Chapter 1
Once upon a time, there was a man
named Henry, who lived in the kingdom of Gameriga. Henry had grown up on a
small farm owned by his father. When his father died, the farm was passed down
to Henry. Henry was an energetic fellow, and wasn't satisfied with the small
farm. For the next ten years, Henry set to work enlarging the farm. He cut down
a dense forest, drained a stinky swamp, battled with numerous animals. This
done, he planted rows of his favourite crops in the new farmland. Henry was
proud of his farm and the hard work he had put into it, but deep in his heart, he
knew he still wasn't satisfied. You see, Henry had always dreamed of moving to
the city and becoming an architect, building beautiful buildings.
One day, Henry was out working in the
fields when his rich neighbour, Mister Riley, passed by and said: “My, my,
Henry, this farm sure is looking great, you really did a number on this
place!”. “Thanks Mister Riley, that’s very kind of you to say” replied Henry.
“Now look Henry” said Mister Riley, “I have been looking to expand my farm, and
I hear that you've always wanted to move to the city and become an architect.
So how about this: I will give you 1000 gold pieces to buy this farm from you.
People in the city use gold as their medium of exchange, and will exchange almost anything for it. So,
with the gold, you’ll be able to move to the city and use it to buy what you
need to get started on your new career as an architect! What do you say?”.
“Wow, Mr. Riley, you would do that for me?” said Henry. “Of course, Henry, didn't I tell you I wanted to expand my farm? This deal is good for the both of
us!” exclaimed Mr.Riley.
So the two men shook hands and the
deal was sealed. Mr.Riley brought a big chest with 1000 gold coins in it and
loaded it on to Henry’s wagon, and Henry signed over his farm to Mr.Riley.
Henry then set off for the city of New Cork with his gold, full of excitement
and big dreams.
When he arrived in the city, Henry
knew he needed a place to store his gold. He asked around and was pointed to a
building with a sign that said “The People’s Bank”. Henry went into the bank
with his chest of gold and asked the bank manager, Anton von Hock, whether he
could deposit his gold there. “Of course sir, we would be happy to keep your
gold safe for you. You need only pay us a small fee for safekeeping and we’ll
keep your gold safe, to be used whenever you like” said Anton. This seemed fair
to Henry, so he gave the chest of gold to Anton, who gave him 1000 pieces of
paper, which he called “Gold certificates”, each one signifying a claim to one
of the gold coins deposited by Henry at the bank. “What are these for?” asked
Henry. “Well” said Anton, “So that you don’t have to carry around gold coins,
each of these pieces of paper will act as a substitute for a gold coin, so you
can exchange these pieces of paper with people just as you would a gold coin.”
“That’s convenient” said Henry, “Thanks for all your help”.
This done, Henry exchanged some of
his gold certificates for a small apartment to live in while he planned the
next move on his path to becoming a world famous architect.
Chapter 2
The next
week, at the People’s Bank, the bank manager, Anton, unfortunately got sick. He
was old anyway, so he decided that he would retire from his position. In his
place, the bank’s board of directors appointed an ambitious, crafty man named
PJ Korgan. Upon taking up his position, Korgan took a look at the state of the
bank. After taking a long look at the bank’s holdings, Korgan said: “It’s
really a shame. We have all this gold sitting here, but we’re not using it for
anything. We should invest this gold, and make this bank some real money!”. To
this, Bill, an experienced senior staff member replied: “But Sir, we’re holding
this money for people to use. The money isn't ours to invest, we are just holding
it in safekeeping for our depositors”. “Where’s your vision Bill?!” replied
Korgan. “We’re all money experts here, we’ll pick good investments. In fact,
the depositors will be happier too, we’ll be able to drop the safe holding fees
and even pay them to store their money in our bank! Everyone wins! We win, the
depositors win, and the borrowers win, the plan’s bulletproof!”. Though he knew
Anton would have disapproved, Bill had no choice but to go along with Korgan’s
plan.
Over the
next few weeks, the People’s Bank printed more gold certificate notes than it
had gold in the vault, and proceeded to lend the created notes out to people
who needed to borrow money, for a fee of course. Money from these lending fees
flowed into the People’s Bank, and everyone at the bank hailed Korgan as a
banking guru.
Chapter 3
Meanwhile,
Henry was busy buying supplies and getting training to become an architect. One
day, he went to the masonry store to stock up on some building materials, and,
like usual, presented his People’s Bank Gold Certificate notes to the cashier.
But this time, the cashier shook his head and said: “Sorry Henry, you’re going
to have to pay me more of those notes for those supplies”. Henry scratched his
head and said: “But, the price tag for these supplies says three gold coins,
and I’m giving you three gold certificate notes that are worth one coin each,
why do you need more?”. “Haven’t you heard?” replied the cashier. “Word on the
street is that the People’s Bank has been lending out gold certificate notes
like crazy, I hear there are about twice as many gold certificate notes as
there are coins in the vault now. I can’t accept those notes at face value,
you’d better pay me at least 4 notes to cover my risk, I'm sure you
understand”. Henry did not understand, but he needed the supplies so he gave
the cashier 4 notes. How could this be?
Henry
decided that he had better pay a visit to the People’s Bank to see whether they
still had his gold stored safely. He was astounded to see a line up out the door
of the bank of people waiting. “What are you here for?” Henry asked a woman
standing in line. “Probably the same thing as you are, concerning those frightful
rumours that the People’s Bank has more gold certificates outstanding than gold
coins in the vault,” she said, “I just hope that my gold is safe and sound”.
“Me too,” said Henry.
After an
hour of waiting in line and seeing numerous people walking out of the bank with
their gold coins, it was finally Henry’s turn. A bedraggled looking bank
employee asked wearily: “How can I help you sir?”. “I would like to withdraw my
gold please” said Henry, handing the notes to the employee. Slowly, the
employee opened up the vault door, and said with a sigh: “Sorry Sir, but
there’s no more...” Just then, PJ Korgan burst through the door of the bank
with a smile on his face and said: “Ladies and gentlemen, I know you’re all
worried about your gold, so I bring you grand news! Our bank is proud to be one
of the first members of the Gameriga Royal banking system! Your gold is safely
stored away in the Royal Gameriga Reserve vault, and, as a claim to your gold,
you will be given these brand new Gameriga Dollars, backed by the full faith
and credit of the King of Gameriga himself! Dispense your fears, the new era of
banking is here! Now, your money will never be lost!”.
Henry was
reassured by this news, and the new Gameriga Dollars were quite
official-looking. Still though, not all of his fears were dispensed with, only
holding those pieces of gold would truly do that...
Chapter 4
Now, the
reader must be wondering, what was PJ Korgan up to before he burst into that
bank so triumphantly? For that, we must go back a bit. Korgan was delighted
with the way his bank was running, it was profitable, depositors were happy,
and so were borrowers, why hadn't anyone thought of this before? One day,
Korgan was walking in the street when he overheard a conversation between two
townspeople: “Have you been noticing more People’s Bank notes recently” said
one. “Rumour has it that there are more notes out there then there is gold
coins in the vault, is that possible?”. “Beats me, but just in case, I don’t
think I'm going to accept those notes at face value anymore in my shop, in case
the rumours are true. I’ll charge a little extra” said the other. “Good idea,
I’ll do the same” said the first.
Korgan’s
heart sank, and then he got angry. When he got home, Korgan yelled: “How dare
these peasants question the soundness of my bank! I’m the greatest banker
alive! What do they know!? Not accept my notes at face value!? Ridiculous!”. As
Korgan calmed down, he started thinking about what to do. He knew that if
people started doubting his bank, the jig would be up, and the People’s Bank
might even go bankrupt. “Not on my watch!” declared Korgan.
As Korgan
sorted through the possibilities in his mind, he came up with two options. He
could stop printing gold certificate notes and gradually bring the notes and
the gold coin reserves back into synchronization, but then he would have to
admit that he was wrong, and old Anton was right. Korgan was crafty though, so,
unsatisfied with this first option, he came up with another. “I’ll go to my
friend, theKking, and get him to help me. Surely he wouldn't want to see the
renowned People’s Bank go under!”.
So, Korgan
set up a meeting with the King, and invited his fellow bank managers from other
big Gamerigan banks. The current King of Gameriga, Wilson Woodingham, known
more colloquially as ‘Woody’, was a friend of Korgan’s, who often brought the
King presents consisting of shiny swords and fine wine. Korgan knelt before
King Woody and said: “Most benevolent king, I come to you with a proposition
that will strengthen the realm for future generations”. “Well, Mr.Korgan, I
would gladly hear your proposition. You have always been a loyal servant of the
realm” said the King. “You see, your highness” said Korgan, “As you must have
heard, my People’s Bank has been very successful recently, thanks to the new
innovations we have adopted under my leadership”. “So I have heard,” replied
the King, “You must be quite the bank manager Mr.Korgan”. “Thank you, your
highness, you honour me” said Korgan, “But I am not satisfied simply with
making my bank prosper. My first loyalty is to the kingdom, so I would propose
a plan that could bring the great benefits of my banking practices to the whole
realm, making all your subjects better off!”. “Please tell me your plan, Mr.
Korgan, I’m intrigued” said the King.
“Well” said
Korgan, “I propose that a royal bank, for the whole realm, be set up, to be
called the Royal Gameriga Reserve. This bank will act as a bank, for all the
other banks in the realm. Gold will be kept in the Royal Gameriga Reserve vault
and gold certificate notes will be issued, to be used throughout the land. They
will of course be inscribed with the picture of you and other Great Kings of
the past. This way, most of the gold will be centralized, and day to day
activities, by both bankers and ordinary subjects, will be conducted using
these notes. This centralization will allow you to issue many more gold certificate notes than you have gold coins in the vaults, which in turn will enable credit to flow freely throughout the kingdom,
helping all industrious subjects get a loan, making the whole kingdom as
prosperous as my bank!”.
“Interesting,
Mr. Korgan, but what if people ask to redeem their royal notes for gold and we
cannot pay them?” asked the King. “But who would dare question the faith and
creditworthiness of the great King of Gameriga. Surely no one would be so
foolish!” said Korgan, “In addition, freely flowing credit will allow your
highness to embark on even more heroic and benevolent projects for the
betterment of the kingdom. Surely my plan can only better the kingdom if it
makes people do what, if they were thinking correctly, they would do anyway.
Lend money more freely to each other and to your highness, for the general
betterment of the whole kingdom!”.
The King,
after hearing this, smiled a great smile and exclaimed: “Mr. Korgan! You truly
have Gameriga’s interests at heart! We shall adopt this wonderful plan straight
away! I shall be known forever as the King who brought great prosperity to the
whole kingdom of Gameriga!”.
And so it
was decided to put PJ Korgan’s plan into action. The gold from the various
banks was exchanged at the Royal Gameriga Reserve for Gameriga Dollars, backed
by the full faith and credit of the King of Gameriga. Banks facing a shortage of gold coins, like the People's Bank, were given a loan of Gameriga Dollars to pay off their depositors and reassure them while the Bank was replenishing its cash reserves. With this development,
Korgan’s reputation and the People’s Bank he was managing was saved.
Chapter 5
Henry and all the other nervous bank
patrons, Gameriga dollars in hand, returned to their normal business. Prices of
ordinary goods went up a bit in these dollars, but no one much minded as anyone
who wanted a loan could get one, and it seemed like people were receiving more
and more of these dollars. Henry was able to finish his architect lessons, and,
so positive about the way things were going, he decided that he would embark on
a grand architectural project. With a combination of his saved up money and the
aid of enthusiastic investors, Henry bought some land, bought the materials,
and started laying the foundations of his grand building.
The happy
times rolled on for awhile. The courtiers at the Royal Gameriga Reserve bank
printed more and more dollars, even though they didn't take in much more gold,
while the member banks, such as PJ Korgan’s People’s Bank, kept some of these
notes as a reserve and lent out the rest. Credit flowed, Korgan made lots of
money, the King could finance all kinds of projects with the easy credit
flowing around and with the assistance of his Reserve bank, and the common
people seemed optimistic about the future.
One day, the
new King, Ross Franklinvelt, was sitting in his garden, enjoying the sun, when
the manager of the Royal Gameriga Reserve, Benji Power, came in. “Your
Highness” Benji said, “There’s trouble, our reserves of gold are being drained,
but there are still so many Gameriga Dollars out there, I’m afraid we may have
gone too far. I think it’s time to cut down on the number of Dollars out there
until we can recoup some of our gold”. “Troubling” replied King Franklinvelt,
“We shall do what you recommend”.
And so, the
Royal Gameriga Reserve cooled down their printing of Gameriga Dollars. In a few
weeks though, Benji heard some shocking news. The stock market in New Cork city
was crashing! In a panic, subjects of Gameriga started trying to reclaim their
gold from all the banks, including PJ Korgan’s. The Royal Gameriga Reserve was
forced to lend these banks the gold needed to repay the reclaimers, but the
pool was getting drained fast.
Benji
invited all the managers of the major banks to an audience with King
Franklinvelt. “Gentlemen” began Benji, “We have a problem on our hands, we
simply do not have enough gold to repay all of your customers. I'm afraid the
Royal Gameriga Reserve may soon have to stop lending our gold”. “What!”
exclaimed an indignant banker, “You can’t just let us fail! We’re all in this
together remember!”. The others grumbled angrily in agreement. Then, PJ Korgan
spoke: “Gentlemen, no need to fret. I have a plan to get us out of this, with
both the banks and the reputation of the kingdom of Gameriga intact”. “Quickly,
tell us your plan Mr. Korgan” said the King.
“Your
Highness,” began Korgan, “Here is what we do: you declare a Gamerigan national
emergency, saying that we must act in order to save the prosperity of Gameriga.
Then, in order to combat this emergency, decree that Gamerigan subjects must no
longer hold gold in their possession, but instead must use Gamerigan Dollars.
That way, there will be no risk of your royal highnesses good name being sullied
by being unable to pay out in gold on demand.”
“But Mr.
Korgan” the King responded, “While this will work for our loving subjects, how
about foreigners that hold Gamerigan dollars? Surely we can’t simply deny them
gold when they ask for it”. “Easy” replied Korgan, “Once we have 'bought' all the
gold in the country at 20 Gamerigan dollars per ounce of gold, we then declare
that the real value of gold is 35 Gamerigan dollars per ounce. This will net us a
handsome profit, and will allow us to defend against foreigners who may want to
reclaim their gold.”
“But Mr.
Korgan, won’t our subjects feel cheated?” asked the King. “Don’t worry about
that, your highness” replied Korgan, “Your subjects are more worried about the
slumping Gamerigan economy, simply get your resident money experts to declare
to the public that this measure is necessary to revive the Gamerigan economy.”
The King hesitated, but then said: “It appears we have no choice then, and I do
have a solemn duty to keep the Gamerigan economy on course. Very well Mr.
Kogan, we will adopt your plan!”
Chapter 6
Meanwhile,
back in New Cork City, Henry did not know of these goings on, but he had his
own problems to deal with. He had just finished laying the foundations of his
grand building when he heard about the stock market crash. As a result,
investors fled from his project, and by his new calculations, Henry no longer
had enough funds to finish his building. “How could this happen to me!?”
shouted Henry in dismay “Everything was going so well, how could everything
come crashing down like this so suddenly!?” But, Henry wasn't the type to sit
around moaning. He still had a good sum of money left in the People’s Bank, and
with it he could always go back to the drawing board and shift his endeavours
to a more modest architectural project. He had noticed that a lot of people had
been trying to reclaim their gold from the banks recently, so he decided that
the best course of action would be to get his hands on his own gold, just to
make sure nothing happened to it.
As he had done a few years ago, Henry
marched to the People’s Bank and saw a line-up of people reclaiming their gold;
it was almost a déjà vu. As before, Henry waited in line and when he had almost
gotten to the front, a royal soldier walked up to the doors of the bank and read
from a scroll: “By order of the great King of Gameriga, Ross Franklinvelt,
Gamerigan citizens are no longer permitted to hold gold for monetary uses. All
such gold must be exchanged at your nearest bank for the appropriate amount of
Gamerigan dollars.”
There was a
stunned silence in the crowd, could they really no longer reclaim their gold,
or even hold the gold they already had?
Then, a burly man in the crowd shouted angrily: “What’s this about! Why
can’t we hold gold! I demand an explanation!”. A murmur of agreement rippled
through the crowd. Then, a distinguished looking man with a white moustache came
up to the stage. “I am Mayjohn Keyman!” announced the man, “I am the foremost
expert on money in the world. The Gamerigan economy is in a slump, as you must
all know”, the crowd murmured in agreement. “Now, remember the happy times?” he
continued “Clearly, we must get credit flowing again, as it was in those times,
if we wish to bring those times back, don’t we? Now, the only way to do so is
with a flexible money. That is why you cannot hold gold, it is a barbaric relic
of the bad old days! We will emerge from this slump and leap into the future! A
future that has no place for such an old fashioned shackle as gold! We need a
money that can expand in order to accommodate the expanding economy of
Gameriga!”
After this
exposition, many in the crowd seemed to agree. After all, Mayjohn Keyman WAS
the world’s foremost money expert, and if he said that gold was holding Gameriga
back, he must be right. Most of the crowd dispersed happily after this, leaving
only a few standing in the square angrily, not quite convinced by Keyman’s
exposition. Among these stood Henry, scratching his head. Of course he trusted
his King and the money experts, but he still wished to see his gold for
himself, if only to make sure it was there, still ready to aid him on his next
architectural undertaking...
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