The
world
financial scene is said to be in a meltdown. If one knew why it was
melting down, there would be less confusion.
This
article is on banking, from a larger article by L. Ron
Hubbard,
the Founder of Scientology. Mr. Hubbard wrote tens of thousands
of pages of philosophy on a multitude of aspects of
life.
This 1982 article was written when the world
was before in
great financial turmoil. If one wants to know about international
finance, this article should be read.
AND
THAT IS BANKING
You might be interested to know
something about
banking and money that bankers and governments don't know. BASICS!
These are very simple basics. They are
also very,
very O --- L --- D basics.
Money can be said to be a lot of
things. It can be
said to be an idea backed by confidence. It can be said to be a system
of exchange. It can be said to be something easier to carry around that
a side of beef or a bushel of wheat. Money can be said to be a lot of
other things.
But from the viewpoint of a banker and
solid
facts, you get the Basic Law of banking and the basic definition of
banking and money.
MONEY IS A NEGOTIABLE RECEIPT FOR
DEPOSITED GOODS.
In order to understand this, you have
to
understand the original function and practices of (surprise!)
goldsmiths! You see, goldsmiths simply used gold as a commodity. It
went like this:
The goldsmith took in a commodity of
one unit of
gold. He gave a receipt to the person who gave him the gold. He did
this several ways. He then had, let us say, six receipts - six guys had
given him gold to hold and he gave them each a receipt. These six guys
could then use those receipts as currency since it was gold on deposit
with the goldsmith. This is a one-to-one basis. One receipt given out
for one unit of gold taken in.
Now the goldsmith, because he assumed
and hoped
that all six wouldn't want their gold all the same time, could then
issue additional receipts against the gold - against the same gold for
which he issued the first six receipts. So he would issue receipts on,
let's say, a three-to-one basis - he issued three receipts for every
one unit of gold he had on deposit. These receipts were trusted because
people knew he had gold on deposit.
So you see the goldsmith
issued more
receipts than he had gold on deposit. He could then loan out these
receipts (currency) that he had created. People "borrowed money" from
him by obtaining one of these receipts and now they would owe him what
they borrowed plus interest. AND NOW THE GOLDSMITH WAS INTO BANKING. IT
WAS THAT STEP THAT PUT HIM INTO BANKING. You see, there were other
things this goldsmith could do. He could issue receipts and buy
property or keep his business running or something. but the moment he
issued and handed out a receipt to people who used that for currently,
why, he was now into banking.
And that is banking.
Now you can do the same thing with
commodities.
You have a warehouse and your into banking. If everybody puts his
commodity in the warehouse and the banker issues a receipt for it, he
can now issue on a three-to-one basis, as the goldsmith did, or
twelve-to-one, which is getting pretty risky but they did that. But,
you see, he can do the same thing with commodities. I don't care if
they're shoes or whatever. Now, because he's got shoes (and other
things) in the warehouse, he can issue general receipts against these
goods on a basis of one-to-one, which is just the depositors, on up to
twelve-to-one.
And he can take those receipts and he
can issue
them to a manufacturer who canthen buy
with those receipts the
equipment necessary to set up his plant. But everything the
manufacturer makes is a commodity deposit. The manufacturer makes
something and now he has a commodity deposit. When you realize that the
banker is not taking in all this commodity, you realize it starts
sitting all over the place in all kinds of different warehouses and so
forth. But it is consigned to the bank. It belongs to the bank. It
backs up the receipts. The guy who the banker loaned out money (a
commodity receipt) to a guy without any commodity. Well, that guy has
got to put a commodity there. And this is the basis of banking. If that
guy now doesn't manufacture a commodity, the banker is out of luck. In
other words, he doesn't produce the commodity's he's loaned money to
produce. The banker now only has the plant.
So now we're off into the bank loaning
against the
plant. We've extended it from the deposited goods to what makes the
goods.
And that is banking. And that's all
there is to
banking.
And that's why you see bankers favoring
short-term loans.
They're not interested really in a real estate loan. That's a second
stage. They're interested in cars sitting on the lot at Chrysler.
I noticed that when a European
automaker recently
went to blazes, a fleet of their cars turned as being sold in a bank in
America, after that company went defunct. In other words, their
manufactured car became, just as Chrysler's would become, the property
of the bank.
Now what is inflation? INFLATION IS
DETERMINED BY
THE RATIO BETWEEN THE DEPOSITED GOOD AND THE NUMBER OF RECEIPTS ISSUED.
This present society has got it up to several thousand to one. In
banking, I would never go above three to one. That is sound banking.
L. RON HUBBARD
2
SEPTEMBER 1982
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