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16 Free issue of MICHAEL
He 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 great glee. The op-
portunity to put his plans into operation did not take
long in coming, even though he did not have “The
Globe and Mail” or “The Toronto Star” in which to
advertize.
One morning, a friend of the goldsmith came
to see him and asked for a favour. This man was
not without goods — a home, 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.
The goldsmith got him to fill out a form, and
then explained to his friend, with a disinterested at-
titude, 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 re-
ceipt to me, I will in turn give him gold. You will owe
me so much interest.”
The 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.
The 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 re-
ceipts. He could, to a certain extent, continue with
his game in all safety. 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 confi-
dence 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 collat-
eral. His conscience quickly became dulled, and his
initial scruples no longer bothered him.
The creation of credit
Moreover, 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 bear-
er...”. This promise circulated just like gold money.
Unbelievable, you will say? Come on now, look at
your dollar bills of today. Read what is written on
them. Are they so different, and do they not circu-
late as money?
A fertile fig tree — the private banking system,
the creator and master of money — had therefore
grown out of the goldsmith’s vaults. His loans, with-
out moving gold, had become the banker’s cre-
ations of credit. The form of the primitive receipts
had changed, becoming that of simple promises
to pay on demand. The credits paid by the bank-
er were called deposits, which caused the general
public to believe that the banker loaned only the
amounts coming from the depositors. These cred-
its entered into circulation by means of cheques
issued on these loans. They displaced, in volume
and in importance, the legal money of the Govern-
ment which only had a secondary role to play. The
banker created ten times as much paper money as
did the State.
The goldsmith, transformed into a banker, made
another discovery: he realized that putting plenty of
receipts (credits) into circulation would accelerate
business, industry, construction; whereas restric-
tion of credits, which he practised at first in circum-
stances 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 pur-
chasing power. Prices went down, bankruptcies in-
creased, the banker’s debtors could not meet their
obligations, and the lenders were seizing the prop-
erties given as collateral.
The banker, very clear-sighted and very skill-
ful when it came to gain, saw his opportunities,
his marvellous opportunities. He could monetize
the wealth of others for his own profit: by doing
it liberally, causing a rise in prices, or parsimoni-
u
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