The Wise Investor
depositing money with the bank, but not earning interest on
The goldsmith would lend out this money at a high rate of
interest, and increase his profits even more. The system was
put into practice, and everything went as the goldsmith had
Soon there were a large number of his banknotes in
circulation. The banknotes made buying and selling much
easier, and the goldsmith was widely praised for his
contribution to the community.
That year, the goldsmith was awarded the civic prize for
services to the public. He made a famous speech about
sacrifice and service to the community, and humbly
accepted the cash prize and trophy that he was awarded.
All this time, the original aim of the exercise was also
being fulfilled. The general public was now buying and
selling between themselves at a frantic rate, without any
intervention whatsoever from the bank.
From time to time, an old person would trade their
banknotes for real gold, but as time went by this disappeared
completely. All business was done with cash banknotes, and
the administrative load on the bank was drastically reduced.
The goldsmith, however, was a wise man, and did not
sack a single member of his staff. Bad publicity and low
staff morale was a problem that he never created for
himself. The banknote idea took off so well, that many new
customers joined his bank. This new business was enough to
make use of the existing staff, and with lower costs per
customer he was able to increase his interest rates on
deposits and attract even more customers.
Time moved by, and it was not long before other banks in
the valley began to issue their own banknotes as well. This
caused some confusion, but it was a minor problem as there
were only a few banks in the valley and they were all well
It was at this time that the government of the valley
began to turn its eye to the arrangement. They saw the