Chapter 8 — The Birth and Death of Money
A mysterious birth
do potatoes come from? — From the farmer's field. Where are little
calves born?— In the cowshed. Where do plums come from? — From the
knows that. But now ask the same question about money:
does money come from? Where is born the paper dollar that I have in my
pocket? Who gave birth to it, for what reason, and in what
were the millions and millions of dollars born with which the Government
financed the war, the Government which had noticed for the previous ten
years that there were not enough dollars in the country to just finance
ordinary public works?
where do dollars go to when one cannot see them any more? Where did the
dollars go during the 1930-1940 Depression, those dollars which had
financed the country so well from 1925 to 1929?
are dollars born, and where do they die?
people these questions, and tell me how many are able to answer you.
God nor the temperature creates dollars. And yet dollars are not created
by themselves! Who creates them? Who knew how many to create to pay for
the war? And why did they, who had created the dollars to carry on the
war, not create any beforehand to settle the Depression?
Two kinds of money
order to clearly understand where money begins and where it ends, one
must distinguish between two kinds of money, equally good: coins and
paper money, and bookkeeping money.
and paper money is only pocket money, which ordinary people use every
big industrialists, the big retailers, more regularly use bookkeeping
money. To make use of bookkeeping money, one must simply have a bank
us suppose that I have a bank account with $2,000 to my credit. I buy an
electric washing machine at Sears. It costs $600. I pay for it with a
$600 cheque on my bank account. What will happen?
will receive my washing machine. The Sears firm will deposit my cheque
at its own bank. The banker will raise the Sears firm's credit by $600.
Sears' bank will then send the cheque to my bank. The banker will
decrease the credit of my account by $600. And that is all. Not one
dollar will have left a pocket or a drawer. An account will have
increased — the retailer's; another one will have decreased — mine.
I have paid with bookkeeping money.
money is the credits in bank accounts.
kind of money accounts for 90 percent of all commercial transactions. It
is the main kind of money in civilized countries, like ours.
it is when bookkeeping money increases, that pocket money increases, and
it is when bookkeeping money decreases, that pocket money decreases.
When ten dollars of bookkeeping money goes into circulation, one dollar
of pocket money (coins or paper money) enters into circulation. When ten
dollars of bookkeeping money disappears from circulation, one dollar of
pocket money disappears from circulation. It is at least the current
money is in control. It is its quantity that determines the quantity of
the other kind of money (cash).
Money begins in the banks
find out where money originates and ends, one must find out where
bookkeeping money originates and ends. Bookkeeping money, which controls
everything, is a credit in a bank account.
credits in some bank accounts, while decreasing them in other accounts,
is merely a transfer of bookkeeping money. If the credits correspond to
metal or paper money deposited in the bank, it is a change from pocket
money to bookkeeping money. But if the credits in bank accounts are
increased without any decrease elsewhere, new bookkeeping money, which
increases the total volume of money available, is generated.
I save and then deposit $100 in the bank, the bank writes down $100 to
my credit. This gives me $100 in bookkeeping money. But it is not new
money; it is merely money that has passed from my pocket to the bank, or
from the account of someone who has issued me a cheque to my own
account. It is not the birth of new money; it is simply savings.
if instead of bringing my savings to the bank, I come to the bank to
borrow a great deal of money, let us say $100,000, to enlarge my
factory, what actually happens?
bank manager has me sign some forms and pledges. Then he hands me a
discount cheque that I deposit with the teller. The teller simply writes
$100,000 to my credit. He records the same amount in my bankbook.
leave the bank without carrying any cash on me, but I have added
$100,000 of bookkeeping money to my credit, which I did not have upon
entering. This allows me to pay, by cheques, up to an amount of $100,000
for machines, materials, and workers.
no other account in the bank was decreased to accomplish this. Not a
penny was moved, whether from a drawer, a pocket, or an account. I have
$100,000 more, yet no one has a penny less.
$100,000 did not exist an hour ago, and yet here it is entered into my
credit, into my bank account.
then does this money come from? This is new money which did not exist
when I walked into the bank, which was neither in the pocket, nor in the
account, of anyone, and yet it now exists in my account.
banker actually created $100,000 of new money in the form of credit, in
the form of bookkeeping money, which is just as good as coins and paper
banker is not afraid to do this. My cheques to payees will give them the
right to draw money from the bank. But the banker knows very well that
nine-tenths of these cheques will simply have the effect of decreasing
the money in my account, and of increasing it in other people's
accounts. He knows very well that a ratio of bank reserves to deposits
of 1/10 is enough for him to answer the requests of those who want
pocket money. In other words, the banker knows very well that if he
has $10,000 in cash reserves, he can lend $100,000 (ten times the sum)
in bookkeeping money.
The preceding paragraph was written in 1946, and this ratio (a 10%
cash reserve requirement) has changed since then. In 1967, the Canadian
Bank Act allowed the chartered banks to create sixteen times (in
bookkeeping money) the sum of their cash reserves. Beginning in 1980,
the minimum reserve required in cash (bank notes and coins) was 5 per
cent, which meant that the banker needed only one dollar out of twenty
to answer the needs of those who wanted pocket money. The banker knew
very well that if he had $10,000 in cash, he could lend twenty times the
sum, or $200,000, in bookkeeping money.
practice, the banks could lend out even more than that, since they could
increase their cash reserves at will by simply purchasing bank notes
from the central bank (the Bank of Canada) with the bookkeeping money
they create out of thin air, with a pen. For example, it was established
in 1982, before a parliamentary committee on banks' profits, that in
1981, the Canadian chartered banks, as a whole, made loans 32 times in
excess of their combined capital. A few banks even lent sums equal to 40
times their capital. Moreover, in 1990 in the U.S.A., the total deposits
of commercial banks amounted to about $3,000 billion, and their reserves
amounted to approximately $60 billion. This resulted in a ratio of
deposits to bank reserves of about 50/1. U.S. banks held enough cash to
pay off depositors at the rate of only about two cents on the dollar.
457(1) of the most recent version of the Canadian Bank Act, enacted on
December 13, 1991, states that, as of January, 1994, the primary
reserve, in the form of cash, that a chartered bank has to maintain is
nil, zero. So the banks are no longer limited by law in creating
credit, or bookkeeping money. (And if all cash is eventually
replaced by electronic money, with debit or microchip cards, as it is
already planned by the banks, they won't even be limited in practice to
create money, which will then not be a piece of paper or an entry in a
ledger, but simply bytes, units of information in a computer.)
increase in the money supply
it is the Government that borrows from the banks, the procedure is the
same. The amounts are much greater, because the entire wealth of the
country is involved. All the power to tax is then used as a pledge to
the banker, in the form of debentures.
the war broke out in 1939, the Government, which for the last ten years
had been short of money, went to the banks to carry out a first loan of
$200 million. The banks did not have any more money than they had had
the day before. For the last ten years, the population had been lacking
money. When one is lacking money, one hardly has any surplus to bring to
the banks loaned $200 million to the Government. They wrote to the
Government's credit $200 million in bookkeeping money. And the young
people, who had been wandering about aimlessly for years because there
was no money, were called immediately by the Government, dressed from
head to toe, lodged, fed, equipped, and transported to Europe to take
part in the slaughter.
this was seen in all the countries of the world. The world had suffered
from unemployment for ten years, due to the scarcity of money. This same
world was able to fight a very costly war, because the banks had created
all the bookkeeping money that was needed to finance the war.
banks thus created, during the war, at least 3 billion dollars of new
money to finance the Canadian share of the universal butchery.
is easy to create, since all that is needed is the banker's pen. And
yet, before the war, due to the lack of money, the world did penance for
ten years, and no government made an order to make use of the banker's
death of money
this bookkeeping money, created by the banks, is created under certain
conditions. It must be brought back within a determined period of time,
along with other money, in the form of interest.
one million dollars loaned at 5 percent for a period of twenty years,
obliges the Government, which borrows this sum, to pay back 2 million
dollars within twenty years — $1 million in principal and $1 million
the Government does not create money, and as it cannot pump out from the
public more money than was put into circulation, it is never able to
bring back to the banker more money than the banker created. The more
the Government tries to meet its obligations, the more it creates a
scarcity of money in the country. It must even borrow other amounts to
be able to pay indefinitely the interest on the principal thus created
by the banks.
is the reason why the public debt always increases, why interest on this
debt is ever greater, and why taxes to pay the interest charges are more
and more burdensome.
for private individuals who thus borrow from the banks, they must either
pay back with interest, or go bankrupt. If some succeed, it is by
extracting from consumers, through the sale of products at raised
prices, more money than they have put in. The success of some, in a
system where money begins in the form of a debt, laden with interest,
necessarily causes the bankruptcy of others.
of the money that returns to the bank to repay loans enters the bank in
the form of credit, and is simply cancelled; this money ceases to exist.
The bank is both the cradle and the grave of money. It is both a factory
that creates money and a slaughterhouse that cancels money.
repayments are demanded faster than new loans are made, the
slaughterhouse functions more rapidly than the factory. The result is a
depression. This was how the 1930-1940 Depression originated.
loans are more generous and more frequent than repayments, the factory
runs more rapidly than the slaughterhouse, and money becomes plentiful.
This is what happened during the war: money was more plentiful than the
is quite obvious that the amount of money in circulation depends on the
banks' actions. And the banks' actions do not depend at all on
production or needs.
a world where one cannot live without money, one understands that a
system which thus gives to private interests — the banks — the power
to regulate the amount of money as they please, puts the world at the
mercy of the makers and the destroyers of money.
who control money and credit have become the masters of our lives. No
one dare breathe without their permission. This is what Pope Pius XI
striking point must be emphasized:
is production that gives value to money. A pile of money without
corresponding products does not keep anyone alive, and is absolutely
worthless. Thus, it is the farmers, the industrialists, the workers, the
professionals, the organized citizenry, who make products, goods and
services. But it is the bankers who create the money, based on these
products. And the bankers appropriate this money, which draws its value
from the products, and lend it to those who make the products.