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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
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
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