Real Bills Doctrine
... a world without bank issued credit
Or how did the British Empire become the world's biggest empire and what brought it down?
Before the world's money was made out of paper and before gold was side-lined as the worlds leading currency there ruled another piece of paper so strong it was the real strength behind the giant that became the British Empire .
Victoria's right to be called Empress of India was a direct consequence of the use of this small piece of paper, sometimes called Commercial Paper but better known by the title 'Real Bills' as described by Adam Smith in his book 'Wealth of a Nations' published in 1776, the year of the American UDI. This piece of paper allowed a transaction to take place without the need of actual gold to be passed from hand to hand with each step of the transaction. This was a self liquidating bill of exchange that was the backbone of the wealth that permeated the British Isles for 100 years up until 1913 when the bankers in cohorts with the politicians and war machinery manufacturers caused its demise by initiating World War 1, and by switching to non-redeemable fiat paper money. For that act of treachery the world has paid dearly. Today's monetary crisis and all the major wars and financial crises of the 20th Century can be linked to that act of total greed and the consequential down grading of accountancy rules for banks.
What is a Real Bill and how does it work?
Supposed the real bills practice was started by the merchants in the trading fairs of Italy around 1500 which was about the time gold come out of hiding from its 1000 year hibernation, now known as the Dark Ages. This period also heralded the start of the Renaissance lasting up until 1909 when the German and French governments stopped paying their civil servants in gold coin and instead used redeemable paper money. This soon became irredeemable paper money around 1913, the year the Americans introduced the Federal Reserve Banking system with fractional banking and also allowed banks to increase the ledger value of their assets beyond their true value which is probably the main cause of the calamity that now affects the world financial markets.
Because it was unwise to travel to these fairs with large amounts of gold a system was developed which allowed the merchants once gathered together to use a form of 'letter of credit' issued by the fair organizers. This script allowed the merchants to buy and sell their incomplete wares to the other merchants for the period of the fair without the need to use gold until the final trades were all completed.
This system evolved to become the discount friendly Real Bills Doctrine where no bank was required to allow the production of fast turnover items usually confined to a period of one season, a season being 90 days long. In the past many manufactured goods were seasonal.
A simple example of the working Real Bills Doctrine is where a farmer who has already harvested his wheat crop sells the grain to the miller. The miller signs the farmers bill agreeing to pay him within 90 days, and the farmer agrees to a varying discount the earlier the bill is paid.
After the grinding is complete the miller sells the unpaid for flour to the baker. The baker then signs the miller's bill with its discount terms and pins it up in a prominent place, such as a Clearing Bank, for all to see. He then bakes the flour into bread and cakes and sells them daily to the cake shops for cash.
Normally it would take the whole 3 months for the baker to get enough money from the cake shop owners to pay the miller who would then on pay the farmer but by using the Real Bills Doctrine anyone can buy the farmers bill to the miller and or the miller's bill to the baker, by paying those bills themselves, knowing that both creditors have signed and agreed to accept a discounted payment if their bill is paid early. The buyer of that real bill will now receive the full payment from the baker payable at 90 days.
Therefore Real Bills do not carry any interest only a discount. Therefore there is no need for any bank to be involved, except possibly a Clearing Bank. Doubters about the difference between Interest and Discount please see Professor Antal Fekete's scholarly explanation here.
A Clearing Bank is a place where Real Bills can be displayed allowing speculators the opportunity to make money from them. The Bank itself might have already paid the farmer or the miller but is willing to on sell the remaining bill to the speculators who will collect the final payment from the baker due at 90 days. The more risk involved the more money to be made. Good speculators are probably also adept at collecting debt.
The main thing that has happened is that the farmer and the miller have been paid early so they have money to pay their workers which in turn puts a circulating currency to work supplying a source of capital to the community. The baker and the cake seller are in the mean time collecting and distributing their circulating money while the baker also saves to pay the miller for the flour. After 90 days the speculators have made their profit which they can use to support other enterprises. Amazingly all this comes from the farmer cutting his wheat.
This system can be used for virtually any production as long as there is at the bottom stages a product able to be moved up the chain of operations and the final product is easily sellable. This method also frees up gold needed to become fixed capital in other ventures necessary to build a viable society while the use of gold as money results in a more stable monetary system not prone to the highs and lows of a fiat currency.
This is the system that made Britain the richest country in the world. It was destroyed by the merchants of war and their blood sucking cousins the arbitrageur bankers, aided and abetted by politicians keen to collect more power through a worthless 'out of thin air' fiat currency and the theft taxation by inflation. Only by using gold as money and allowing the citizens to legally own their own bodies can a similar outrage such as the 20th Century, probably one of the bloodiest of centuries, be prevented from ever happening again.
In the 20 th century possibly as many as 500 million people died because of unnecessary wars and the associate deadly conditions that would probably never have happened if gold had remained the world's money.
Only gold currency together with the ownership of your own body as envisaged by the Primary Fundamental Right can we possibly stop governments from becoming large, dangerous and Socialistic.
19 th April 2009 CRS