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On a hiking tour last week in the Alsace Lorraine region of France, I found the area to be much like the Napa Valley --- except they have castles. The purpose of trudging about ten miles and 20,000 Fitbit steps a day was to assuage the guilt for eating rich, sauce-slathered French food every night.

But day long walks and exploring 1,500 year-old castles gave me time to think about the origins of monetary policy with an eye toward understanding more about our current central banking system. Bear in mind that what we have today in the way of money all started in those castle communities with bills of exchange between, say, a shepherd who previously would have traded some wool for some bottles of wine. The creation of money gave the shepherd the freedom to exchange his wool for something other than some physical good for which he would otherwise have to barter. It was a medium of exchange, and understanding it begins with appreciating how it is disconnected from the economic engine of goods and services. Money is not the engine. It is the grease and oil the engine requires.

Baron Von Rothschild supposedly once said, “only two people really understand money, and the other guy doesn’t know as much as I do.” The same situation probably can be said today as many people have uninformed knee-jerk opinions regarding what they perceive as destructive government monetary policy.

Here’s just one example: The so-called quantitative easing was designed to increase the reserves of banks so they would be less threatened by insolvency. We needed money in the system anyway to replace the amount that had been created by the mortgage boom of the mid 2000’s. So, the banks issued bonds which were bought by the Federal Reserve in exchange for cash the banks needed to increase their reserves. The reserves are invested with the Fed and earn one quarter of a percent. Meanwhile, the banks pay interest on those bonds which are interest bearing investments owned by the Federal Reserve. However, since the Federal Reserve is an organization owned by the banks, it can be said that the banks were paying interest to themselves in a roundabout way. Not that long ago, some senator suggested that maybe the Fed’s interest earnings from the bonds (their profit) should be returned to the Treasury (i.e. the U.S. taxpayers) who had made it all possible to begin with. Why didn’t anyone think of that sooner? The Fed now pays us over $100 billion per year that they formally kept for themselves. Fair enough since it’s the Treasury Department that creates the money the Fed uses to buy those bonds from the bank in the first place.

All of which illustrates an important point. American citizens can create money. We’re not broke. We did it in Revolutionary times. We did it during the Civil War when the New York banks wanted to charge 40 percent interest on loans to our government. We did it during the depression in the thirties when the Resolution Trust Corporation funded billions of loans with money provided by our Treasury. This citizen-owned bank filled the hole left by the catatonic private banks and funded not only the public works of the thirties but the build-up to World War II as well. When it finally closed, it had earned Americans over $600 million in profit.

To the extent that the too-big-to-fail banks fall short of filling the needs we have of providing the money supply necessary for economic growth, our ace in the hole is the fact that we don’t need them. And that’s good to know because they are failing us still. Readers of this column have e-mailed or called to say how they are still being victimized by predatory mortgage practices and others have complained about lines of credit that have been cancelled. Instead of giving all that public money to the banks, one argument suggests that we should have made it available to individuals and businesses --- directly. That approach has worked well in past history, and it has worked really well in one state --- North Dakota --- since the turn of the last century. How long should we wait for California or even Congress to consider the same noble experiment?