WEBVTT NOTE What is Banking? 1 00:00:00.000 --> 00:00:04.000 What is banking? 2 00:00:04.000 --> 00:00:15.000 In the long history of money, people have used it and devised various uses for it in different ways. 3 00:00:15.000 --> 00:00:23.000 And most of them are so fascinating that we could take many, many hours to discuss what human beings have done in this area. 4 00:00:23.000 --> 00:00:30.960 The history of banking is one phase of the history of the development and use of money. 5 00:00:30.960 --> 00:00:33.880 Money of course is the medium of exchange. 6 00:00:33.880 --> 00:00:41.560 It is that transfer agent that we create that is in the center between other exchanges that 7 00:00:41.560 --> 00:00:42.560 occur. 8 00:00:42.560 --> 00:00:48.760 We exchange basically goods for goods, services for services, or goods for services. 9 00:00:48.760 --> 00:00:54.720 To help us do this, we translate an item in exchange into money and then we translate 10 00:00:54.720 --> 00:01:04.040 it out again and by that means we are able to speed up the action and to facilitate exchanges 11 00:01:04.040 --> 00:01:10.140 that are very, very different and some of them of course involve many people and a lot 12 00:01:10.140 --> 00:01:16.040 of property and some are very trivial and require only a very small exchange of money 13 00:01:16.040 --> 00:01:17.040 or goods. 14 00:01:17.040 --> 00:01:25.240 Money helps us do this and one of the interesting things about money is that very few of us 15 00:01:25.240 --> 00:01:30.400 can manage our own money totally without help. 16 00:01:30.400 --> 00:01:39.200 One of the first agencies that began to recognize this back in the very early days was, of course, 17 00:01:39.200 --> 00:01:44.400 those, I said agency, I should have said one of the first people that began to recognize 18 00:01:44.400 --> 00:01:50.960 of Mises, was the person who was engaged in trade and commerce. And he recognized that 19 00:01:50.960 --> 00:01:57.040 if he had to carry large sums of money with him, and the money at this time was usually 20 00:01:57.040 --> 00:02:03.200 a precious metal of some sort or some other object that was very precious and very scarce, 21 00:02:03.200 --> 00:02:11.320 that number one, he might be inflicted with a loss occasioned by bandits or he might lose 22 00:02:11.320 --> 00:02:13.320 The Theory of Money and Credit 23 00:03:11.320 --> 00:03:19.360 was theological or whether it was secular, it didn't really matter, because the first 24 00:03:19.360 --> 00:03:26.120 thing that happened was that these men discovered they had one advantage they could offer to 25 00:03:26.120 --> 00:03:34.240 the trader, the merchant, who was in need of a location where he could keep his treasure, 26 00:03:34.240 --> 00:03:36.600 and that was that they had a strong building. 27 00:03:36.600 --> 00:03:44.680 So the banks began as the palaces or the temples, whichever was handiest, and sometimes it was 28 00:03:44.680 --> 00:03:49.480 the same building because many of our early governments were theocracies, that is it was 29 00:03:49.480 --> 00:03:53.640 a combination of the church and state, and there was only one strong building and that 30 00:03:53.640 --> 00:04:00.120 belonged to the theocratic chieftain who was at once both the king and the high priest. 31 00:04:00.120 --> 00:04:08.120 So he had a building that was strong, that was well built, it was fundamentally a fortification. 32 00:04:08.120 --> 00:04:15.480 And men in business, engaged in commerce in various parts of the world, found it advantageous 33 00:04:15.480 --> 00:04:19.720 to deal with a man who had such a facility. 34 00:04:19.720 --> 00:04:26.600 And so they began the process of depositing certain amounts of gold or silver or bullion 35 00:04:26.600 --> 00:04:32.420 and of various sorts with these chieftains and leaving it there and then whenever they 36 00:04:32.420 --> 00:04:38.440 came back in the vicinity, they would have a resource at their disposal and they wouldn't 37 00:04:38.440 --> 00:04:44.360 have to continually carry these large amounts of rare metals and things of this sort at 38 00:04:44.360 --> 00:04:48.960 long distances and of course that did make a great advantage. 39 00:04:48.960 --> 00:04:58.200 The next thing that happened was that these merchants began to realize that what happened 40 00:04:58.200 --> 00:05:06.440 in an exchange was this. When they went to the chieftain to draw out, let's say, ten 41 00:05:06.440 --> 00:05:14.000 pieces of silver in order to complete a transaction, and then they turned around and made the transaction 42 00:05:14.000 --> 00:05:22.600 and the silver passed into the hands of the person from whom they purchased, then that 43 00:05:22.600 --> 00:05:27.780 seller would probably take those same ten pieces of silver and go back and put them 44 00:05:27.780 --> 00:05:32.880 back in the temple, because he didn't want to leave them around his premises, they could 45 00:05:32.880 --> 00:05:38.680 be stolen from him and they are very rare and very precious, and so not only did the 46 00:05:38.680 --> 00:05:45.680 The merchant who originally deposit the money at the temple began to make use of it, but 47 00:05:45.680 --> 00:05:52.000 the local businessman began to make use of it as a place to store whatever was valuable. 48 00:05:52.000 --> 00:05:56.520 Their own homes were flimsy, could easily be broken into, and it would have been a very 49 00:05:56.520 --> 00:06:00.940 simple thing to lose your valuables if you tried to keep them around the house. 50 00:06:00.940 --> 00:06:04.240 But if you store them, well then that's a very good thing. 51 00:06:04.240 --> 00:06:12.140 Now, to begin with, when the storage proposition started, the people depositing resources in 52 00:06:12.140 --> 00:06:19.360 a temple would get what amounts to a receipt indicating that they had something on deposit 53 00:06:19.360 --> 00:06:20.360 there. 54 00:06:20.360 --> 00:06:27.160 The king or the chieftain would perhaps strike off a clay tablet indicating that one Joseph 55 00:06:27.160 --> 00:06:34.520 Egebbe had deposited ten pieces of silver. And then when Joseph wanted to get those ten 56 00:06:34.520 --> 00:06:40.820 pieces of silver, he went to the temple, turned in his clay tablet and got the silver, handed 57 00:06:40.820 --> 00:06:46.280 the silver to another man whose name is Peter, we'll suppose, and then Peter takes it back 58 00:06:46.280 --> 00:06:53.140 to the temple and gets a clay tablet in return. So here you see a complicated set of transactions 59 00:06:53.140 --> 00:07:01.380 in which a tablet is issued, then it is received back, money goes a circular route and it comes 60 00:07:01.380 --> 00:07:05.940 back into the hands of the temple and a second tablet is issued. 61 00:07:05.940 --> 00:07:11.860 Now that's kind of a complicated thing and this apparently went on for some time until 62 00:07:11.860 --> 00:07:17.880 some of the people in the temple began to see that there was a shortcut that could develop. 63 00:07:17.880 --> 00:07:26.460 Instead of issuing a clay tablet to Joseph, why not just issue a clay tablet to the bearer? 64 00:07:26.460 --> 00:07:33.100 In other words, have a certificate that says, this certifies that there is on deposit ten 65 00:07:33.100 --> 00:07:40.460 pieces of silver, not by any one person, but just this clay tablet or whatever other evidence 66 00:07:40.460 --> 00:07:45.940 would be necessary, a bit of paper or whatever, this certifies that there is on deposit so 67 00:07:45.940 --> 00:07:52.940 So many pieces of silver. And the result of that is that when Joseph wants to exchange 68 00:07:52.940 --> 00:08:00.000 with Peter, he doesn't have to go back to the temple. He just hands Peter the clay tablet. 69 00:08:00.000 --> 00:08:07.140 And since the silver is going to be turned over to whomever holds the clay tablet, well 70 00:08:07.140 --> 00:08:12.940 then the transaction is complete without bothering the storage vault in the temple. Well now 71 00:08:12.940 --> 00:08:20.340 Now that does speed things up a great deal and the result of that was the trade accelerated. 72 00:08:20.340 --> 00:08:24.340 People were able to make many more exchanges because they didn't have to keep running 73 00:08:24.340 --> 00:08:30.460 back to the bank to prove that they had something there. 74 00:08:30.460 --> 00:08:35.900 These clay tablets or these bits of paper that were in circulation became recognized 75 00:08:35.900 --> 00:08:43.020 as being as good as whatever they were drawn against because it was presumed that if the 76 00:08:43.020 --> 00:08:50.060 king or the chieftain or the high priest issued a statement and his name was on it, that they 77 00:08:50.060 --> 00:08:54.940 are certified here, that there is so much gold or silver or whatever it is on deposit 78 00:08:54.940 --> 00:08:57.060 that it would be on deposit. 79 00:08:57.060 --> 00:09:03.060 So the next development in the banking process was this. 80 00:09:03.060 --> 00:09:09.380 The chieftains began to notice that nobody was coming to the temple to draw out the resources 81 00:09:09.380 --> 00:09:14.140 that they had there. They had a storeroom full of gold and silver and other valuables 82 00:09:14.140 --> 00:09:18.140 and it began to collect a lot of dust. People weren't coming in to take it out and then 83 00:09:18.140 --> 00:09:23.160 bring it back again. They were just leaving it there and the exchanges were increasing 84 00:09:23.160 --> 00:09:29.520 but they were just, in essence, paper exchanges. Once in a great while somebody would get a 85 00:09:29.520 --> 00:09:59.520 The boys owning the temples came up with a brilliant idea. If, and it appears to be the case, very few people are ever going to come to check on it, why don't we go into the lending business? We've got all this gold and silver. Of course, it doesn't belong to us. You understand, we in the temple don't own this. We are simply engaged in 86 00:10:29.520 --> 00:10:51.520 Well, says the chief, you don't want to borrow the gold because that's heavy and it's inconvenient, 87 00:10:51.520 --> 00:10:53.220 and it's perfectly safe here. 88 00:10:53.220 --> 00:10:58.860 Tell you what we'll do, we'll issue you a clay tablet that will be secured by the 89 00:10:58.860 --> 00:11:04.020 The gold that's here, and it is as good as gold, it's a lot more convenient, and so we'll 90 00:11:04.020 --> 00:11:10.540 issue you that. So you borrow the gold, but what you receive is a clay tablet that's backed 91 00:11:10.540 --> 00:11:16.340 by gold. Well, that works all right. As long as you can exchange the clay tablet for exactly 92 00:11:16.340 --> 00:11:23.620 what you could exchange the gold for, there's no problem. And so businessmen began accepting 93 00:11:23.620 --> 00:11:29.860 These tablets in place of the gold, because if they had gotten the gold, they'd taken 94 00:11:29.860 --> 00:11:35.620 deposited back in there anyway. Well, it wasn't long before the men running the banks, these 95 00:11:35.620 --> 00:11:41.820 are the chieftains, recognized that they had a good thing here. Of course, you realize 96 00:11:41.820 --> 00:11:46.860 this gold and silver wasn't theirs. It never had been theirs. This is deposited there by 97 00:11:46.860 --> 00:11:52.940 other people. But they'd put out one receipt to the original depositor. Now they put out 98 00:11:52.940 --> 00:11:58.380 The King issued a second receipt to a borrower, and nothing had happened, so they began multiplying 99 00:11:58.380 --> 00:12:00.900 the number of receipts that they could put out. 100 00:12:00.900 --> 00:12:05.740 Since very few people ever came in to get the gold or silver anyway, and even if they 101 00:12:05.740 --> 00:12:10.740 did and took it out, in a few days it would be back in again because people didn't want 102 00:12:10.740 --> 00:12:15.660 to leave it out, so the kings began to think that they had a real good thing going. 103 00:12:15.660 --> 00:12:21.680 So they began to issue receipts without, really without checking very much, and no one knows 104 00:12:21.680 --> 00:12:27.280 was how many receipts they would issue for the same amount of gold and silver on deposit. 105 00:12:27.280 --> 00:12:31.840 But theoretically, they probably issued 40 and 50 receipts for each piece of gold that 106 00:12:31.840 --> 00:12:34.800 was there and not any of it belonged to them. 107 00:12:34.800 --> 00:12:40.000 They were engaged, of course, in encouraging trade and transactions, but they certainly 108 00:12:40.000 --> 00:12:42.740 were not engaged in an honest process. 109 00:12:42.740 --> 00:12:48.040 They were engaged in lending things that they didn't have and then not even lending that, 110 00:12:48.040 --> 00:12:54.040 is lending a piece of paper, in effect, that indicated that they did have something that they didn't have. 111 00:12:54.040 --> 00:13:00.040 Well, sooner or later, this type of behavior comes up against reality. 112 00:13:00.040 --> 00:13:05.040 What happens is that somebody, somewhere, begins to get suspicious. 113 00:13:05.040 --> 00:13:08.040 And he says, I've got an awful lot of receipts here. 114 00:13:08.040 --> 00:13:13.040 And when I add up these receipts, I don't know whether the king can make good on them or not. 115 00:13:13.040 --> 00:13:16.040 I think I better go and get my gold. 116 00:13:16.040 --> 00:13:20.040 and so on that morning this merchant goes down and says I want to cash in my 117 00:13:20.040 --> 00:13:25.580 receipts I want the gold and the king of course can take care of it the first one 118 00:13:25.580 --> 00:13:30.960 that comes and maybe the second or third but the rumor gets started we're not so 119 00:13:30.960 --> 00:13:37.520 sure there's enough stuff in the bank in the vault to redeem all of the receipts 120 00:13:37.520 --> 00:13:42.400 that are in circulation so we all better get down there and the last fellow is 121 00:13:42.400 --> 00:13:44.400 is going to be left empty handed. 122 00:13:44.400 --> 00:13:47.920 So now there's what we call a run on the bank. 123 00:13:47.920 --> 00:13:52.920 Everybody that holds receipts, these are just pieces of paper or bits of clay, tablets or 124 00:13:52.920 --> 00:13:58.920 whatever they are, issued by the king certifying that there's something on deposit. 125 00:13:58.920 --> 00:14:04.240 All these people rush in to claim it, to get it back, and of course somewhere during the 126 00:14:04.240 --> 00:14:07.000 morning they run out of gold in handing it out. 127 00:14:07.000 --> 00:14:12.080 And here will be a large crowd of people who have receipts and they're signed by the 128 00:14:12.080 --> 00:14:16.820 the appropriate authority, but there isn't anything left in the storehouse. 129 00:14:16.820 --> 00:14:22.460 Now when this sort of thing happens, you have a collapse of a money system. 130 00:14:22.460 --> 00:14:26.020 You can have actually a rebellion, a revolution. 131 00:14:26.020 --> 00:14:31.020 You can have an overthrow of a dynasty, an overthrow of an administration. 132 00:14:31.020 --> 00:14:33.800 We don't know what the ultimate result will be. 133 00:14:33.800 --> 00:14:39.180 We simply know that the whole economic structure of that time breaks apart. 134 00:14:39.180 --> 00:14:43.660 Of course, there's still just as much wealth around as there was before. Remember that 135 00:14:43.660 --> 00:14:49.480 money and wealth are two different things. But the fact is that the money system, which 136 00:14:49.480 --> 00:14:55.180 had been enlarged and had expanded to the place where it was largely a matter of promises 137 00:14:55.180 --> 00:15:01.780 to pay, has now broken down because the person making the promises couldn't keep the promises 138 00:15:01.780 --> 00:15:04.780 because he made more promises than he could keep. 139 00:15:04.780 --> 00:15:12.560 Now that same practice is continuing today in banking under government licensing and under 140 00:15:12.560 --> 00:15:14.900 some government limitation. 141 00:15:14.900 --> 00:15:22.980 Today the general practice is that a banker can lend ten times what he has in the way 142 00:15:22.980 --> 00:15:25.940 of reserves in cash. 143 00:15:25.940 --> 00:15:31.100 And so, actually remember, what the banker has isn't his. 144 00:15:31.100 --> 00:15:37.640 He has the deposits of other people, but then he uses these deposits, which he does not 145 00:15:37.640 --> 00:15:45.480 lend out. The bank does not lend money. A bank simply creates credit and lends the credit, 146 00:15:45.480 --> 00:15:51.580 which is built against the deposits of other people who have put it there. And the question 147 00:15:51.580 --> 00:15:58.940 as to the risk involved relates to general banking practice. I guess it would go to the 148 00:15:58.940 --> 00:16:07.340 Law of Averages, because in ordinary practice it has been found that you have a pretty good 149 00:16:07.340 --> 00:16:16.180 chance of getting away with this practice, providing you don't lend more than one unit 150 00:16:16.180 --> 00:16:25.060 more than ten times. If you begin going over that, the risks of disclosure and collapse 151 00:16:25.060 --> 00:16:31.060 are much greater. Under that, apparently, you don't have too many risks. At least that's 152 00:16:31.060 --> 00:16:39.060 been the finding in general. However, of course what you have here is, in essence, a questionable 153 00:16:39.060 --> 00:16:45.700 procedure. From a moral point of view, you can raise grave questions as to the desirability 154 00:16:45.700 --> 00:16:52.360 of having certain people take other people's money and then say that they're going to 155 00:16:52.360 --> 00:16:54.880 to lend that money, but they really don't. 156 00:16:54.880 --> 00:16:59.320 They merely use that money to create credit, which they then establish. 157 00:16:59.320 --> 00:17:03.160 And so it's kind of a hocus-pocus arrangement. 158 00:17:03.160 --> 00:17:10.080 And it's too bad that this happens, because the business of lending is a very good business, 159 00:17:10.080 --> 00:17:11.720 and it is a very necessary business. 160 00:17:11.720 --> 00:17:18.280 If we are going to have a volatile, dynamic economy, the ability to borrow is a very important 161 00:17:18.280 --> 00:17:19.280 ability. 162 00:17:19.280 --> 00:17:20.280 We have to have it. 163 00:17:20.280 --> 00:17:26.580 Many economists, well, I better not say many, some economists, contend that there should 164 00:17:26.580 --> 00:17:34.440 be a one-to-one ratio. That is, the banker should be able to lend as many dollars as 165 00:17:34.440 --> 00:17:40.840 he has on deposit. And of course, this would be absolutely mandatory. That would be that 166 00:17:40.840 --> 00:17:51.720 When the depositor places his money in the bank for safekeeping, he'd be notified that 167 00:17:51.720 --> 00:17:55.760 his money isn't going to be there if it's going to be let out. 168 00:17:55.760 --> 00:18:00.760 You see, when the bank says to you that when you put your money here, you can get it any 169 00:18:00.760 --> 00:18:05.840 time you want to, then if the bank is being absolutely honest, what it's going to do with 170 00:18:05.840 --> 00:18:10.160 that money is going to put it in a safety deposit box or in a vault and it isn't going 171 00:18:10.160 --> 00:18:12.160 The Theory of Money and Credit 172 00:18:40.160 --> 00:18:49.160 What the early bankers did, they've issued more and more receipts against a limited amount of deposits and then all of the receipts are indistinguishable. 173 00:18:49.160 --> 00:18:57.160 You couldn't tell whose receipt is good and whose isn't and the result is that if there ever were a run on the bank, you might be wiped out. 174 00:18:57.160 --> 00:19:03.160 Well, the chances are pretty good that you wouldn't if the banker doesn't get carried away with this process. 175 00:19:03.160 --> 00:19:08.360 But of course, in spite of all the government laws and regulations and the federal insurance 176 00:19:08.360 --> 00:19:14.480 program on depositors and all this, we hear of banks failing constantly. Every year there 177 00:19:14.480 --> 00:19:19.880 will be a number of banks that collapse and it's simply because either, one, the government 178 00:19:19.880 --> 00:19:25.560 rule was followed when it shouldn't have been, or two, some banker got carried away 179 00:19:25.560 --> 00:19:32.740 with the process and made some bad investments or maybe had a policy in respect to his loans 180 00:20:02.740 --> 00:20:11.700 The government is going to pay a depositor who loses his money because of a bank failure. 181 00:20:11.700 --> 00:20:14.780 The government has no money with which to do this. 182 00:20:14.780 --> 00:20:20.940 Instead, it would simply go out and tax the taxpayers to make up for the loss because 183 00:20:20.940 --> 00:20:25.140 that's the only real source of money that the government has. 184 00:20:25.140 --> 00:20:30.180 And so there really isn't any security here excepting the security that would come to 185 00:20:30.180 --> 00:20:35.180 to anybody engaged in predation and had the ability to use force on other people. 186 00:20:35.180 --> 00:20:40.180 And if that's security, well, okay, that's the kind of security you have there. 187 00:20:40.180 --> 00:20:47.180 Continuing in this area, we should keep in mind that banks actually do have three legitimate functions. 188 00:20:47.180 --> 00:20:54.180 And if we separate them and understand them, then we're in a good position to deal accurately with banks. 189 00:20:54.180 --> 00:21:04.760 First of all, the bank is a storage place. It's a storage resource for valuables. Now, 190 00:21:04.760 --> 00:21:10.020 banks have this facility. They have vaults, they have safety deposit boxes, and they are 191 00:21:10.020 --> 00:21:16.700 usually equipped with a strong building that would certainly tend to resist robbers and 192 00:21:16.700 --> 00:21:23.580 predators of various sorts. And the consequence is that your money is probably safer there 193 00:21:53.580 --> 00:22:13.580 The second function of banks is an auditing and bookkeeping function. Banks are in the best possible position to keep track of the multiplicity of exchanges that occur. 194 00:22:13.580 --> 00:22:20.580 Most exchanges occur through banks, that is, major exchanges. They occur through banks directly or indirectly. 195 00:22:20.580 --> 00:22:26.340 The processes of bookkeeping are very complicated and banks are organized for purposes of keeping 196 00:22:26.340 --> 00:22:27.340 track of this. 197 00:22:27.340 --> 00:22:29.900 This has been true from earliest times. 198 00:22:29.900 --> 00:22:36.020 Of course, the science of bookkeeping and accountancy has now been elevated to practically 199 00:22:36.020 --> 00:22:37.100 a fine art. 200 00:22:37.100 --> 00:22:41.180 We really do know how to do it, much better than the early men did who were dealing with 201 00:22:41.180 --> 00:22:42.180 the same thing. 202 00:22:42.180 --> 00:22:48.300 But this is a perfectly legitimate area for banks to work in, to carry on a program of 203 00:22:48.300 --> 00:22:54.100 very complicated accountancy where they know where the money is, what is being purchased 204 00:22:54.100 --> 00:23:00.980 and how these things shift around in the market. And of course, the third entirely legitimate 205 00:23:00.980 --> 00:23:08.460 function of a bank is to serve as a resource for risk capital. That is to say, banks legitimately 206 00:23:08.460 --> 00:23:13.220 are in the business of and should be in the business of lending money. There isn't anything 207 00:23:13.220 --> 00:23:19.220 There is nothing wrong with the business of lending money, providing, of course, it is done with strict honesty. 208 00:23:19.220 --> 00:23:26.220 So here are things that banks traditionally can do, and there is another thing that they can do and should be doing. 209 00:23:26.220 --> 00:23:37.220 Banks can and should be issuing money. They should be issuing money just the way an early mint issued money. 210 00:23:37.220 --> 00:23:43.140 There isn't anything wrong with a bank having resources of its own. Now, I'm not talking 211 00:23:43.140 --> 00:23:49.620 about depositor's resources. I'm talking about money that a bank has or valuables that 212 00:23:49.620 --> 00:23:57.420 the bank has, its capital that is there belonging to the bank, to use that capital as a deposit 213 00:23:57.420 --> 00:24:04.940 reserve against which it issues money. Now, that would be a kind of credit money that 214 00:24:04.940 --> 00:24:10.100 That would be, it's not just pure credit as it would be the case where you're using 215 00:24:10.100 --> 00:24:15.580 depositor's resources, but where the bank has its own resources and issues money against 216 00:24:15.580 --> 00:24:20.120 it, you would probably have about as good money as you would ever get. In fact, in this 217 00:24:20.120 --> 00:24:29.300 country we've had a number of periods in history when the banks, the private banks had better 218 00:24:29.300 --> 00:24:34.860 money than the government put out. I can recall a time in my own boyhood when there 219 00:24:34.860 --> 00:24:40.420 There were dollars that were issued by, I think there was a Boston bank and a Philadelphia 220 00:24:40.420 --> 00:24:46.700 bank, when those dollars issued by those banks and having the imprint of those banks on them 221 00:24:46.700 --> 00:24:53.860 were better. They were more widely accepted than the American dollar that was authorized 222 00:24:53.860 --> 00:24:59.340 by the U.S. Treasury. It would be accepted in more countries and it was more acceptable 223 00:24:59.340 --> 00:25:05.240 In this country, you weren't too sure about what uncle's currency would do, but if the 224 00:25:05.240 --> 00:25:10.160 currency came from these banks, it was definitely good, because these bankers had conservative 225 00:25:10.160 --> 00:25:15.480 policies and things worked out the way they were supposed to, and they kept their promises. 226 00:25:15.480 --> 00:25:22.840 So that is a very important factor relating to the way banking should be done. 227 00:25:22.840 --> 00:25:27.760 So there are three functions that banks are presently doing, and there is a fourth that 228 00:25:27.760 --> 00:25:36.760 These are storage, bookkeeping, lending, and the creating of money. 229 00:25:36.760 --> 00:25:45.760 Now these would be the proper functions of banks, and assuming a free market in the banking and money area, this is undoubtedly what would be transpiring. 230 00:25:45.760 --> 00:25:55.760 Unfortunately, of course, and beginning at a very early time, governments have been intervening in the money system. 231 00:25:55.760 --> 00:25:56.760 System. 232 00:25:56.760 --> 00:26:03.160 In fact, as I've already indicated, the way this began was because the men in government 233 00:26:03.160 --> 00:26:05.960 had the strong building to start with. 234 00:26:05.960 --> 00:26:11.960 And so as you look back across the pages of history, you will find that country after 235 00:26:11.960 --> 00:26:19.100 country, nation after nation has had its government involved in the money business. 236 00:26:19.100 --> 00:26:21.040 Now here is a truism. 237 00:26:21.040 --> 00:26:23.560 I know of no exceptions to this. 238 00:26:23.560 --> 00:26:30.680 It is axiomatic that when a government becomes involved with the money supply of a given 239 00:26:30.680 --> 00:26:37.720 country, the money supply will be corrupted. I know no exceptions at all. Because it is 240 00:26:37.720 --> 00:26:48.720 politically advantageous to corrupt the money supply in the marketplace because this enhances 241 00:26:48.720 --> 00:26:52.360 The power and prestige of the politician. 242 00:26:52.360 --> 00:26:57.640 The politician's interests in the field of money are exactly the reverse of the interests 243 00:26:57.640 --> 00:27:00.220 of the merchant in the field of money. 244 00:27:00.220 --> 00:27:09.860 You see, the politician is going to win prestige and renown on his ability to amass power and 245 00:27:09.860 --> 00:27:12.440 to be generous with money. 246 00:27:12.440 --> 00:27:21.780 Now the merchant is going to be enhanced when he is able to amass wealth and he does this 247 00:27:21.780 --> 00:27:27.440 by investing his money and trying not to let it get away from him without a due measure 248 00:27:27.440 --> 00:27:28.660 of return. 249 00:27:28.660 --> 00:27:36.040 So the interest of the politician and the interest of the marketplace entrepreneur, 250 00:27:36.040 --> 00:27:40.280 so far as money is concerned, are opposite each other. 251 00:27:40.280 --> 00:27:47.040 It's to the advantage, for instance, of the government to inflate its currency. 252 00:27:47.040 --> 00:27:51.320 It's not really to the advantage of the people in the market, but they sometimes think it 253 00:27:51.320 --> 00:27:52.320 is. 254 00:27:52.320 --> 00:28:00.600 So anyway, the interests tend to run here as a crosscurrent, and this can lead into some 255 00:28:00.600 --> 00:28:08.160 very serious confrontations and dichotomies which we can find in our present money system 256 00:28:08.160 --> 00:28:09.920 today. 257 00:28:09.920 --> 00:28:14.720 There's more to be said on the subject of money and banking. It's an extremely interesting 258 00:28:14.720 --> 00:28:18.560 and important topic and we'll have more to say on it later. Thanks very much.