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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


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-


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Social Credit in 10 lessons

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From Debt to Proserity

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