— Do you have a bank account?
— Yes. Oh! not a big one; just a few hundred dollars.
— Do you use it sometimes to make payments?
— Yes, when I buy something very expensive, or when I order goods from afar. Then I make out a cheque. It's very convenient.
— In fact, it's so convenient that more than 90 percent of all business transactions are carried out by means of cheques — not trivial purchases at the corner store, but the transactions of the wholesalers, the industrialists, the transport companies. The cheque is by far the chief means of payment today; it has relegated to a minute place coins and paper money.
— Yes, but when one issues a cheque, it is the bank that pays on behalf of the issuer. For each cheque issued, there must be a corresponding amount of metal or paper money that the banker will hand over to the payee.
— Nothing of the sort, my friend. Only a little money is required to cover a great many cheques. The retailer, to whom you are issuing a cheque, hardly ever asks the teller of his bank to give him cash money for the amount specified on the cheque. He simply deposits the cheque. The credit in his account increases by the amount of the cheque deposited; and your account, on the other hand, is debited or decreased by the amount of the cheque.
Now, when a retailer orders merchandise from suppliers, he pays by cheques. The suppliers will deposit the cheques they received at their banks. This time, it is the suppliers' accounts that will increase, and the retailer's account that will be decreased by the amount of the cheques.
All these transactions involve nothing more than the transferring of amounts from one account to another; debiting one account and crediting another.
All in all, for every cheque of $100, there is no more than $10 in coins or paper money that goes beyond the teller's wicket at the bank. This is the proportion in use in present-day business practices, and the banker knows this very well. As a result, the banks are able to lend ten times the amount of money they actually have.
— Eh, what are you saying? How can a banker lend money he doesn't have?
— Simply by creating the money he lends out. This is the common practice of the banks. They create the money that they lend out. A banker is essentially a money creator.
— That's unbelievable! I just don't get it!
— Well, my friend, you told me that you have a small bank account. Now this account is made up of your savings, isn't it?
— Yes, it is money that I brought and deposited in the bank.
— Fine! But there are people who come to the bank without a cent, and leave with a bank account much bigger than yours.
— I don't understand.
— No? Well, let's take the example of Mr. Jones, a manufacturer in your town. He wanted to enlarge his factory. Everyone thought it was a good idea. But Jones doesn't have the money to pay for the materials, the builders, and the machinery. He figured out that with $100,000, he could carry out his plans; later on, with increased production and sales, he could easily pay back the $100,000.
What did Jones do? He went to the bank. He did not bring money with him to the bank. But he came out of the bank with $100,000 in his account.
— Of course, he borrowed it.
— Exactly! The wonderful thing about it is the way the bank made the loan. If you were rich, and Jones had come to you to borrow the $100,000, he would get his $100,000, but you would actually have $100,000 less in your account. At the bank, it's quite different: Jones comes out with the $100,000 he needed, but the bank doesn't have one penny less.
— You don't say!
— It's the gospel truth. Oh! of course Jones must give some sort of security. He has to deposit collateral. Not money, because he did not have any — that's what he came to get. He is perhaps asked for insurance policies or titles to property for a total value exceeding the $100,000. These are called guaranties, or collateral. Then the manager gives him a discounting cheque to the amount of $100,000, and sends him to deposit it with the bank teller.
Mr. Jones is not going to ask for $100,000 in paper money, and walk out of the bank with this money on him. He deposits the cheque in his account. The amount is credited to him (just as for you when you deposit your savings). Mr. Jones leaves the bank with credit on which he can issue cheques to pay his bills, as the construction progresses. He thus puts this money into circulation. But he pledged to withdraw this money from circulation, and to pay back the whole amount within one year's time.
— And you say that the banker hasn't any less money than he previously had?
— Just to convince you, we can go and have a chat with the bank manager. He's a friend of mine, and he is quite frank with me. Besides, he knows I'm acquainted with the details of the Jones' loan, and that he won't be violating professional secrecy.
* * *
— Mr. Manager, here I am again to tease you about banking — as is my habit.
— More questions about credit?
— Right. It's that $100,000 loan that you made to Jones. Will you mind telling my friend here exactly what you loaned to Mr. Jones?
— What we lend every day — money.
— Indeed. But tell us then, where was this money before Jones entered the bank?
— Now that's a silly question.
— Not at all. Jones came in without any money. He left with $100,000. Now, you got this $100,000 from somewhere. Is some part of the bank short by $100,000?
— Is there $100,000 less in the teller's drawers or in the vault?
— Come on, he did not take dollars with him. It was credited to his account.
— Good. Then some other accounts were depleted to the tune of $100,000. The accounts of some of your clients perhaps?
— That's ridiculous! Our clients' money is sacred. Their accounts remain intact, unless they make withdrawals from them.
— What? It's not the depositors' money that the bank lends out?
— Yes! No! Well, yes and no. In one way, yes; in another, no. We don't touch their money; it's theirs. But that money permits us to lend out money to borrowers.
— Then what money do you lend out?
— The bank's money.
— But you have just said that not one cent of the bank's money goes out of the bank, and the clients' money either. And yet, Mr. Jones has $100,000 that he did not bring, and that he did not have before entering the bank.
— That's correct.
— All right. Now, where was this $100,000 before Jones came into the bank?
— Well, it wasn't anywhere. He had to come in and borrow it before it could exist.
— It didn't exist before?
— And now it does exist!
— Certainly. Because it's in his account.
— So it came into being the minute Jones got his loan. The bank creates the money it lends.
— Well, I wouldn't like to say that.
— But your big executives have said it quite explicitly. Towers said it when he was the Governor of the Bank of Canada. Eccles said it when he was the head of the banking system in the United States. Fifty years ago, McKenna, then head of the largest commercial bank in England, said it when he was talking to some bankers. So you have no reason to be scrupulous. Banks create the money they lend. Besides, money has to come from somewhere, doesn't it? All the Government tells us is that it is not they who create money. They're quite satisfied with levying taxes. The wage-earners content themselves with sweating. The industrialists content themselves with producing. And no money ever comes out of their machines. It comes from the banker's pen.
We're not angry with you, Mr. Manager. In fact, we're quite happy that modern money can come into existence so easily. But what we don't like — and you are no more to be blamed for this than a private soldier is to be blamed for the war — is the fact that the banking system considers itself to be the owner of the money it creates, whereas this money really belongs to society.
— Please explain this assertion.
— Just consider the facts. Without the existence of a producing society, without an organized economic life, this money would be worthless. It is the wealth of a country, its natural resources, the work of its people, the techniques of production; it is all of these things which confers value to the $100,000 that came out of your pen to Mr. Jones.
— You forget, Sir, that Mr. Jones deposited first-call securities before he got his loan. That's where the $100,000 get its value.
— No, Mr. Manager. This collateral deposited by Mr. Jones is a guarantee that he will repay you. If he doesn't, you keep the collateral. But do not confound the guaranties of the loan with the value of money. If there were only these guaranties in the country, if there were no production, no farms, no factories, no transportation, no stores, no economic life, that $100,000 would have no monetary value, regardless of how much security Mr. Jones might deposit with you.
It is the whole country, all the country's wealth, all the country's population, that gives value to money, no matter by what body or organism money is created. Consequently, by reason of its basic origin, money actually belongs to the population of the country. Lend it to Mr. Jones to enlarge his factory if you wish. But it is the country's whole population that must benefit from this loan, and not the banks alone. Instead of bringing in interest to the banker, the development of the country must provide dividends to the whole population.
We cannot denounce too strongly the bank's appropriation of the credit of society. It is the greatest swindle of all times — and the one most firmly entrenched in all civilized countries. Its strength and universality in no way justify it, but only make it more odious.
All public debts — municipal, provincial, federal — have their roots in this gigantic swindle. The people build up the country. But the system only plunges them into debt as they build.
Public bodies, governments, do as Jones did — they borrow. Their guaranties are bonds, mortgages on our homes, promises to tax the population.
Governments are “small stuff” compared to the financial powers.
Only Social Credit can liberate individuals, families, and public bodies from this tyranny, which has no concern for the well-being of humanity.
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