article of Louis Even, first published in the October, 1936 issue of “Cahiers
du Crédit Social.”)
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.
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
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.
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.
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
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.
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.”
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.
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.
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.”
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.
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.
creation of credit
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?
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.
goldsmith who became a banker
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
The banker, the universal master
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.
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.
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.
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.”