Money/currency itself is not valuable; only the goods and services that can be bought with it are.
The wealth of any individual or nation, therefore, is ultimately determined by what is produced in terms of valuable products and services, not by how much money/currency it prints, distributes and holds.
A nation could actually survive without any money/currency at all as long as it was otherwise productive.
Without production of goods and the offer of services, money/currency immediately loses its alleged value.
The purpose of money/currency is to facilitate the exchange of goods and services. Money/currency is thus merely an extension of the barter system.
Barter is the act of trading something one possesses or does, for something of someone else’s.
Production and barter is the basis of all economy. They are the necessities for any economy, money/currency is not.
Here I am, the goldsmith; a craftsman working with silver and gold, making jewelry and ornaments, who is about to start a monetary system:
I suggest you obtain the number of coins you require from me. There will be no limit, except for your ability to repay. The more you obtain, the more you must repay in one year's time.
And how will I, the goldsmith, benefit from this?
Since I am providing a service, that is, the money supply, and costs, that is, producing the coins, I am entitled to payment for my work. Let's agree that for every 100 coins you obtain, you repay me 105 for every year that you owe the debt. The 5 coins will be my charge, and I shall call this charge interest, which is thus 5 percent.
At the end of the year, for all the people who owe me coins, it's time to pay up. Some have more than they borrowed, but this means that others have less, since there were only a certain number of coins issued in the first place. Those who had more than they borrowed paid back each 100 plus the extra 5, but had to borrow again to carry on.
The others discover for the first time that they have something called financial debt. Before I would lend them more cooins, I take a mortgage over some of their assets, and everyone goes on once more to try and get those extra 5 coins which seem so hard to find.
No one realised that as a whole, the country can never get out of debt until all the coins are repaid, but even then, there are those extra 5 on each 100 which have never been lent out at all. No one but me, the goldsmith, can see that it is impossible to pay the interest - the extra money has never been issued, therefore, someone has to miss out.
It is true that I spent some coins, but I cannot possibly spend anything like 5% of the total economy on myself. There are thousands of people and I am alone. Besides, I am still making a living as a goldsmith.
At the back of my shop I have a strongroom and people find it convenient to leave some of their coins with me for safekeeping. I charge a small fee depending on the amount of money, and the time it is left with me, and I give the owner receipts for the deposit.
When a person went shopping, he did not normally carry a lot of coins. He would give the shopkeeper one of the receipts to the value of the goods he wanted to buy.
Shopkeepers recognise the receipt as being genuine and accept it with the idea of taking it to me and collecting the appropriate amount in coins. The receipts passed from hand to hand instead of the coins itself being transferred. The people have great faith in the receipts - they accept them as being as good as coins.
Before long, I noticed that it was quite unusual for anyone to actually call for their coins.
So I thought to myself, here I am in possession of all these coins and I am still a hard working craftsman. It doesn't make sense. There are dozens of people who would be glad to pay me interest for the use of these coins which are lying here and are rarely called for.
It is true, the coins are not mine - but it is in my possession, which is all that matters. I hardly need to make any new coins at all, I can use some of the coins stored in the strongroom.
At first I was cautious, of course, only loaning a few at a time, and then only on tremendous security. But gradually I became bolder, and larger amounts are loaned.
People now accept the receipts as being as good as the coins themselves, and many receipts are deposited for safe keeping in the same way as coins. When a merchant wishes to pay another for goods, he simply writes a short note instructing me to transfer money from his account to that of the other merchant. It takes me only a few moments to adjust the figures.
This new system became very popular, and I named the instruction notes "checks".
The notes are much easier to carry and they soon become accepted by the people. Despite their popularity however, these checks (notes) and coins are used for only 10% of transactions. The records show that the check system accounts for 90% of all business.
Until now, people were paying me to guard their money. In order to attract more money into the vault, I offer to pay depositors 3% interest on their money.
Most people believe that I will be re-lending their money out to borrowers at 5%, and my profit would be the 2% difference. So, for the people, getting 3% is far better than paying to have the money guarded.
The volume of savings grew and with the additional money in the vaults, I am able to lend 200, 300, 400 sometimes up to 900 in notes for every 100 in notes and coins that I hold in deposit. I have to be careful not to exceed this nine to one ratio, because one person in ten did require the notes and coins for use and if there would not be enough money available when required, people could become suspicious, especially as their deposit books show how much they have deposited.
Nevertheless, on the 900 in book figures that I loan out by writing checks myself, I am able to demand up to 45 coins in interest, i.e., 5% on 900.
When the loan plus interest is repaid, i.e., 945, the 900 is cancelled out in the debit column and I keep the 45. I am therefore quite happy to pay 3% interest on the original 100 deposited which has never left the vault.
This means that for every 100 coins I hold in deposits, it is possible to make 42% profit, most people believing I am only making 2%.
In other words: I get 100 coins for safekeeping and pay 3% over that amount. I now loan out those 100 coins 9 times, on paper, with paper, i.e., with checks (notes) against 5%. This means that I make 9 x 5% - 3% = 42% over 100 coins.
I have thus magically conceived the possibility to ever so mystically create money (credit) out of nothing at the stroke of a wand and then charge money (interest) on top of it.
Today, this system is more commonly known as Fractional Reserve Deposit Expansion or Fractional Reserve Banking. The modern day banking system and its current new form of "electronic credit" (plastic money) has grown out of this scheme and shows no sign of stopping.
Since we are able to deduce that credit and interest merely appears to be money (currency) - since it never existed, doesn't exist and never will - what are we going to do about it?
The Social Credit system perhaps, instead of the Social Debt scheme?
Within a Social Credit system, money gets its value, not from raw materials itself, but from the products which that money buys.
Money then, is an accountancy; credits passing from one account to another in accordance with sales and purchases, i.e. the sum total of production.
Each time production increases, there is a corresponding increase in the amount of money.
Never at any time interest is paid on any money.
Progress is marked, not by an increase in public debt, but by issuing an equal dividend to each individual, and prices are adjusted to the over-all purchasing power by a coefficient of prices.
Nobody loses, everybody wins.
And there you have it, "Social Credit".
Simple huh? Phat kewl or wha'?
As long as politics and finance appears unable to come up with Social Credit, we know politics and finance is a Punch and Judy show. I mean, really, if we can think up Social Credit, "they" cannot?
I started out with nothing, and I have most of it left
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