This post is part 2 in the Money Series.
“Wait,” Mom Normal says to her school teacher daughter. “Sue, you said the Tribal Chief promised to pay the Banker 10% more than he borrowed. Where does the Tribal Chief get the wampum to repay the Banker?”
“Ahh, Mom, you are so sharp,” says Sue. “That is exactly the right question. And it is the crux of the issue of Class Warfare in the world today. So let’s look at that in detail.
How the Federal Reserve Works, by Sue B. Normal
Now, the Tribal Chief gets wampum by asking all the members of the tribe to pay a fee, called “tax.” The plan is that the Tribal Chief will repay the Banker by sending him the tax money. Over time, this will pay back the amount borrowed, plus interest. So the Chief goes around to all the tribe members and collects the tax. But when he counts up the wampum from the tax, he has a problem: All the poor people who received the wampum from the government. There’s no point collecting tax from them, because they only have the wampum the Chief gave them. So the Chief collects the tax from the other tribe members, the ones who have enough wampum from their daily work, but not too much extra wampum that they could afford to give any of it to the Banker to save. They grumble about it, but they hand their wampum over. These people, who have enough wampum for themselves, but not enough extra to hide in the River Bank, are called The Middle People. So all the people in the tribe are: The Wampum Makers, the Bankers, the Poor People, and the Middle People.
The Tribal Chief counts all the Tax Wampum, and he figures out how many years it will take to pay back the Banker what he owes. Then he sets the Rate on his Tribal Treasury Bonds to match his calculation. All is well. Everyone will be happy with this Wampum System. The Chief will pay the Wampum Makers their wampum back over time, and he will use this borrowed wampum to run the tribe.
Then a Big War comes. The Chief needs the warriors to go fight enemies. So the regular people who had just enough wampum to get by, have to stop working, so they can go join the Army. Now there are more people in the Army who are users of wampum. The Chief has to pay them with the Tax Wampum. There aren’t enough people left to pay taxes. So the Chief goes to the Wampum Maker and asks him to pay tax.
The Wampum Maker squawks: Wait a minute. Hold on. You are asking me to pay tax, so you can repay me for the loan of my own wampum? What is this? Socialism? The problem here is that you have too many poor people. Go away, or I will call my Loan, and you will not have years to pay me back. I will take my Wampum and move away from your Tribe, to a different country. Then you will no longer be Chief of the Tribe.
Quickly, the Chief backs off. He needs years to pay back the loan from the Banker, and besides that, he has more Big Wars coming, so he had in mind that he was going to ask for another loan. He recognizes his mistake in approaching the Wampum Makers and asking them to pay tax. Tax, he reminds himself, is only for the Middle People. But the Chief is out of Wampum. What can he do?
The Chief goes to the Banker again. He says to the Banker, can I have some more wampum, so I can pay you back my loan?
The Banker looks in the hole, where he stored the wampum, and he sees that there is very little wampum in there, because the Chief hasn’t paid him back for the first loan. “If I give you another loan, how much will you pay me for this new wampum?” says the Banker.
This time, the Chief says, I will pay you 15%, plus all your wampum back.
The Banker smiles. He knows there is very little wampum in the Vault. But the Chief doesn’t know. So he says, “Chief, wait here. I will be right back.”
The Banker calls a meeting of all the Wampum Makers from all the Tribes all over the world. They meet at a forest called Bretton Woods. He tells the Wampum Makers of the world all about the problem: the hole is nearly empty, but the Chief wants another loan. The Wampum Makers look at each other. What should they do?
“There needs to be more Wampum in the world, but there isn’t enough to take care of everybody,”says the Banker.
Then the Witch Doctor, who was one of the Wampum Makers, spoke up: “Does the Chief know the hole is empty?”
“No,” says the Banker.
“Then give him this piece of Magic Straw, which is called a Promissory Note. Tell him you have all the Wampum in the world hidden in a hole called Fort Knox, and this piece of Straw is a representation of that Wampum. Tell him he can trade these pieces of Straw, and turn them in for Wampum at any time. Tell him all he has to do is present his Straw at the Wampum Window, and it will be redeemed for Wampum.”
The other Wampum Makers nodded. “But what about the problem of needing more?” they said.
“Banker,” the Witch Doctor said, “give out 100 pieces of Straw for every piece of Wampum left in the Vault. When you get to 100 pieces of Straw for every 1 piece of Wampum, stop making loans. That will be enough.”
The Banker was excited. These wonderful, benevolent Wampum Makers had just turned Straw into Wampum. Now there would be one hundred times more Wampum in the world. What fine, benevolent Human Beings these Wampum Makers were.
The Banker nodded, and he rushed to tell the Chief that his new loans were approved.
All the Wampum Makers were happy. This system was going to work. Every piece of Straw was now a loan. From THEM. Now, every Tribal Chief would owe the Wampum Makers 100 Times more Wampum than the Wampum Makers had ever had to loan. They would be rich forever, through all the generations in the world. And it was all because of this brilliant Witch Doctor’s wonderful idea. They called him The Economist, and they patted him on the back and pinky-swore their allegiance to his Cult.
Then the Wampum Makers got old and died. Their children, the Spoons, inherited all their Wampum. But their Wampum was all gone, because it had been loaned to the Chief, to give to the Poor People and the Warriors. All the Spoons had left were the Promises from the Banker to give their wampum back from the Tax Wampum, over time. How could they spend Promises? They asked the Witch Doctor.
And so the Witch Doctor built a Trade School on the River Bank in Cambridge, Massachusetts, called Harvard Business School. There the Spoons would go, and send their children, to learn the Shell Game, which would allow them to spend their Empty Promises.
Image courtesy of creepyhalloweenphoto.com
Next post: How did the Empty Promises turn into Black Gold?