So exactly who are these usurers anyway? 200 years before Christ, the Romans were struggling with the power of the moneychangers. Roman Emperors attempted to pass laws that would reform usury and limit land ownership to 500 acres, however they were assassinated. In 48 BCE Julius Caesar took back the power to coin money and minted coins for the benefit of all peoples. With this new money supply, he was able to construct great public works. By making money plentiful, he gained favour with the common man but the moneychangers despised him. This was the key factor in his assassination. With his death, came the demise of plentiful money in Rome, subsequently taxes increased. Eventually their money supply was reduced by nearly 90% and as a result, the people lost their lands and their homes. Sound familiar?
Rome was thrusted into the dark ages. One thousand years later, gold smiths were active in England and while not technically bankers, they discovered that if they acted together they could manipulate the entire English economy. The gold smiths became the first bankers because they kept other people’s gold in their vaults. In exchange for the gold, they would issue a receipt stating how much gold a person had in their vault. At any time, the person could return with their receipt and get their gold back. This was, in essence, the first paper money.
Over time, the gold smiths realized that a very small percentage of the people ever came back at the same time to redeem their gold so they started cheating. They started printing more receipts than the quantity of gold they actually had in their vaults hoping that no one would notice, and they were right. With this practice, came the discovery of fractional reserve banking.
With this extra money, they could profit by loaning it out and collecting interest on it. For example, with $100 deposited in gold, they could loan out approximately $1000 in paper receipts (money) and collect interest on it and no one would ever discover the deception. Through this approach the gold smiths were able to accumulate more and more money, and with that money accumulate more and more gold. Today this ritual, known as fractional reserve banking, is practiced by every major central and chartered bank in the world.
So what does this mean for banking? Should all banking, loans, and charging interest be made illegal? In the middle ages the Catholic Church forbade the charging of interest on loans, and decreed it to be a crime called usury, an idea previously conceived by Aristotle and St. Thomas Aquinas, who taught that the purpose of money was to serve the members of society and to facilitate the exchange of needed goods. They believed that interested hindered this process by placing an unnecessary burden on the use of money. By extension, interest is contrary to reason and justice. The church had great influence in the middle ages, and most if not all countries in Europe followed and adopted the crime of usury.
Sometime in the late Middle Ages, as commerce grew and there was an understanding that to lend money meant some element of risk to the lender, some charges were allowed but not “interest”. Moralists at the time, regardless of religion, saw this as a fraud that would result in widespread poverty.
The gold smiths, now bankers, discovered that when “easy money” was plentiful, people would take out more loans, buy more products and the economy would grow. They also realized that when they shrunk the supply of money, “tight money” meant that people would not be able to repay their loans and would have to default and sell their assets for pennies on the dollar. Even though a shrinking of the economy on paper looks bad for the gold smiths, it was actually to their benefit as it would allow the further accumulation of wealth and property. This discovery, today referred to as the business cycle was just the latest round of evils to be unleashed upon the world.
In about 1100 AD, like Cesar before him, King Henry of England, vowed to take back the power of money away the gold smiths. He invented an unusual money system, known as the tally stick system. This form of British money lasted for 726 years, until 1826. Basically it was money furnished from sticks of wood. A certain number of notches were made along one end of the stick to indicate denominations. Then the wood was split through the notches length-wise so as to create two identical sticks with the same notches. The King’s treasury kept one stick so as to protect against counterfeits. When the sticks were to be redeemed, the two sticks would be paired up by the notches to check the stick for authenticity. Just to give an example, one of the founding members of the Bank of England purchased his shares with a tally stick valued at the time at £25,000. So basically shares of the world’s most powerful corporation was bought with a piece of wood! Ironically, after its formation in 1694 the Bank of England attacked the system because the tally sticks was money outside of its system and subsequently its control.
So what’s money? Today it’s just paper. Think about, it is nothing more than worthless paper. The secret is, it is money because the people accept it to be money. Anything can be money as I’ve just demonstrated. If King Henry decreed that all The King’s taxes must be paid with tally sticks this fuelled the demand for tally sticks and made them circulate and was accepted as money by the people. The British Empire was built under the tally stick system. It survived, even though the moneychangers tried to push their metal coin system. While the metal coin system would ultimately succeed in England, the primary reason the tally stick system lasted for as long as it did was because it was good for the payment of taxes.
The power control of England’s money would go back-and-forth between the moneychangers and various monarchs over the next 200 or so years resulting in periods of depressions, followed by periods of growth. It’s that damn business cycle again!
In 1642, the English revolution occurred. There were obvious religious differences that fueled the struggle; however monetary policy would play a big role. Oliver Cromwell, who was a stooge for the moneychangers, overthrew King Charles, prorogued the parliament and sentenced the King to death. The moneychangers were then allowed to consolidate their power. Immediately following this change, England, found herself in the middle of some very costly wars. The soul-less money whores took over a small parcel of land in London, known as “The City of London”. This area today is still considered to be one of the predominate financial centres of the world. LOOK IT UP PEOPLE!
By the end of the 1600’s, England was almost financially doomed. Nearly fifty years of needless war with France and Holland had taken its toll. Frantic government officials met with bankers to beg for the assistance they needed to pursue their political goals. The price was high: A privately-controlled central bank that had the power to create the nation’s money out of nothing. The government officials reluctantly acquiesced. And there you have it. It was deviously named The Bank of England to make the citizens believe that it was part of the government, but it was not. More about this in the next post.