Samuel Pepys kept his money in gold bars and buried it in the back garden when the Great Fire of London threatened his house in 1666. It is generally supposed that the advent of modern banking, by allowing consumers to keep their money in a safe place without charges, has greatly increased the efficiency and reduced the costs of the economy. Yet a combination of “funny money” monetary policies and the aggressive marketing and pricing strategies of the major banks bring this central function of banking into increasing question. Pepys’ gold bars look increasingly attractive, and not just as an inflation hedge.

There appear to be two factors driving the banks’ move towards ever more inventive fee systems. One is the attempt to boost the profitability of consumer banking through aggressive marketing. The recent Wells Fargo scandal, in which 5,300 consumer bankers have been fired for opening accounts for customers who had not requested them, and a $185 million fine imposed on Wells Fargo appears to be only the tip of the iceberg.

My own local bank has just been taken over by a large regional bank, Keybank, which has announced that it will impose charges on inactive accounts, thus forcing account-holders to pay to store their money with it. Needless say I shall withdraw my modest account, and find another bank that treats my hard-earned money with proper respect.

Providing a safe home for depositors’ money is the central function of banking. In return the bank is able to use that money for profitable but only moderately risky loans and investments. Keynesian theorists who regard the central function of banks as providing loans have it exactly back to front. Providing loans is an ancillary function of banks, that can lead to profits but is secondary to their function as a safe haven for deposits. The stimulus to the economy from loan provision is very limited compared to the stimulus from providing the safe haven.

As for services, they are mere add-ons to the other functions of banks, and should not be allowed to govern the institution’s strategy or operations. The focus on marketing that modern banks have acquired, and the modern economists’ focus on bank lending as the be-all and end-all of a successful economy are both wrong. After all, most bank loans are to unproductive sectors such as the government or housing, hence add very little economic value.

The other factor driving banks astray is the near-decade of “funny money” monetary policies. These have taught banks to believe that deposits are essentially “free money” on which they need pay no return and for which they do not need to show gratitude. Before funny money a deposit of a modest few thousands of dollars, on which little interest had to be paid and that just sat in an inactive account would have been a desirable item on the bank’s balance sheet, on which decent profits could be made. Today, with lending rates so low, except for risks that the prudent bank will not want, and endless cheap money available in the repo market, the bank is simply not interested in the business.

Business patterns take time to alter. A short period of zero interest rates, for example in the middle of a recession, will not make banks change their overall policies, any more than the rising inflation of the 1970s caused the savings and loans to abandon their traditional 30-year fixed rate mortgage lending. However, when the zero-rates period stretches towards a decade, banks come to regard it as the natural order of things, and cease to regard inactive deposits as the highly valuable assets they are in an ordinary business environment.

This will worsen if, as seems increasingly likely, we see negative interest rates in the next downturn. Banks will regard inactive deposits as highly unattractive pieces of business, for which they will charge fees and attempt to deter by all means possible. Even paying negative interest rates on deposits will not satisfy banks, because such rates would penalize the kind of customer for whom his checking or savings account is merely an introduction to oodles of expensive and pointless services which the bank has managed to sell him.

In a negative rates environment, even more than today, the ideal bank customer will be the Millennial with a gigantic student loan (on which he cannot default) and a series of credit cards on which he pays high interest rates and massive charges whenever anything goes wrong. Even more than today, banks will use their entire marketing budget to create such customers while the solvent and careful will be given the bank of the hand.

In such an environment, there is no longer a safe haven for money. Putting it in a bank will subject it to rapid erosion, even apart from the effect of inflation, which of course will not go away as the Fed and other monetary authorities stray ever further from their mandate of keeping prices stable, tolerating inflation rates of 4%, 5% and even higher in a futile effort to provide economic “stimulus.” Money will thus be eaten away as if by mice, while its purchasing power will be destroyed as if by locusts.

In an economy in which interest rates are negative and banks deter depositors, they no longer have any value for the prudent citizen. The possibility of holding large quantities of cash in banknote form will quickly disappear, as Andy Haldane, Ken Rogoff and their evil Marxist-Keynesian brethren, in their endless war against the “rentier” prevent citizens from holding physical cash. At that point, prudent citizens will return to the world of Samuel Pepys.

In Pepys’ time, the key financial intermediary was the goldsmith. Goldsmiths could melt down coin into ingots, or provide gold in the form of drinking cups, etc, for those who liked to display some of their wealth to the envy of their neighbors. They could also provide savers with a secure place to deposit their money. As the richest citizens in their society, with very little leverage, the largest goldsmiths were the best credit risks around. In turn, they could make gold-based loans to foreign traders and other merchants of known solid credit quality.

Some goldsmiths, of course, were lazy and foolish enough to lend to the government, in which case they were likely to get in trouble – the Great Stop of the Exchequer in 1672 wiped out many of London’s goldsmiths, causing a nationwide economic depression that lasted for several years. So you couldn’t treat a goldsmith like Bank of America and entrust all your wealth to it. Instead, like Pepys, you would deposit some of your wealth with one or two prominent goldsmiths whom you trusted, and keep the rest in gold bars, to be hidden in the garden if fire or an invading force swept by your house.

In such a society, as a man of substance you would incur losses from time to time, just as you would from investing in residential real estate (your other major asset class) but on the other hand the goldsmiths would treat you properly and would be unlikely to impose innumerable random fees – their business depended above all on reputation, which random fees would destroy.

When banks came along after 1694, with the Bank of England to backstop the banking system, it quickly became clear that they formed a more convenient alternative to goldsmiths. What’s more, gold-standard government bonds, maybe with a tontine or two that would pay off if you outlived your neighbors, were an attractive alternative to physical gold and real estate – after all, they paid interest, and did not require dealing with recalcitrant tenants.

Today however government bonds pay less than the rate of inflation, and banks are no longer an attractive alternative to goldsmiths. Their credit risk is nominally less because of deposit insurance, but given their leverage and business practices, and the parlous state of most countries’ fiscal positions, even that additional security is worth a lot less than it was.

Accordingly, the wise saver will revert to the habits of Samuel Pepys. He will keep much of his savings in gold bars, stored with an institution of undoubted credit rating that has no connection to the tottering banking system. He will also avail himself of one of the gold-based credit cards that are becoming increasingly common, topping up his balance on the card with income as he receives it, and paying all his bills through it. By this means, he will indeed become the cashless citizen of Messrs Haldane and Rogoff’s dreams, but without having any contact at all with their fraudulent Feds, criminal central banks and associated Ponzi-scheme financial institutions.

Maybe the new Pepyses will incur a few unexpected costs that they had avoided when using the conventional banking system, but they will have one enormous advantage over their banking-system-bound neighbors. They will sleep at night.