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20 Questions / Front cover / page 1.....................................................Page. 1
Introductory information ...................................................................Page. 2 Table Of Contents..............Links to every page in the book............Page. 3 Read the entire book online -- right here, right now. CLICK ON PAGE 3 ABOVE and click on the various subjects in whatever sequence suits your fancy. You Da Boss! This is a 52-page, INTRODUCTION to our new 220-page book “What YOU, I, the EXPERTS, our GOVERNMENT, the AMERICAN PUBLIC and WIKIPEDIA do not know about our Money and Banking system" . . .it is an amazing story of how the engine, the fulcrum and the heart and soul of capitalism works. |
This is page 40 -- continue to 41
These are selected abbreviated questions and answers in Wright
Patman’s book “A Primer On Money” -- starting at chapter III.
You can find the missing numbers and text at
<< http://www.primeronmoney.com/moneyfacts.htm >>
Missing text is shown here as ***
Text added by Martin R. Carbone is shown in blue type.
HOW IS MONEY CREATED?
What is the fractional reserve method of banking?
The fractional reserve method of banking originated with the goldsmiths—the predecessors of our present bankers. It is the method of banking in use today. Briefly, it is a system whereby bankers maintain as reserves only a fraction of the amount needed to meet all the claims against them. (The vast bulk of the claims against the banks are the deposits you and I hold. These are obligations which the bank must pay upon our demand.) The goldsmiths struck upon this method by noticing that the people who deposited gold with them for safekeeping only claimed a small portion of this gold at any one time. Therefore the goldsmiths realized that they could lend out a good portion of the gold left with them. They then made loans, which in fact were not of gold but warehouse receipts for gold. These receipts circulated as money. Notice, the gold—actually the certificates of ownership—being loaned by the goldsmith was not his to lend. He did not own it. In other words, the goldsmith wrote receipts to people who were not depositing gold, i.e., to borrowers. So receipts for more gold than the goldsmith actually had in his vaults were circulating. The goldsmith had only a fraction of the amount of gold needed to meet the claims against him. This is the fractional reserve system. When the banks of the United States kept their reserves in gold, their reserves amounted to only a small fraction of the amount of money they had issued, all of which was guaranteed to be redeemable in gold.
This fractional reserve system became unnecessary when the United States switched completely to paper money. At that point, paper money was no longer redeemable in gold, so it was foolish to demand paper money reserves for paper money.
Regardless of that fact, all books, including textbooks, still refer to reserves regularly and, in fact, use the word “reserves” as though they are still a fact. For the most part, we will go along with the use of the word “reserves” -- even though we think it (the word and the concept of “reserves”) is an antiquated artifact of a bygone era that is harmful to an understanding of modern banking. It is extremely difficult, when discussing other aspects of money, to convince people that reserves no longer have any value or function. The fact that many countries including the United States use zero reserves for banks that have up to $9 Million in deposits should prove our point -- but we find that does not convince anyone. We will try later, as a separate issue, in this book, to make a convincing case on this point. It is hard to do, because a negative statement “reserves have no value or function” is hard to prove. (mrc)