Fabian is very happy because he will deliver a speech to the public tomorrow. He has always wanted wealth and power and now his dream will soon come true. He was a goldsmith, carving gold and silver into jewelry, but the longer he became dissatisfied with having to work hard in his life. Fabian wants pleasure, as well as a challenge, and now his new plan is ready to begin.
For tens of generations, people have become accustomed to the barter trade system. Someone will support his family by producing everything they need or specializing in trading certain products. The advantages of what he produces, he will exchange with other excess goods produced by others.
The market every day is crowded and vibrant, people are shouting and waving their wares. Previously the market was a fun place, but now the number of people is too much, more and more arguments. No more time to chat and joke, a better system starts to be needed.
In general, people are relatively happy, and they enjoy the fruits of their hard work.
In each community there is a simple government whose job is to keep the freedom and rights of every member of society protected and to ensure that no one will be forced to do what he does not want.
****THIS IS THE ONLY GOAL OF THE GOVERNMENT AND EVERY GOVERNMENT MEMBERS ARE SELECTED BY COMMUNITY MEMBERS OF THE COMMUNITY.****
However, there is a problem they can not solve in the daily market trading ... Is it worth a knife worth two buckets of corn? Is a buffalo more valuable than a chicken ...? People want a better system.
Fabian advertises to the public, "I have a solution to the barter problem we are experiencing, and I invite you all to a public meeting the next day."
The next day people gathered in the middle of town and Fabian explained to them the concept of "money". People listening to his speech were impressed and wanted to hear more.
"The gold that I produce into jewelry is a great metal. He will not rust, and can last very long. I will make gold in the form of coins and we will call every coin with the name of dollar "
Fabian explained the concept of value, and that "money" would be a medium of exchange of goods, a system better than barter.
One of the members of the government asked "But certain people can mine their own gold and make coins for themselves"
"It should not be accepted" Fabian said. "Only government-approved coins can be used, and we'll make a special stamp on the coins." This sounds reasonable and people start suggesting that everyone gets as much. "But I most deserve more" said the candle maker. "No, I am the one who deserves more," said the farmer. And the fight started.
Fabian let them fight for a few moments, then said, "Since there is no agreement between you all, let me set the figures for you. There is no limit on how many coins you will get from me, all depending on your ability to pay. The more you earn, the more you have to pay back next year. "
"Then what will you get?" Said one of the listeners.
"Because I am providing this service, that is money supply, then I am entitled to get paid from my hard work. For every 100 coins you get from me, you'll pay me back 105 pounds next year. These 5 coins are my pay, and I'll call them flowers. "
Sounds not so bad, moreover 5% seems not much. So people agree. They agreed to meet a week later and start this new system.
Fabian wasted no time. He made gold coins day and night, and a week later he was ready with his coins. People queued long in front of his shop. Once checked and approved by the government, Fabian's gold coins are officially circulated. Some people borrow only a few coins, after which they immediately go to market try this new system.
The public soon realized the good side of this system, and they began to assess the price of each item with gold coins or dollars. People give prices on their merchandise in accordance with the effort to produce the goods. Goods that are easy to produce are priced lower, and hard-to-produce items are more expensive.
Alan is a clockman. The only one in town. The hours he makes are very expensive, but people are willing to pay to get the hours he makes. And then there was another one who also started making clocks and selling them for a cheaper price. Alan was forced to lower the price of his watch. Both of these people compete to produce the best quality clock with a cheaper price. This is the origin of what we call competition.
The same is true for contractors, transport operators, accountants, farmers, and others. Shoppers always choose the deals they think are most profitable, they have the freedom to choose. There is no artificial protection such as licenses or tariffs to discourage people from starting trading. People's standard of living began to increase, and soon people could not imagine a system of trade without money.
A year later, Fabian began to visit the people who owed him. Certain people have more gold coins than they borrow, but this means there are others who have less than they borrow, because the number of coins made initially is limited in number. The people who own the coins pay more to Fabian and also the 5% interest, but they then borrow again to him to continue the trading system in the year.
Some people start to realize for the first time what it feels like to be in debt. Before they can borrow back to Fabian, this time they have to pledge assets to him, and they continue trading for the next year, trying to get 5 more coins for every 100 coins they borrow from Fabian.
At that time, no one was aware that the whole community, despite returning all their coin debt, still could not pay off their debt to Fabian, because of the excess of 5% of the gold coins that was their obligation never to be circulated by Fabian. No one but Fabian knew that it was impossible for these people to be able to pay off their debts when added with interest, money he never distributed.
It is true that Fabian himself also makes a coin for himself and this coin will circulate in the community, but he could not possibly consume 5% of all goods in the community.
Inside the gold shop, Fabian has a very powerful storage space, and some people feel safer to leave their gold coins with Fabian to save. Fabian will charge a certain amount of money as a storage service for such persons. As proof of their gold deposit, Fabian gave them a sheet of receipt paper.
People who bring in Fabian's receipts can use this paper to buy goods as well as using gold coins. And gradually these papers circulate in society as money just like gold coins.
Soon, Fabian discovered that most people would not redeem their deposit receipts with their gold coins.
He also thought, "I have all the gold here and I still work as a goldsmith. This is totally absurd. There are thousands of people out there who will pay me flowers for the gold coins they re-mailed to me that they did not even redeem. "
It is true that their gold is not mine, but the golds are in my gifts, and that is what matters. I do not need to make coins at all, I can use the coins that are deposited to me.
Originally Fabian was very careful, he only lent a small portion of the gold entrusted to him. Eventually, as it proved to be no problem, he lent in larger quantities.
One day, someone proposes a loan of great value. Fabian said to him "instead of carrying a gold coin of that size, how about if I write some gold receipts to you as proof of your deposit to me." The man agreed. He got the debt he wanted but his gold remained in Fabian's warehouse! After the man left, Fabian smiled, he could lend gold to people while keeping gold in his own warehouse.
Both friends, strangers, and enemies, need money to continue their trade. As long as people can guarantee, they can borrow as much as they need. With only a receipt, Fabian could lend his gold worth several times what he actually had. Everything will be fine as long as people do not exchange their gold deposit receipts to Fabian.
Fabian has a book that shows the debit and credit of everyone. This saving-loan business is really very profitable for him.
Fabian's social status in society is increasing as fast as his wealth. He began to become an important person, he must be respected. In the financial world, his words are like a sacred word.
Goldsmiths from other cities began to wonder about Fabian's secrets and one day they visited him. Fabian tells what he is doing, and stresses to them the importance of secrecy of this system.
Should this scheme be exposed, their business will be closed, so they agree to keep the business confidential.
Each of these goldsmiths returned to their city and carried out operations as taught by Fabian.
People receive gold receipts just like gold itself, and a lot of the gold that people borrow will be entrusted back to Fabian. When a merchant wants to pay to other merchants, they can write an instruction to Fabian to transfer money from their account to another account, which Fabian will do easily within minutes. This system became very popular, and this instruction paper became known as "check."
One night, the goldsmiths from various cities held a secret meeting and Fabian proposed a new plan. The next day they had a meeting with the government and Fabian said, "Our receipt paper has become very popular. Needless to say, you representatives of the people are also using them and the benefits are obviously very satisfying. However, some of these receipts have been faked by people. It must be stopped! "
The members of the government began to worry. "What can we do? Ask them. Fabian's answer "First of all, it is the government's job to print paper money with unique designs and inks, and each of these notes must be signed by the Governor. We goldsmiths will be happy to pay this printing fee, it will also save us a lot of time to write receipts. "The members of the government think" Yes, it is our duty to protect the people from fabricating money and advice from Fabian this sounds sensible . "And they agreed to print this banknote.
"The second one," said Fabian, "some people also go to mine gold and make their own gold coins. I suggest that a law be made so that anyone who finds gold must submit it. Of course, they will get the coins I made and the new banknotes. "
This idea began to run. The government printed new banknotes with $ 1, $ 2, $ 5, $ 10, and more. This low printing cost is paid by the goldsmith machete.
The banknote is much easier to carry and is quickly accepted by the public. However, beyond the convenience factor, it turns out that the banknotes and gold coins in circulation are only 10% of the transaction value of the community. Trade reality shows that 90% of transaction value is done by moving book (check).
The next plan Fabian started running. Until then, people pay Fabian to deposit their gold coin (money). To attract more money to his warehouse, Fabian will pay depositors 3% interest on their gold deposit.
Most people thought Fabian lent back the money he was entrusted to. Because he lends to others at 5% interest, and he pays depositors 3%, Fabian's profit is 2%. People think it's better to get 3% than to pay Fabian to keep their (gold) money, and they are interested.
Savings volumes increased rapidly in the Fabian warehouse. He can lend me $ 200, $ 300, $ 400, even up to $ 900 for every $ 100 he gets from depositors. He should be careful with this 9: 1 ratio, because in his experience, there are indeed 1 out of every 9 people who will attract their gold. If there is not enough money when needed, people will be suspicious.
Thus, for a $ 900 dollar loan provided by Fabian, at 5% interest he will get back $ 45. When the loan + interest is paid off, Fabian will cancel $ 900 in the bookkeeping column and the remaining $ 45 is his. He would gladly pay the $ 3 interest for every $ 100 deposited by the depositor to him. That is, the real profit from Fabian is $ 42! Not the $ 2 that most people imagine. The goldsmiths in other cities do the same. They create loans without capital (gold) and collect interest on their loans.
These goldsmiths no longer make gold coins, it is the government who prints paper money and coins and gives them to these goldsmiths for distribution. Fabian's only cost is a very low cost of money printing. In addition, he also created a loan with no capital and collected interest on his new loan. Most people think the money supply is an operation from the government. They also believe that Fabian lends money from depositors to new borrowers, but it's kind of a wonder why other people can earn money when depositors' money is still less. If everyone tries to take their money at the same time, this scheme will be exposed.
It does not matter if a loan is submitted in paper or coin. Fabian simply told the government that the population is growing and new production requires new money, which he will get for a very small print cost.
One day someone went to see Fabian. "The interest you are charging is wrong," he said. "For every $ 100 you loan, you ask $ 105 for a return. $ 5 extra is not possible to be paid because they do not even exist.
"Farmers produce food, the industry produces goods, but only you are producing money. Let's say there are only two merchants in this country, and everyone works for one of them. They each borrowed $ 100. A year later, they must return $ 105 each to you ($ 210 total). If one man sells out his merchandise and earns $ 105, the remaining person will only have $ 95, he still owes you $ 10, and no money is in circulation to pay this $ 10 unless he asks you a new loan. The system is in trouble! "
"For every $ 100 you loan, you should circulate $ 100 to the borrower and $ 5 for you to spend, in total outstanding money allowing the borrower to pay"
Fabian listened quietly and replied, "The financial world is a complicated subject, young man, it takes years to understand it. Let me just think about this problem, and you take care of your business. You must learn to be more efficient, increase your production, cut your factory costs and become a smarter businessman. I'm ready to help with that. "
This man left Fabian, but his heart still hesitated. There seems to be something wrong with Fabian's work system, and the question he's asked has not been answered.
People respect Fabian and his words. He is an expert, people who disagree with him must be fools. Look at how the country is progressing, our production is also growing, our lives are much better.
To cover the interest from the money they borrow, the merchants and entrepreneurs raise the price of their wares. Employees are constantly protesting they are being paid too low and the owner of the company always refuses to pay more. Farmers can not get a fair price from their agricultural products. The Housewives continue to feel dissatisfied because the price of goods on the market is overvalued.
At some point, people finally start demonstrating, something that has never happened before. Some people can not afford to pay off their debts and become poor. Their friends and relatives are not able to help. They forget the riches that are still abundant all around them: rich land, rich forests, abundant minerals and healthy cattle. All they think about all day is money that always seems to be lacking. They never ask about the system. They believe that the government is running this system.
A small percentage of people in excess money communities began to form their own companies to lend them money. They charge 6% interest on their money, better than the 3% offered by Fabian. But these people lend their own money, unlike Fabian who can lend money / create credit without capital.
These financing companies continue to worry Fabian and his friends, so they form their own finance companies. In most cases, they buy their rival finance companies. Ultimately, all financing companies are owned or under their control.
The economic situation continues to deteriorate. Employees are beginning to believe their bosses are getting too much profit. Owners of the company also assess the employees are too lazy and not enough to work hard. Everyone starts blaming others. The government is confused about how to solve this problem. The most pressing issue of course is how to help the poorest.
The government also initiated a social program and forced members of the community to pay for this system. This angers some people, they believe in the old idea that helping people should be voluntary, not coercive.