Let us imagine an insolated island, far away from the rest of the world and living on this island are ten men. These ten men are good workers, and they know how to take advantage of the riches of the island.
Each man exercises his trade, Peter cultivates the earth and Louis breeds animals… etc.
One day, Peter is tired of eating just vegetables so he goes to find Louis to ask him to exchange a calf with some potatoes.
But Louis does not like potatoes, and so he refuses to give him the calf.
But Peter says, "Please, Louis, give me the calf in exchange for the potatoes!" Louis replies, "What will you give me in return?" "I can give you twenty bags of potatoes."
"But they do not interest me," says Louis, "so I do not want to make the trade."
So Peter returns home with nothing, and has to resign himself to eating vegetables for a while longer. Meanwhile, Louis for his part, had too many cows. He really would have liked to exchange them for something else (something that he likes) but not potatoes.
It is the same situation each time one of the ten wants to exchange with the others. Either it is difficult to please the tastes of each one, or it is not the right time. Or even, it's very difficult to calculate: sometime they would have to separate a calf in two in order to adjust to the need.
Seeing the difficulties they have in trying to make an arrangement, the ten inhabitants of the island gather together in a meeting to discuss the problem.
They agree that while the island gives them everything that they need, and it is not the riches that they are lacking, nor the work, but something else.
What are they missing that would make it easier to exchange their products more efficiently? So they all agree that it is money that is missing on the island.
What a discovery! It is money that is missing on the island.
As they have common sense, and they did not meet to just discuss, they decide that since it is money that is missing, what they then need to do is create money.
Our ten men do not do like the governments today, when they find out that money is lacking in the country, and conclude that they need to increase taxes or start a war. So they then decide to create money.
"Let us make money for ourselves?" they say.
"We will make money, we, the men of this island." They do not think for a moment about going to find spirits from another world or men from other countries to make the money for them. They decide to make it for themselves.
"In fact, among us we have James, who was formerly a bank manager, and he knows how to count. James, make us some money."
And James says, "Perfect, I can make you some money. How much money do you need on the island, in order that business may go well?"
They replied, "If we could have $1,000 on the island, the exchanges could be made quite smoothly. So James, create the money for us, $100 for each person.
So James gets to work. He takes a book, writes down Peter's name in this book, and puts the amount into Peter's credit $100. Then, he hands the credit book over to Peter, telling him:
"Here is your $100, Peter. It is a money of numbers, the most modern kind. This is money that you can not lose, and nobody can steal it. Peter, I am lending you $100 and at the end of year, you will reimburse me with the entire amount, and plus $7.00 interest."
Peter replied, "What, you are lending me $100? And you want me to reimburse you the $100 plus interest? You must be joking, James, it is as if the money that you have created belongs to you alone, since you want me to pay it back to you.
You are mistaken, we asked you to make money for us, and not for you. You will receive your share ($100) like the others, but the $1000 does not belong to you. If you lend us $100 with the obligation to pay you back, it is as if the entire $1000 belonged to you."
But James says, "That is the way money is created in civilized countries!"
Peter replies, "Oh, that is the way money is created in civilized countries! That is probably why life is so nice in civilized countries, where people die of hunger in front of abundance, and where people go to war to regulate the exchange of money.
Well then, this kind of civilization does not interest us, James. You will create the money for all of us, that means that you will create $100 for each one of us which you will simple give us."
So James understood, and gave each man a credit book, with $100 listed in the credit column.
On the island, they called this $100 the dividend of the island and it is based on the production of the island. It is brand new money that is created by James'pen that is necessary to allow the inhabitants to exchange their products.
And so the year goes by very well on the island. There are no longer arguments at the moment of the exchange of goods.
Businesses is prospering so much on the island that the $1,000 is becoming insufficient to buy all that is on sale, since production has increased quite a bit. There has been great progress on the island.
At the end of the year, the ten men hold a meeting. They consider their problem, and notice that the money they created at the beginning of the year had done them much good, but that they are still lacking money on the island, considering the trade development.
They still lack money, and they therefore order James to create new money for them.
Peter says: "If we receive $25.00 each, that would be sufficient for now." And so James starts working to create $25.00 for everyone, and he puts down the amount in the credit column of everyone's credit book.
Peter, who worked more than Louis during the year, had the amount of $150.00 in his credit book, he receives $25.00, and so has the total of $175.00.
Louis, who had been sick during the year, had the amount of $50.00 at the end of the year, and he also received $25.00. That leaves him with $75.00.
The $25.00 that everyone received added to everyone's credit is the dividend of the year on the island. It is proportional to the island's progress.
Our ten men created the money themselves. They did not ask a usurer to create the money for them. They had more confidence in themselves, they that built the island, then in strangers who would come to exploit the producers of the island.
Our ten men create the money for themselves. What they create is not debts to pay back, but dividends to circulate. The credit that circulates on the island is a social credit, based on the production of the island and on the confidence that the island's inhabitants have in their small society. This credit is created by the island's inhabitants for their own use.
When this island is a country and the islands people number in the millions, why shouldn't the same method be used to create the credit for the country in the same way. Why not?