Written by John Lounsbury
Prof. Richard Werner takes 15 minutes to discuss five questions which explain the creation of money by banks. He uses the clever term “creative accounting” in the explanation, which is quite literally key to the money creation process. He descibes a process that is not contributive to GDP (the goods and services economy) but is actually subtractive. He includes in this presentation a prescription for limiting the parasitic activities (we are introducing that term – Werner does not explicitly) of banks.
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Note: Previous GEI articles featuring Prof. Werner:
- Richard Werner: Supply of Money Controls the Economy (22 March 2013)
- Documentary Of The Week: Today’s Source Of Money Creation (10 July 2018)
Here are bio excerpts from Wikipedia:
In 1989, Werner earned a BSc at the London School of Economics (LSE). Further studies at Oxford University were interrupted by a year studying at the University of Tokyo.[2] His doctorate in economics was conferred by Oxford. In 1991, he became European Commission-sponsored Marie Curie Fellow at the Institute for Economics and Statistics at Oxford.[2] His discussion paper at the institute warned about the imminent ‘collapse’ of the Japanese banking system and the threat of the “greatest recession since the Great Depression”.
Werner claims to have proposed the term quantitative easing, as well as the expression “QE2” in 2009 to refer to the need to implement true quantitative easing as an expansion in credit creation.[1] He has also proposed the “Quantity Theory of Credit”, which disaggregates credit creation used for GDP transactions on the one hand, and financial transactions on the other hand … which is in line with Schumpeter’s credit theory of money.[3]
Werner is currently teaching at the University of Southampton.[2] He is the founding director of the university’s Centre for Banking, Finance and Sustainable Development and organiser of the European Conference on Banking and the Economy (ECOBATE), first held on 29 September 2011 in Winchester Guildhall, with Lord Adair Turner, FSA Chairman, as keynote speaker. Since 2011, he has been a member of the ECB Shadow Council.
Source: YouTube
Special bonus: If you want to hear more details from Prof. Werner, here is a second, longer video recorded just last month at the Dialogue of Civilizations Research Institute. The moderator is Dr. Stefan Grobe, Brussels Correspondent at euronews. This longer video is highly recommended for a deeper introduction to the terminology, theories and history of banking over the past 100 years.
