What are banks for?

Creature of Jekyll Island cover

After reading Libertarian Presidential candidate Michael Badnarik’s book “It’s Good to be King” I started checking out the recommended literature he lists for further reading. I picked up “The Creature from Jekyll Island” by G. Edward Griffin and have been baffled at the atrocity known as the “Federal Reserve Bank” ever since. Griffin discusses the Federal Reserve Bank from its conception (Seven of the most powerful men in banking secretly meet on Jekyll Island, GA to create this institution solely for their benefit) through its functions and how it’s being administered today. An amazing read that you wish was fiction.

This question and answer exchange from the introduction of Griffin’s book explains the basic concept, and deception, our banking system is built on:

The following exchange was published in the British humor magazine, Punch, on April 3, 1957. It is reprinted here as an appropriate introduction and as a mental exercise to limber the mind for the material contained in this book:

Q: What are banks for?
A: To make money.

Q: For the customers?
A: For the banks.

Q: Why doesn’t bank advertising mention this?
A: It would not be in good taste. But it is mentioned by
implication in references to reserves of $249,000,000 or thereabouts. That
is the money that they have made.

Q: Out of customers?
A: I suppose so.

Q: They also mention Assets of $500,000,000 or thereabouts. Have they made
that too?
A: Not exactly. That is the money they use to make money.

Q: I see. And they keep it in a safe somewhere?
A: Not at all. They lend it to customers.

Q: Then they haven’t got it?
A: No.

Q: Then how is it Assets?
A: They maintain that it would be if they got it back.

Q: But they must have some money in a safe somewhere?
A: Yes, usually $500,000 or thereabouts. This is called

Q: But if they’ve got it, how can they be liable for it?
A: Because it isn’t theirs.

Q: Then why do they have it?
A: It has been lent to them by customers.

Q: You mean customers lend banks money?
A: In effect. They put money into their accounts, so it is really
lent to the banks.

Q: And what do the banks do with it?
A: Lend it to other customers.

Q: But you said that money they lent to other people was Assets?
A: Yes.

Q: Then Assets and Liabilities must be the same thing?
A: You can’t really say that.

Q: But you’ve just said it. If I put $100.00 into my account the bank is
liable to have to pay it back, so it’s Liabilities. But they go and lend it
to someone else, and he is liable to have to pay it back, so it’s Assets.
It’s the same $100.00, isn’t it?
A: Yes, But…

Q: Then it cancels out. It means, doesn’t it, that banks haven’t really any
money at all?
A: Theoretically….

Q: Never mind theoretically. And if they haven’t any money, where do they
get their Reserves of $249,000,000 or thereabouts?
A: I told you. That is the money they have made.

Q: How?
A: Well, when they lend your $100.00 to someone they charge him

Q: How much?
A: It depends on the Bank Rate. Say five and a-half per cent.
That’s their profit.

Q: Why isn’t it my profit? Isn’t it my money?
A: It’s the theory of banking practice that……

Q: When I lend them my $100.00 why don’t I charge them interest?
A: You do.

Q: You don’t say. How much?
A: It depends on the Bank Rate. Say half a per cent.

Q: Grasping of me, rather?
A: But that’s only if you’re not going to draw the money out again.

Q: But of course, I’m going to draw it out again. If I hadn’t wanted to
draw it out again I could have buried it in the garden, couldn’t I?
A: They wouldn’t like you to draw it out again.

Q: Why not? If I keep it there you say it’s a Liability. Wouldn’t they be
glad if I reduced their Liabilities by removing it?
A: No. Because if you remove it they can’t lend it to anyone else.

Q: But if I wanted to remove it they’d have to let me?
A: Certainly.

Q: But suppose they’ve already lent it to another customer?
A: Then they’ll let you have someone else’s money.

Q: But suppose he wants his too…and they’ve let me have it?
A: You’re being purposely obtuse.

Q: I think I’m being acute. What if everyone wanted their money at once?
A: It’s the theory of banking practice that they never would.

Q: So what banks bank on is not having to meet their commitments?
A: I wouldn’t say that.

Q: Naturally. Well, if there’s nothing else you think you can tell me…?
A: Quite so. Now you can go off and open a banking account.

Q: Just one last question.
A: Of course.

Q: Wouldn’t I do better to go off and open up a bank?

» LP Presidential Candidate Michael Badnarik [Badnarik.org]
» The Creature from Jekyll Island [Amazon.com]
» Federal Reserve Bank [FederalReserve.gov]
» Punch Magazine [Punch.co.UK]

  1. Ooooo, scary. Money creation and the fundamentals of banking! And a bunch of conflation and oversimplfication. Were you asleep during Macroeconomics 101? Is the rest of the book as “informative?” I’m guessing so, considering that Mr. “Freedom Force” Griffin is a certifiable fucking nutjob. Here’s one of his wonderful essays on how “the United States, Canada, Great Brittain, Germany, France, and numerous other countries are being systematically spayed by high-altitude military tankers.”


  2. Let’s see. Stephen makes seriously inconsistent arguments and tilts at his “anti-gun liberals” straw men and goes all red herring when called on it. Mike recommends a book that, from the excerpt he posted, acts like the basic macroeconomic concept of “money creation” is some bizarre bankers’ conspiracy, and in doing so, seriously oversimplifies concepts that any first-year economics student could explain. Not to mention that the author of the book is a well-established conspirarcy theorist who is believes that contrails are actually “chemtrails” spayed by world governments in an attempt to combat global warming. Or that the “Fabians” who control the USA are “deliberately facilitating terrorism” and likely allowed 9/11 to happen so that they can achieve global supremacy as outlined in the PNAC documents.

    Of course, what more should I expect from a couple of guys who are apparently stumping for Badnarik, another certifiable loony and an admitted tax cheat and evader:

    >Badnarik believes that the federal income tax has no legal authority and that people are justified in refusing to file a tax return until such time as the IRS provides them with an explanation of its authority to collect the tax. He hadn’t filed income tax returns for several years. He moved from California to Texas because of Texas’ more liberal gun laws, but he refused to obtain a Texas driver’s license because the state requires drivers to provide their fingerprints and Social Security numbers. He has been ticketed several times for driving without a license; sometimes he has gotten off for various technical legal reasons, but on three occasions he has been convicted and paid a fine. He also refused to use postal ZIP codes, seeing them as “federal territories.”

    He has written a book on the Constitution for students in his one-day, $50 seminar on the Constitution, but it is available elsewhere, including on Amazon.com. It features an introduction by Congressman Ron Paul and Badnarik’s theory about taxes. His campaign website included a potpourri of right-wing constitutional positions, as well as some very unorthodox views on various issues. He proposed that convicted felons serve the first month of their sentence in bed so that their muscles would atrophy and they’d be less trouble for prison guards and to blow up the U.N. building on the eighth day of his administration, after giving the building’s occupants a chance to evacuate. In one especially picturesque proposal, he wrote:

    “I would announce a special one-week session of Congress where all 535 members would be required to sit through a special version of my Constitution class. Once I was convinced that every member of Congress understood my interpretation of their very limited powers, I would insist that they restate their oath of office while being videotaped.”< http://www.libertyunbound.com/archive/2004_08/bradford-dark_horse.html

    So, are you guys ever going to address all of this, or are you too busy registering the new domain and reworking the banners and artwork for the site’s upcoming name change to “Hammer of Bullshit?”

  3. The oversimplification of this piece is the reason why I posted it. I didn’t take macroeconomics so I can’t say that I slept through it, although I probably would have since the subject doesn’t interest me to much. Man, that link to the contrail article IS insane, but I am more concerned about his material than I am his sanity. Just because you’re paranoid doesn’t mean they aren’t really after you… :) Did you read this book? How much of it should I cast aside as conspiracy theory? And, can you please recommend other texts that cover the intricacies of the Federal Reserve Bank in layman’s terms? I would greatly appreciate it.

    To the second “Anon” poster. I believe Badnarik’s decision to require the members of congress to sit through his Constitution class is a good one considering almost all of the members don’t abide by the “supreme law of the land.” I have never heard/read about the “let the prisoner’s atrophy” thing, can you please direct me to a source?

    Thanks for the comments. I was wondering if either of the “Anon” posters have blogs themselves? I am interested in what your political affiliations are and what perspectives you have on everyday events.

  4. “The oversimplification of this piece is the reason why I posted it.”

    Well, that’s probably not a policy you want to continue. This is the “World Wide Web,” so when you rave about a book but then post an excerpt so oversimplified as to be laughable, you just make yourself look like a fool to the large portion of the world that is more informed on the subject than you are.

    “I didn?Äôt take macroeconomics so I can?Äôt say that I slept through it, although I probably would have since the subject doesn?Äôt interest me to much…Did you read this book? How much of it should I cast aside as conspiracy theory? And, can you please recommend other texts that cover the intricacies of the Federal Reserve Bank in layman?Äôs terms?”

    No, I haven’t read his book, but if this is what the author considers to be “an an appropriate introduction and … mental exercise to limber the mind for the material contained [within],” I’m not too interested. As a “bit” in a humor magazine, the dialogue above is funny and appropriate. As a “appropriate introduction” to an ostensibly serious and informative book about the origins and economics of the Fed, it is simply frightening and exposes the author’s lack of actual economic knowledge and his predisposition to conflation, oversimplification, and outlandish conspiracies.

    It is regrettable that you’ve had no exposure to, nor show real interest in learning about economics, because without knowledge of basic economic theory, how can you properly evaluate conspiracy theories about economic systems? Recommending a book by a well-established nutcase on the basis that it was recommended by another well-established nutcase while admitting that you lack and are largely uninterested in the knowledge that would be required to properly evaluate said book not only makes you look foolish and gullible but also it also makes it seem as if you embrace the insulating effects of ignorance so that your uninformed, conspiracy-minded world view can survive undisturbed.

    What you need is a schooling in basic economics. I would recommend first-year college texts in both micro- and macroeconomics. You’ll see that “money creation,” far from being a conspiracy or secret plot, is one of the foundations of modern economies. You’ll see that the inability of banks to have enough liquid capital on hand to simultaneously pay back all of their patrons is not anything new or secret, (What do you think caused all of the bank collapses of 1929? Why do you think that the Federal Government now insures banks accounts?) but is simply a fundamental characteristic of bank operations throughout human history. These books should also do a decent job of explaining the Fed, though probably not in the conspiratorial and paranoid language that Badnarik and Griffin have you primed for.

    “I believe Badnarik?Äôs decision to require the members of congress to sit through his Constitution class is a good one considering almost all of the members don?Äôt abide by the ‘supreme law of the land.'”

    That’s why, according to the Constitution itself, we have a Supreme Court. In stating that he wants Congress to embrace and swear an oath to “[his] interpretation of their very limited powers,” Badnarik is acting unconstitutionally by attempting to cast himself as the ultimate interpreter of the Constitution. Like it or not, the Constitution says that role lies with the Supremes and is to take the form of review, not direction.

    “I have never heard/read about the ?Äúlet the prisoner?Äôs atrophy?Äù thing, can you please direct me to a source?”

    Here’s the Google cache of his old campaign site, which, as the earlier article mentioned was taken down when he got the nomination:

    “Michael would require [violent criminals] to remain in bed all day for the first month, and twelve hours per day after that. This lack of activity would allow their muscles to atrophy, making them helpless couch potatoes incapable of inflicting very much violence on each other, the guards, or unsuspecting citizens should they manage to escape.”

    For all of Badnarik’s bitching about how most everything the government does is “unconstitutional,” you’d think that he’d shy away from advocating such obviously “cruel and unusual punishment” as confining prisoners to their beds for days on end.

    “I was wondering if either of the ?ÄúAnon?Äù posters have blogs themselves? I am interested in what your political affiliations are and what perspectives you have on everyday events.”

    All of the “Anon” posts in this thread and Stephen’s “Diversity Shirt” thread are from me, a twenty-something male from the Rocky Mountains. No, I currently do not have a blog, preferring to travel around the blogosphere and attempt to rectify egregious examples of invalidity and fallacious reasoning. I am a recently registered Democrat after having been a card-carrying Libertarian for the better part of a decade (Hell, I even voted for Harry Browne in 2000). Why? Well, watching many libertarians jump on board for the Iraq War and come to the defense of Bush made it clear to me that much of the party is comprised of, to borrow the cliche, “Republicans who like to smoke pot.” Furthermore, the nomination of Badnarik over Russo made it clear to me that the party is not willing to do what it takes to become a serious national force. Russo had charisma and potentially broad appeal. Badnarik is a dingbat conspiracy nut who has evaded his taxes, drives without a license, and endlessly harps on issues that the average American frankly couldn’t give two fucks about (like this supposed Fed conspiracy). Lastly, the Libertarians have no real chance of unseating Bush or any other President in the short term, and the stakes are too high in this election to discard my vote in favor of long-term idealism and pragmatism. Bush must go, and frankly the only other party that has a chance of winning this election is the Democratic party. Let’s get the psycho out of the drivers’ seat, and then we can go back to building support for third parties. It would help if libertarians like yourself would get enough of an education to realize that guys like Badnarik are fucking loony.

  5. Thanks for commenting back…

    Although I disagree with your perspective of the Libertarian Party and Badnarik I will take your advice and read more on economics.

    Can you provide an email address? I wouldn’t mind continuing this conversation…

  6. “Although I disagree with your perspective of the Libertarian Party and Badnarik…”

    Disagreeing with my misgivings about the party as a whole is one thing. When it comes to Badnarik, he himself admits to not paying federal taxes and driving without a Texas drivers’ license. Furthermore, I brought up two instances where Badnarik has essentially said that he plans to subvert the Constitution should he take office. If you disagree with my assesment of those proposals (Congress being re-educated and re-sworn as to Badnarik’s unique interpretation of the Constitution, confining prisoners to their beds for days straight), please elaborate and defend your position. Otherwise, you’re implicitly admitting that not only are you supporting a paranoid, self-admitted criminal for president, but that he’s also a unthinking hypocrite whose unconstitutional proposals undermine much of his platform regarding the supposedly unconstitutional actions of the federal government.