History of Money Part II

To continue on with the history of money, let's take a look at medieval times where our current banking system got started. The goldsmiths started offering to keep other people's gold and silver in their vaults for security and issued their customers paper receipts as to how much was stored. The people started exchanging the receipts rather than collecting the physical gold from the goldsmith when they had to purchase or exchange something. These paper receipts became an accepted form of payment and trade because they were a lot less heavy to carry around than gold and silver coins.

After a while, the goldsmiths noticed that only a small percentage of their customers ever came in to demand their gold at any one time. So the clever goldsmiths decided to make out some receipts for gold that didn't even exist, and they loaned the receipts out to earn interest. This practice later got incorporated into the banking system. They even gave it a name to make it more acceptable calling it "fractional reserve banking" which actually means lending out many times more money than you have assets on deposit. They literally create money out of thin air and charge interest on it. When the loans are paid, they repeat the process with that money and create more money.

Today, banks are allowed to loan out at least ten times the amount they actually are holding. So instead of getting 11% interest for example, they are actually getting 110% interest. As the monthly payments are made, those get multiplied as well and they get even more. It doesn't take long for huge amounts of wealth to be created this way - especially from nothing!

The Tally Sticks were very successful from 1100-1854 A.D. This money system effectively built the British empire. King Henry the First produced sticks of polished wood, with notches cut along one edge to signify the denominations. The stick was then split full length so each piece still had a record of the notches. The king kept one half to prevent counterfeiting, and sent the other half into the market place where it would continue to circulate as money.

Because only Tally Sticks were accepted by King Henry for payment of taxes, there was a built in demand for them, which gave people confidence to accept these sticks as money. As long as the people agreed it had value, it could be almost anything. Money is only as valuable as people's faith in it, and without that faith, even today's money is just paper with numbers on it.

The tally stick system worked well for 726 years. Why are most not even aware of its existence? In 1694, the Bank of England at its formation attacked the system. They realized it was money outside the power of the money changers (the very thing King Henry had intended).

Tomorrow, I will continue on with "the rest of the story". Stay tuned ...

who lends his money without usury
and does not accept a bribe against the innocent.
He who does these things
will never be shaken. Psalms 15:5 (NIV)

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Email: DeltaInspire@panama-vo.com