The age old secrete scheme that made bankers wealthy

Banks came about because gold was too heavy and cumbersome to carry around. In the early days it was actually  men who carried purses because they had gold in it. But you can imagine that large transactions involving bars of gold can be very strenuous which is why banking became useful So you would place gold on deposit and the bank would issue you a deposit receipt, a certificate of guarantee or bank note later became known as money. 

Businessmen would exchange a banknote which was the proof of how much gold he had on deposit for goods and services then the merchant could go to the bank present the banknote to take possession of the gold or just exchange again with another merchant.

In those days each town had its own bank and printed its own notes. The number of notes issued was determined by how much gold reserves each bank had in its vaults.

The bankers realized that only they knew how much gold they really had on deposit. So, they took advantage of that opportunity 
by printing more notes than they had gold. Since the banknote was as good as gold people readily exchanged it and the bankers became wealthy off this scheme. 

That was the beginning of the pyramid scheme that continues to this day. They knew that it was unlikely that every depositor would come to withdraw their gold at the same time so they just recycled the deposits and withdrawals. 

All gold looked the same anyways and was measured by weight. If you would allow me to get a bit conspiratorial for a moment and note the image of the pyramid on the current version of the U.S Dollar bill. Eventually, larger banks took over the local banks until there was only one central bank that provided money to all the local banks the value of which was based on gold.

Then they made it official, the fractional lending system which made it legal for banks to lend out more money than the value in its vaults. Thus, if the reserve requirement is 10%, a bank that receives a $100 deposit may lend out $1,000. 


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