One of the wrong presumptions, on which all theories
The history of money creation dates back to the goldsmiths of Medieval England. People at those times, used to deposit their gold coins with them for safety in trust, and acquired a receipt (a kind of promissory note), entitling them to the quantity of gold held with the goldsmith. These receipts or bearer cheques were more convenient in use and while purchasing commodities, the depositors instead of returning to the gold smith and exchanging the receipt for his gold felt happy in making payments to the seller in the form of this receipt.
As these receipts gained acceptability in the market, their circulation in the market increased and the first paper money was born. With this trend, less and less number of depositors ever came to the goldsmiths to demand actual gold. At this point, the goldsmiths realized that they were somewhat timeless owners of a bulk of the prized metal which was stocked up for no good. So secretly, they began lending out some of the deposited gold by charging interest rate on it.
In this way, three types of money started being circulated in the market; actual money backed by actual gold, sham money backed by no gold, and the monetary sum of interest rate mounting up with each passing day. Property, belongings and valuables were held as securities with the goldsmiths and on default of payment they were seized. With the passage of time, the gold smiths of former times became financially affluent and influential men of later days - The Rothschild and Rockefellers.
Heinrich Heine, a famous poet of his times once said,
This was not the end; it was the mere beginning of the banking system which was to prevail henceforth. Interestingly, the money we deal in today is the babe of this aged deception. Now, inflation and unemployment, the two biggest perils dooming the world today, are somewhat the result of self-directives of man. The birth of modern day set up of financial system is an upshot example. Stability in any economy is a game won when each player gains from the garner. The percentage of real money issued by the governments has been constantly on the way out in most of the countries, while the proportion of the mock money generated by the banks out of zero is growing.
The spiral of loans built upon loans is now the major part of the money supply. For example in UK, according to the statistics of 1997 the total money stock was 680 billion pounds, out of which only 25 billion pounds were issued by the government (in the form of coins and notes). The rest i.e. 655 billion pounds was created by the banks. It means that the original debt free money accounts for only 3.6% of the whole money supply while96.4% is nothing except a bubble created by the banks. The way this bubble is growing annually is going to leave individuals in severe debt at the cost of financial advantage of a minority of people. Ten years later, while penning down this article, I can only imagine the monsterity of this bubble.
Now, what happens today is an increase in capital hoards via investment (for some) in stock exchange, real estate, forex trade, prize bonds, commercial paper, debt financing, and the list goes on...against whom? If one prevails he does so by acquiring some market share and if he loses, he loses at the expense of some other big fish. What is missing from the whole deal is the fact that there is no real time benefit associated with the whole process. All of this is a game of money, played with money against money. And the losses are incurred in the form of increasing debt rates, engulfing the whole world. And sorry to say, it's you and me financing these debts in the form of ever increasing dues and taxes.