Once upon a time, there was an empire that was vast and wealthy. There were big houses, big vehicles and big people. There were also very powerful citizens and naturally, the Emperor was the most powerful. At least that was so in the good old times. There was a streak of fairness to the Emperor idea so that he, because it was usually “a he” that was fairly elected by the people. Well, not totally fairly, since there were other strong men in far off lands that very secretly meddled in the war of words between the presidential candidates, but that was not known until the election processes were finished and done with. There was also a small gathering of select people that actually and finally strained the Empire candidates in a kind of a sieve that was called the Electoral College. The Empire had a somewhat limited view of what kind of candidates would be allowed so therefore usually only two parties would be allowed to go through the straining motions of selecting candidates. Much of the Empire was constructed this way with two clear choices for just about anything political or cultural. By and large, election of the Emperor was at least a so-so fair process. There were respectable provisions to make sure an elected Emperor would be opulent and stay in power for at the most 8 years after which he would be immemorialized in some ways, by for example having his head hugely magnified and chiselled into one of the Empire’s cliffs.
Over the eons of political time, even though the Emperors originally had complete control of the money piles the Empire had at its disposal, they somehow lost control of that important part of their immense power. In the beginning, the money piles in the Empire’s vaults were wonderfully visible and there were mountains of not only notes in many denominations and kinds, but there was above all a very respectable tonnage of real gold. There was so much of it in fact, that it had to be kept very, very safe in a fort. However, gold was a beautiful currency but impractical. To drag around a few pounds of gold when you went to buy a car or some milk weighed very heavily in anyone’s pocket – especially an Emperor’s when he went to purchase bigger items like battleships – so it was agreed that the most practical way of transporting money was to let pieces of paper with beautiful inscriptions represent the value of a certain amount of gold. Yes, there was always a connection between those pieces of paper and the gold in the bank vault so if you had one of those pieces of paper, a bank note, then you could go to the bank and exchange it for a real lump of gold. It felt comforting that that was so.
Again, over time, things changed. After many nations on the globe had abandoned gold in favour of the paper money and the money needs of governments were used to stroke their electorates along the bristles and not the other way had really become standard practice, then the original connection between paper money and real work or tangible assets had been lost. Not completely, mind you, but to an extent that had real impacts on the value of the paper money. Yes, there was a continuous drop in what the Empire’s bank notes would buy in the real world, so over time more and more of those bank notes had to be printed to keep up with the inflated values of this and that and also the needs of not only the Emperor, his courtiers and the Empire’s lords, but also of the common knaves. Exchanging those bank notes for gold eventually went out of style.
About a century ago, a group of very rich people, richer than the Emperor himself, had a party. Well, it was actually a very secret meeting on a very secluded island off the coast of the Empire. Those rich people, which all seven were owners of the biggest banks, had wisely assumed or perhaps had simply taken for granted, that it was unnecessary to compete that much with each other. Owning a bank was risky business in those days when governments were uninterested in guaranteeing the well-being of any bank. So, why compete? Wise decision to not compete, those seven thought. They knew what they were doing those crafty bankers, but somehow they didn’t trust the government and above all they weren’t quite on the same page of parchment as the millions of ordinary knaves that were working away producing real stuff in real factories, mines or on farms and boats. So the seven just went ahead and formed their union. Well, it was actually more like a cartel that was going to be kept secret, but after a few years a certain Emperor by the name of Woodrow got wind of the scheme and liked it. So he fixed things up for the bankers’ cartel and gave them a government charter. Other countries had a central bank that governed their private banks, but the Empire had to have something far superior. It was blessed with a powerful private central bank that was staffed with servants loyal to the seven founders whose banks now could do their bank business without worrying much about other upstart banks. So there was simply less competition in total. After about 18 years in the business, the secret of the new bank gathering was slowly leaked out to the ordinary knaves. But no one said boo about it, since it had been given such an official sounding name with both a word that most knaves would think was a comforting government thing, which was “Federal”, and then also a second word that would make most ordinary knaves think that there were tons and huge piles of extra money stored for an empire-wide rainy day and that word was “Reserve”.
Well, things worked out pretty good anyway. The people in the new bank cartel got along well with the Emperor’s men and the Emperor could direct the cartel to print more money when he needed some for his government. The funny thing was that the cartel charged the Emperor’s government money for doing this, but the Emperor was OK with that. After all, what could the Emperor do? Go somewhere else to get some money? There was nowhere else. At least not for a good long while. Not until the Empire got in hock to a Far East empire, anyway.
In the meanwhile, the Empire grew and so did its need of money, especially such money that was used for the protection of both the lords and the knaves. Yes, there were an awful lot of new horses and boats and cannons and flying machines purchased for the protection of the Empire. Over the years, that kind of security with all that fine weaponry, the people in the Empire fell in love with shooting, not only at home, but above all in far off lands, where there were more countries to be conquered and immense riches to be brought home. There was a special variant of gold out there, so-called black gold. It was a liquid asset of the best kind. Yes, it was both liquid and black and was commonly called oil and there were immense pools of it under the ground in some countries. So, the Emperor was asked from time to time to let his soldiers go out into the world and mostly by their very presence, they could make countries give up their slippery black gold for a very decent price, which kind of lubricated all the Empire’s wheels and motors.
The people that looked after the black gold often jumped up and down with joy when the smelly substance came to their distilleries where gasoline was made out of it. It meant not bagfuls of money for the black gold people, no, it meant wagon loads. Earlier, there were black gold pools found under the ground at home in the Empire too, but those pools were not so plentiful any more, but had nevertheless made the slippery oil people very rich already. It so happened that there was more of the black gold in pristine and beautiful corners of the Empire, but those places were held to be of such artful value that drilling for black oil there was originally not allowed. So, what did the oil vassals do? They went to the Emperor’s friends and gave them lots of money, too, and asked those friends to have a little talk with the Emperor and his government. After a while, everything was arranged and the Emperor and his people got a little richer by virtue of the gifts that the black gold people gave to them, which made the Emperor think that “OK, I love the beauty of the land where this black oil is, but I think I love the money more. Besides, I don’t like some of the propositions from the black gold people of being removed from my throne if I don’t let them have their way.”
So, over the years, most of the Emperors wished to stay Emperors and went along with the black gold people’s wishes.
But there were other nobles of another kind out there, too. These were smart and very rich people and most of them were descended from or of the same ilk as the original seven that over a century ago had started the Empire’s central bank that wasn’t really a central bank. And those people were equally eager to make sure their ideas about money were respected by the Emperors. So those money lords engaged many of their friends to make sure the Emperors and their governments behaved in such a way that money could be handled the way the money lords wanted. And the Emperors by and large went along with any requests of that kind. There had been two or three Emperors that were, should we say, a bit obstinate, and they were let go. Well, another one met with some kind of accident and died when a projectile hit him when he was joyfully riding along with his wife in the southern part of the Empire. And so it goes. Modern day Emperors are usually smart enough to accommodate any wishes from both the black gold people and the money lords.
When those money lords went about making money off money, they would rent it out to various lesser citizens. Never mind that the money could be created more or less at will in the banks. Notations in the banks’ ledgers were entered to create the necessary piles of money. That was so simple it seemed like magic. It was money the bankers didn’t really own, but who would care when it worked the same as real, earned money. Most often the renters of money were people that wanted to produce something or sell something they imported from far off lands to the ordinary knaves. Or the renters might just be ordinary knaves that wanted to buy something, a house for their family, for example. Those kinds of needs were great sources of income for the money lords and being quite daring, those money lords hired smart people with wrinkled foreheads that conversed with newfangled contraptions called computers. And those wrinkled forehead people were the ones that really could think and came up with the very best ideas, actually money inventions that went by strange names like CDOs and CDSs, and which those wrinkled forehead people could use at certain times to multiply the money or send it off to far corners of the Empire with a push of a button on one of those modern thinking machines they called computers. Thus, much extra money that just didn’t exist before was created. And that was all well and fine. The money lords got richer and the borrowers also got some money. All this became so very popular that the money the Emperor had in the government vault was tiny compared to what the money lords could create with those modern thinking machines. For a while everyone was very happy. More and more money was created and sent off to satisfy the various needs in the Empire. The money just kept multiplying and it was truly magical that money could be so easily created without anyone really working very hard or at all to do that. It was like the money was coming out of a printing press at lightning speed. But, alas, the newly created money was not really printed at all. No, it just existed as a notation in one of those wonderful computer machines much like it had been done before by thousands of clerks in bank ledgers.
The money lent out this way to merchants and makers of this and that were reasonably happy even if the cost of borrowing was quite steep, but they found ways to put the money to even better use by sending the money abroad where there were a great many people that were willing to work for very little, which made the borrowed money go much further. The happiest borrower of all was the Emperor and his government, which now had a wonderful way of keeping his knaves content in many ways. There were all manners of help for the sick, food for the starving and help to those that couldn’t or wouldn’t work.
When this wonderful life had gone on for many moons, there was now however a slight problem. Those little notations in the bank computers were growing like topsy and the sums that were owed by the government and the knaves were growing by the second. The merchants and the makers of this and that were for the most part pretty good about paying back the invented money, while the Emperor and his government didn’t care at all about paying anything back and many of the knaves were simply very worried. That is how it all went for a while. Until, one day, when many of the ordinary knaves found that a lot of the work they formerly had been so busy with and made good money off, had been shipped off to distant lands in the Far East. So, the large group of knaves in the Empire now had lower income than before and they feared that the houses and vehicles they so dearly loved would need to be given back to the money lords. There wasn’t much they could do about that. At the same time, in other distant lands, there were really smart people who had it both in their hands and heads how to make things more or less with a lot less knave help. Those smart people had gone through much schooling and many other teaching processes and using an idea called automation, they certainly knew how to make complicated things really fast for much less money. And they were well paid for their efforts, which was very contrary to what the knaves in the Empire now were paid for their slow ways of working using old machinery.
So, there was a problem. At first, what was happening wasn’t much noticed or perhaps the formerly so self-assured people in the Empire didn’t want to see it that way. No, there was no problem. Of course not. If there was a problem, it was only temporary and the Empire, which was the greatest on Earth, would soon go back to being just that. From all points of view.
There was a young knave who had traveled other parts of the world and who had seen what was going on here and there. He compared what he had seen with the happenings in the Empire and pretty soon saw that there was a great problem with the whole setup. The formerly so busy knaves were now in rags and some of them lived in their cars or in the same kind of tenements there were in the very poor nations in other parts of the world. Strange, he thought. He made noises about this and was immediately rebuked. No, his reading of the statistics were wrong. No, this was only temporary poverty. No, everything was going to be OK as soon as the new Emperor was elected. And the new candidate Emperor in the election just around the corner made loud noises about how he would create jobs for all by just fiddling with the money. Somehow. Yes, somehow he was going to make those very rich lords start to employ people again. There was much talk about boot straps and how those should be pulled up and the Empire now ruled by a new Emperor was going to work itself out of the poverty mess. Yes, they were all going to get back to work using the same old ways and machines as before to make things in the Empire well again. Strangely, there was no talk of being as smart or smarter than those other knaves in other countries that had gone through much schooling and were now making things cheaper and faster than the knaves in the Empire could. The young traveller rolled his eyes when he saw all this and wanted to shout so all the lords and knaves in the Empire would hear:
“Do you remember the little boy in H.C. Andersen’s The Emperor’s New Clothes? Take heed, you idiots!”
Gold vault of the Federal Reserve Bank of New York – Wikimedia Public Domain
Official Presidential portrait of Woodrow Wilson – Wikimedia Public Domain
Black Gold – Wikimedia Public Domain
Digital Money – FamZoo Staff on flickr – some rights reserved
Guest Author Bio
Per lives on Vancouver Island with his wife Lisse. He divides his time between practical work around the house and writing stories, short and long ones. He started writing in high school, first as a wonderful escape from the usual world, but later with a stronger connection to the reality of the present. There were occasional short articles in some newspapers in “the old country” – Sweden – and later more serious attempts to write longer stories. His mind was however of two kinds: The writer’s mind, but also the curious mind that likes to investigate the intricacies of science, which led him to become a P. Eng., start businesses, the last one being a company that wrote manuals for automation and robotics. In retrospect – after retiring – that was the most interesting insight into the future.