history5

World History - Lesson 5

Jaron Summers

I am writing a history book for Becki, 9, a distant cousin in Canada.

Hi, Becki—

Welcome to World History Lesson Five. I told you that I’d try to explain how money relates to world history.

First, let's look at a couple of the ways people and companies deal with money.

Here’s "a letter" to me from a banker.

Dear Mr. Summers,

Since we regard you as a "partner" in our banking family, we at the Royal Bank appreciate your concerns. Rest assured, we look upon the administration of your money as a solemn duty.

You wrote to me that you felt we were "gouging customers with [expletive deleted] spiraling service fees." Let’s look at the facts, Mr. Summers.

Suppose you have an extra $100 and you partner with us by opening an account.

After one year, we will pay you .05 per cent interest and you will have a $100.50 balance. We will have expenses such as political donations and green fees for our executives. Because of overhead, we have an annual service fee of $5.

Bottom line: at the end of 365 days, you will still have almost a $96 real balance and your money will be safe. It’s a win-win partnership.

A system of cheques and balances

If you don’t want to keep your money in our bank, you can withdraw it at any time by writing a cheque. If a clerk cashes it for you, the Royal Bank charges a reasonable teller’s fee of $2. If you use an ATM convenience card, our service fee is only 50 cents.

Your convenience card costs you $12.50 annually, but you can use it for many other transactions such as checking your account balance--and each time you use that card you gain air miles. Not many, but they mount up. Especially if you measure your travel in feet instead of miles.

How can we afford to keep our service fees so low? We augment our fees with the money people entrust us with.

Suppose that Customer B writes a cheque for $50 but only has $49 in our bank. (In our Far East branches, such an action would be punishable by public whippings, but in Canada we are more lenient.) If someone is a good customer, we will "lend" him or her a dollar so that the aforementioned $50 cheque will clear.

Since we are in the business of managing money, we charge a nominal $20 overdraft fee (plus interest). The unpaid interest on the dollar is 18 per cent. This means that we must wait a full four years to double our money.

During this time we have many expenses: bad debts, political donations, hiring people to foreclose on orphanages and so on.

If we are patient, we are eventually rewarded. One dollar at 18 per cent over 100 years turns into $33 million. (We bankers call this the Rule of 72. Divide 18 into 72 and you come up with four. That means our money doubles every four years. How many four-year periods are there in a century? Twenty-five. Just double a dollar 25 times and you can arrive at the answer yourself. Good old compound interest.)

To heir is human, to bank is a ripoff

Happily, come rain or shine, your account will also continue to earn compound interest. Understandably, bank service fees will erode your account if you do nothing.

In the fifteenth year, if you (or your heirs) continue to neglect your account, we at the Royal will, as a courtesy, "absorb" your balance to avoid further charges to your estate. A good thing, for we have a solemn duty to look after money in the manner that Our Father in Heaven directs us to.

So, to recap: We will, with hard work, have turned your 100 dollars into $33 million. Your original $100 account will long ago have been closed because you abandoned it. You will be dead or senile.

Mr. Summers, I’m sure I need not remind you of the liability one faces when one’s partners are both dead and/or broke.

Worse, as the years roll by, we will be burdened with more and more dead and senile customer-partners with no money. Consequently, your partners here at the Royal Bank feel justified in maintaining our present service fees.

With warmest wishes,

Gordon M. Nixon, Chairman & CEO, Royal Bank

Okay, I made up the satirical letter to illustrate a point and the point is, Becki, corporations (and countries that are made up of corporations) know how to acquire money, and the little guy (like us) usually has a hard time making much money or keeping it.

The big companies and countries end up with much of the wealth.

When it gets too lopsided, the people revolt and wars start.

When one part of a country fights another part of it you have a civil war. When countries fight each other you have regular wars. Right now there are over 100 wars.

When enough countries fight each other at the same time, you have world wars. We have had two.

By the way, included in my definition of a corporation is any group of people who form an economic band to gain wealth. What a mouthful. (Money is simply a modern term to measure wealth.)

Attila the Hun had no corporation. He had a band of followers who wanted to acquire wealth. They killed anyone in their way.

The Nazis were a band of thugs who wanted to acquire countries. And they did until the rest of the world stopped them. We call that World War II.

And in the Wild West, the settlers banded together to acquire the land of the Indians. They almost obliterated the natives who now have casinos (run by their bands) that are bent on acquiring money using modern day corporations.

Ha-ha, jokes on the cowboys and cavalry.

Here is your assignment. Think of any country at war at any time in the history of the world. Ask yourself how money (or the accumulation of wealth) was behind that war.