Smith did not recognize the market power that bankers possessed in their ability to create credit-money out of nothing, and issue the money as debt at interest, the debt secured by the borrower's pledging of real economic wealth as collateral against borrower default on money repayment.
First of all, bankers are capitalists who want to accumulate more money, not ownership of more collateral assets. If a borrower has, or can buy, a monopoly that guarantees high profits, then the borrower will be able to pay the banker's interest and repay the loan principal, and all's right with the banker's world. So bankers favor lending to monopolists, which systematically enables the buyout of free market small businesses by monopolists.
Secondly, if you don't pay the interest and pay ALL the money back, the banker gets your house or farm or business or your cargo of trade goods. That is, unless you the borrower pays the banker more money than the banker loaned into existence, the banker takes ownership of your collateral. You have already made some payments, and the collateral is worth more than the balance owing, so the banker gets the benefit of the difference between the amount owed and the sellable price (liquidation value) of the collateral.
Either way, the bank-issued money system disfavors individual small business competitors, and encourages monopolists.
Banking laws have been restricted in subsequent centuries so the proceeds of bank sales of collateral have to be split with the defaulter, if there is any amount left over after paying out the interest owing and the principal balance of the loan owing. In the recent mortgage debt bubble and real estate price collapse, the salable price of houses is less than the money owed against them (underwater mortgages), so people can't escape their debt even by giving up ownership of their collateral/house. And student debt is also inescapable because it is not forgivable under recent changes to bankruptcy law. The former middle class is mired in debt bondage.
I hope it is clear that a government-granted bank charter is a license to literally "make money", and use that money to buy people's and government's debts, the loans of created money secured by the pledging of real economic wealth against the possibility of repayment default. A banker can create a billion dollars of spendable money with a few keystrokes. It takes armies of workers and territories of resources to produce a billion dollars worth of real economic wealth. But the created money can buy (or foreclose upon) the produced wealth, transferring ownership of the real wealth from the people who produced it to the banker who financialized it.
As mid-19th century American farmers, who borrowed bank money to buy farm machinery to increase their production and cash in on high grain prices (prices that were soon to collapse), discovered to their sorrow, when you can't pay the loan the bank takes your farm. Then the bank sells your farm to some wealthy farmer or some capitalist land accumulator. And eventually US farmland is overwhelmingly owned by capitalist agribusiness corporations, and family farmers are all but extinct. Capitalism systematically replaces the small holdings of individual people and free market businesses with an oligarchy of corporate plutocrats who own it all. Marx said capitalism tends inevitably toward monopoly. This is what he meant.
The US has been world capitalism's home-state for about a century now, though the City of London remains a post-British Empire money center. As long as the US political state serves the interests of capital, the capitalist ruling class will continue to use the US state's monetary (the US$ is the global payments currency, the modern day "gold" of international buying and selling) and military power to serve their global ambitions. But we have already seen the end of capitalist investment in US economic production, and the transformation of the capitalists' capital into money and financial assets like stocks. Investment and production of post-industrial "new economy" goods (like electronics and other consumer goods) has been moved to Asia, while capitalists retain corporate ownership of US agriculture, pharmaceuticals and health care, and of course the production of strategic military-industrial and scientific technology.
High cost (to capitalist producers) US jobs have been offshored, or workers have been replaced by machines wherever it is possible and profitable to do so. Without earned incomes, Americans are living on their savings and borrowed money. But the money lenders see that Americans' capacity for debt service has pretty much reached its limits, so the practice of maintaining First World lifestyles (while under- or unemployed and living on debt) is coming to an end. When capitalists pull their investment out of your country, you become poor, because capitalists own and operate the global economy to serve their interests, not yours.
As feudal rule gave way to capitalist rule, the battle cry of the French Revolution inadvertently provided capitalism with a brilliant veil to disguise its oligarchic rule: liberty, equality, brotherhood. "Democracy" is the opiate of capitalism's masses. The people believe, against all evidence, that their elected political government rules their nation, and their "representative" government serves their interests.
This belief is observably false, and blatantly obviously false in the US. To get elected and to remain in their political seats, politicians serve the capitalist rulers, not the democratic masses. But the people, who are psychologically incapable of acknowledging the awful truth that they are ruled by owners, not served by their elected representatives, choose to believe democracy is real. So they waste their political efforts within the impotent delusion of democracy, while their rulers do whatever they want without fear of exposure. Because even when the most lawless predations of the capitalist state are exposed for all to see, the democratic masses refuse to believe it, and carry on as if state policy and action represents and serves the will of the democratic majority.
What is worse, by the power of omnipresent brainwashing propaganda blasted from the evermore shrill mass media hectorers, the rulers convince the people that the people's interests are identical with the rulers' interests, so the people passionately support the very policies that indebt, impoverish and oppress them. A people's worldview, as religious authorities and economic priesthoods know only too well, is easy to bamboozle by presenting a united front of fairy tales to keep them all deceived. It's called controlling the narrative, telling proud and comforting stories that seem to explain the events that are unfolding on the cave wall.
So first, people don't understand the truth about money because they believe we live in a free market democracy. All of the wise men preach the same neoclassical fairy tales about life in a barter economy where money-issuing banks and capitalist oligarchies don't exist. Indeed "can't" exist, because democratic governments would never surrender their money-issuing power to private bankers; or surrender their political power to plutocrats; and market forces would soon remove the excess profit from the targets of monopoly acquisition. As long as everybody believes in the ideology and agrees that reality "can't be" the way it is, they see the fairytale world and not the real world.
But finally, people don't understand the truth about money because they don't want to. The truth, that money is the chief instrument of their bondage, is too harsh for their minds and hearts to engage. So they deliberately choose to believe in comforting illusions rather than nakedly gaze upon the awful truth. When evil is too monstrous for the people to see, evil is free to walk unveiled upon the Earth, and only the most intrepid seekers of truth will see it. The fearful are legion; the intrepid are few.
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