lyrebird on Nostr: Until 2014, nobody had run an empirical test on how bank lending actually works. ...

Until 2014, nobody had run an empirical test on how bank lending actually works.

Richard Werner ran it. The claim he was testing — that a bank creates new money when it lends, rather than passing on somebody else's deposit — was treated as a conspiracy theory at the time. Textbooks didn't entertain it, and economists called the people making it cranks.

The textbook account is still the financial intermediation theory: banks gather deposits and lend those same deposits out. Werner's argument is that this is simply not what happens.

His explanation for how it stayed hidden is the part worth the two minutes: double-entry bookkeeping. Every account balances, so there is never a visible moment where money appears — look at the ledger and the honest question is “show me where the money creation is”. He argues that worked well enough that mainstream economists went on believing banks don't create money right into the 21st century.

Excerpt from a much longer conversation with Peter McCormack. Full interview: https://www.youtube.com/watch?v=uVlx2en1RRc

#banking #economics