equal to only a fraction of its deposit liabilities. This means that a bank might only possess as little as 10% in actual gold, compared to the face-value of the credit notes it issues. Credit notes, of course, are today usually termed ‘bank notes’, or ‘paper money’.
This means that the basis of modern capitalism, although it has its roots in ancient times, (the biblical Jesus is said to have used violence against the money-lenders in the Jewish Temple), is dishonest and misleading. The goldsmiths were able to gain control of individuals, businesses, governments and monarchs, simply through the act of issuing more paper money than the gold reserves they possessed. Furthermore, when loans were repaid (with interest), the goldsmiths actually acquired a material wealth that they did not originally possess. If any monarch (or government) attempted to ‘expose’ or ‘curtail’ this banking industry the goldsmiths would simply ‘limit’ the amount of paper money in circulation, and immediately call-in all their loans (stacking misery upon misery for the ordinary people). If monarchs and governments granted the goldsmiths privileges, social status and political and religious influence, the goldsmiths would reward society by issuing more paper money – generating the false impression that times were ‘good’.
Of course, when the issuing of paper money exceeds the value of actual gold deposits, that paper money is worth far less than the value stated in print. This is how the banking system trades off of fictional gold reserves, generating billions in profits through loans and deposits, and then re-calls all these liabilities when the ‘inflation’ the bankers of generated, causes the economy to ‘collapse’. The modern bankers (as did the ancient goldsmiths) behave as if the processes of ‘boom’ and ‘bust’ that they generate (through their institutional dishonesty). and administer through their corrupt banking system, have nothing to do with them, and are the fault of the ordinary people who suffer due to their manifestation. As the bankers now fully administer the capitalist system by directly controlling governments, big businesses, the media, education and the electoral process (in the liberal, democratic West), all aspects of modern society are geared toward serving their greed. Times of economic hardship or economic ease are falsely presented to the ordinary people as objective forces of nature that no one control, when in fact the forces of ‘boom’ and ‘bust’ are nothing more than unnatural contrivances fabricated in the minds of ‘elitist’ greedy men and women, given expression through the various structures of society (including the Christian Church), the independence of which have been historically ‘surrendered’ by various monarchs and governments. Socialist governments, of course, reject the this highly exploitative and predatory bourgeois banking system and immediately ‘cancel’ all usury debt following a ‘Revolution’ – ths explains the ‘resistance’ to Socialism in the capitalist West, and the vitirol aimed at it – for Scientific Socialism (through the work of Karl Marx) fully exposes this corrupt system for what it is, but it is interesting to note how truly ‘Revolutionary’ some of the early US Presidents actually were.