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The Wise Investor

3.4 The banking system
Many years had passed since the people had settled in the
valley, and an active, thriving community had developed.
There were numerous farms, trades and businesses
operating in the valley. In the early days, trade between the
families had been done directly. Perhaps some grain was
swapped for a plough, or a sickle for some building timber.
As time went by, however, the limitations of this approach
became apparent.
A farmer, for example, may have some excess grain in
his store. There may be nothing that he needed at the time,
and yet the grain would have to be disposed of before it
rotted and became useless. To solve this problem, it had
become customary to swap items for gold.
Gold was always in demand for jewellery, so the local
goldsmith could always be relied on to swap the gold for any
other item that the person happened to need. This approach
had several advantages, and made life much easier for the
valley people. Gold was small, it did not rot or break down,
and it could be kept indefinitely.
Rather than swapping a plough for some grain, the
farmer could swap the plough for some gold, and then swap
the gold for some grain when he actually needed it.
The system was much more flexible, and everyone
benefited from the easier method of trading their goods. This
system continued to operate for many years, and there was
a steady flow of gold around the valley as items were
traded, 'bought' and 'sold'.
There was one serious disadvantage with using gold,
however. It was easy to steal. In the early days theft had
not been a major problem, as sacks of grain were not easily
spirited away, and if they were, then it soon became obvious
who had stolen the goods.
Now that gold was in common use, however, theft
became a serious problem. A farmer could swap everything