It’s impossible to understand why the world is as it is unless you delve into how the financial system works. The origins of today’s banking began when wealthy people during the Middle Ages started storing gold and silver in the vaults of goldsmiths. Goldsmiths issued receipts, and owners paid their debts by withdrawing portions of the deposited assets. Since it was impractical to transport metals around, a system was developed where ownership only changed on paper when trading or settling debts. The metals remained in the vaults, and the issued receipts became widely accepted as money. This is how the modern banking system was born.
After some time, goldsmiths realized that few people were withdrawing significant amounts of valuable metals, and no one knew how much was stored in the vaults. They came up with the ingenious idea of falsifying receipts for gold that didn’t exist. They could use these receipts themselves, while lending out the rest with interest. If they had 2,000 pounds of gold in storage, they could, for example, lend out 20,000 in paper money and charge interest on these without anyone discovering the fraud. This allowed them to amass considerable wealth by deceiving the public. The following example illustrates how they did it in practice:
Let’s assume the goldsmiths decided to use the same interest rate for both creditors and borrowers, so those who deposited gold received a 5% interest rate, while those borrowing money had to pay 5%. Since the goldsmiths lent out ten times more than they had, they paid out only 5% in interest to creditors while collecting 50% in interest from borrowers. This allowed them to manipulate the market by lending generously and then suddenly becoming very restrictive, reducing the flow of money in society. When people couldn’t pay their debts, lenders demanded property seizures and acquired real assets from the public.
This forms the basis of the system we have today, where banks lend out money that doesn’t exist and charge interest on it, making a small elite incredibly wealthy while most people in the world live in debt. This is by design – the world’s banking system relies on debt, meaning that people are not meant to be financially independent and free, unless they belong to a privileged elite. Just like the goldsmiths, today’s bankers and speculators can accumulate astronomical sums from indoctrinated and unaware masses, willing to sacrifice their lives for the benefit of these tricks.
Between wage slavery, stress, and fast food, the media has drilled people with terms like boom and bust cycles, stock market highs and lows, recessions, and depressions that just ”happen” to occur. Then the various bankers, directors, and politicians who undermine people and declare the necessity of tightening their belts, handing out bonuses, and pay raises to each other are expected to be forgotten, and people often do. This elite, which is complicit in creating problems, continues to operate and even gets re-elected by the very people they often trample on and exploit, thanks to a form of national Stockholm syndrome.
Now, let’s continue our historical review to explain the background of today’s fraudulent system. In 1609, after over 50 years of war, British politicians turned to bankers again, seeking loans. They agreed under the condition that they could establish a private central bank in the name of the state, where they could continue creating capital out of thin air by lending out non-existent money and charging interest on it. Thus, The Bank of England was created, which was not England’s but the bankers’. By its name, they deceived the public into believing it was a state-owned institution. The government could borrow as much as they wanted as long as they provided guarantees in the form of increased taxation on the public. Four years later, the state’s debt to the bank had risen from 1.2 million to 16 million.
The technique was as follows:
If the capital circulating in a country, for example, was 6 million, and its central bank printed an additional 16 million and then sent it out into the market through loans and investments, the value of the original 6 million circulating before the bank was established would decrease because it now represented only 25% of the economy. This meant that the bank now controlled 75% of the country’s economy by the 16 million they had put out.
This often led to inflation, meaning people had less to spend, and they had to turn to the bankers to borrow more. Once a significant portion of the population was in debt, they ensured to restrict further lending. They would then bide their time, and… presto, when several borrowers went bankrupt, they seized their assets.
A significant portion of the Western world’s economic system can be traced back to Adam Smith, the father of economic liberalism. He criticized mercantilism, which based its economic system on trade and a positive balance of trade, aiming for exports to exceed imports by producing all goods within the country. However, Smith believed the system was inefficient and corrupt. Among other things, he wrote:
”People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”(1)
In other words, he believed that businessmen in the same industry often formed cartels or price-fixing agreements to eliminate competition. Furthermore, he made this insightful statement: ”A proposal for a new law or regulation of commerce comes from a class whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed them.”
In his book ”The Wealth of Nations,” Smith concluded that it’s the division of labor that allows for prosperity. He defined the division of labor as individuals specializing in different tasks rather than trying to master multiple work processes. However, for this system to work, all the different work processes and finished products must be interconnected and interact through the free market.
The market economy functions through competition, but to maintain the system, continuous growth is necessary.
Two apparent flaws in Smith’s economic doctrine are the belief that an individual’s self-interest will always benefit others and the belief that continuous growth is sustainable. Today, we know that the first does not always hold true, and the second is often ecologically unsustainable in the long run.
Källor:
Ryan Patrick Hanley, Adam Smith, His Life, Thought, and Legacy, Princeton University Press, 2016, (sidan 233)
How the Oligarchs Deceive the Masses – Part 1
