Money Musings

In 2021, it was explained to me that, when banks ‘lend’ money for a mortgage, they create that money by entering the necessary digits on the ledger.  It is your mortgage application that triggers the creation of the money - the application itself being a kind of IOU. This seemed incredible to me - I had thought (without giving it too much thought to be honest - money matters never being my favourite), that banks lent you money they already had, either from their own resources or from borrowing the money deposited with them in savings accounts and the like. Sure enough, there was a video where Professor Richard Werner was describing the process (1) and a 2014 Bank of England Quarterly article explaining it (2). At the time, I considered this to be information which was ‘out there’ if you look hard enough or read the fine print, but which They (who are they?) kept somewhat hidden from us. Certainly, when I spoke of this to friends, they didn’t know either.

Recently, I thought I would check out the Bank of England website, to see what they had to say about the matter. This is what they say in their helpful “Explainer”: 'How is money created?'

'Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans.’ It goes on: 'If you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.' The explainer further explains that when we pay off our loans (with our blood, sweat and toil money - more on this later) 'the electronic money your bank created is ‘deleted’ – it no longer exists.' And further, that: 'You haven’t got richer or poorer [my emphasis]. You might have less money in your bank account but your debts have gone down too.'  What a comfort to know!!!! In summary, the explainer tells us: 'Essentially, banks create money, not wealth.' How very true - no wealth, or abundance involved. (3)

I wondered whether the bankers had always been so blatant about this.  They will tell you, for example, that money is about confidence…. It is no longer ‘backed by gold’, it is just the promise to pay that creates the value (in other words, the promise, not the paying). But I had never before, explicitly been told, by the banks themselves, that banks create money when they make a loan. (I recently asked one of the lovely ladies at the call centre at my bank about it - she didn’t know either, and said she would look into it).  

How long have they been creating money in this way?  How long have they been saying, up front, à la the Bank of England website, that this is what they are doing? And, how is it fair, if they create this money, by the mere entering of digits on a screen, that we should pay the enormous interest charged? Maybe we should pay a fee for this service, but the bulk of our salaries for 25 years under threat of the loss of our house if we fail?  What’s fair about that? Does this have more to do with what Montagu Norman, Governor of the Bank of England, said when addressing the United States Bankers Association in 1924 regarding keeping power and control of the people? 

Capital must protect itself in every possible way, both by combination and legislation. Debts must be collected, mortgages foreclosed as rapidly as possible. When, through process of law, the common people lose their homes, they will become more docile and more easily governed through the strong arm of the government applied by a central power of wealth under leading financiers. These truths are well known among our principal men, who are now engaged in forming an imperialism to govern the world. By dividing the voter through the political party system, we can get them to expend their energies in fighting for questions of no importance. It is thus, by discrete action, we can secure for ourselves that which has been so well planned and so successfully accomplished. (4)

I wondered whether the banks were now telling us about this money creation in order to provide a defence to accusations of fraud. A kind of plausible deniability. In other words, the loan applications had, for hundreds of years, been triggering the entries on the screen, but it was just plain old fraud, that was hidden. If they call it ‘money creation’ and say it is allowed for by statute or charter then it is no longer fraud. How long has this information been up front and centre on the Bank of England website?

The Bank of England site told me that the explainer page about money creation was dated 23rd March 2018, and last updated on 1st October 2019. I took a look at the ‘Way Back Machine’ which had saved the page 64 times between 1st April 2019 and 13th October 2022, but no saves prior to 2019. I looked at the B of E website through the lens of the Way Back Machine and found nothing similar to the explainer page, but it’s not my forte and if you are able to find more then please let me know.

When I was a little girl, I remember asking my Dad, why, if people/ the country was short of money, didn’t they (there they are again!) print some more. Well, he told me, if they printed too much money then that would decrease the value of the money. That made sense, I let it go. In later years, I got to thinking, that, since money is about confidence, if they (yep, them) printed some more but didn't tell people they were printing the extra, then nobody would know - there would be more money, but it would still be valuable.  Maybe this was the reason the creation of money at the point of lending was being kept obscure? A confidence trick!

But why is it so obvious now? Or is it like dairy? It was only in 2015 that I realised that cows had to have given birth in order to produce milk…. I just thought (again, not giving it much thought) that cows could just produce milk without having to be mothers. I didn’t know that we drink the milk that should be the calf’s. Seems so obvious once you know, but it is not the impression given by the dairy industry, and I am sure that many people do not know this, otherwise there would be no need for vegan activists to make videos explaining exactly how it does work (5). Nevertheless, when you explain to someone that cows have to have given birth to produce milk, even though you know they don’t know, they look at you, slightly blankly, but nod, as if they have known this all along. I feel sure that this will happen to me about the money creation thing: “Oh Lou, of course they create the money when they make a loan!” Cue condescending smile…. “Where else do you think it comes from? They obviously can’t loan out all their depositors money because those depositors might want it back.”

I considered the 2014 Bank of England Quarterly in some more detail.  It told me that I was not the only one to be surprised by the admission of money creation by the banks. Indeed, it said in a large box on page 14 that the way most money in the modern economy (the bank deposits) are created is ‘often misunderstood’!! In fact: ‘Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.' This misunderstanding was not just on the part of the general public it seemed, since: 'The reality of how money is created today differs from the description found in some economics textbooks'. The B of E quarterly sets these text book authors straight: ‘Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits… In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.’

I was puzzled as to how the economics textbook authors could have been so wrong. My curiosity led me to an article by Richard A. Werner entitled: ‘Can Banks Individually Create Money out of Nothing: The Theories and the Empirical Evidence’ (6). In the Literature Review of the Study, Werner, sets out how the experts had been debating for almost a century what the banks actually did. One school of thought believed that individual banks could, indeed, create money out of nothing, a second, that banks could not do this individually, but all the banks could do it together. The third theory was that banks acted as intermediaries, loaning out the money which had been deposited with them.  Forgive me if I have over-simplified here, or failed to grasp the intricacies of each theory. I did not want to spend too much time on getting to grips with theories which seemed to me like a game of cups invented to hide the fact that the banks were, in fact, creating money out of thin air. Professor Werner conducted an empirical study (the first of its kind) to look at the full accounting methods and find out whether the banks were, in fact, creating money out of thin air. Obviously, the banks could not be trusted to provide a straight answer to the question: Are you creating money out of thin air?! Indeed, the big banks refused to participate in the study - citing data protection issues or that they had so many transactions going on that the researchers would not have been able to follow individual transactions… cups?? The conclusion of the study was that the banks were, indeed, creating money out of nothing! Like ‘fairy dust’, the study says.

Surely, the creation of money should be the sole remit of HM Treasury, and be provided to us interest-free too.  This was exactly what happened with the Bradbury Pound in 1914. As Justin Walker says: ‘The simple truth is this:  any sovereign nation, through its treasury, can create, issue and control debt-free and interest-free money that is based entirely on that nation’s wealth and creativity (labour potential). This way, all of a nation’s essential needs can be met without the requirement for a complex and invasive taxation system; and without being dependent on the vagaries of the international money markets’ (7).

There is, of course, the bigger question: is the creation of any money that is not backed by something of actual value, something you can hold in your hand - gold, silver, precious perfume, etc, a kind of fraud?  When does a confidence trick become a fraud? Is the whole money being a confidence thing not just gaslighting… certainly makes you feel that way! Come to think of it, why is backing it with gold any better?  Or choosing gold as currency.  Gold is rare, so has a value because of that, but, if you were starving, then bread would be more valuable to you.  Gold does not have a value by itself, it’s not useful in and of itself, it doesn’t nourish - like food or water or shelter (I know, it does make pretty jewellery and probably something useful to do with electricity). It’s use as currency really comes from the value we have, collectively, agreed to give it. We could just as easily have chosen buttons. In fact, if everyone was able to create their own buttons as currency, wouldn’t there be more abundance (and, no doubt, some beautiful buttons). Or would button production need to be placed in the hands of a select few, who could insist on you working for them for the rest of your life to pay them back their buttons? At least the button creation would require more effort (and actual raw materials) than does entering digits on a screen. Would anybody believe in buttons?  What if they stopped believing in buttons?

How can we continue to believe in money when it is just the entering of digits on a screen?  Is it not just a form of mind control, to keep us enslaved and in a ‘lack’ mentality. After all, its very nature, we are told, requires it to be kept in short supply. That is not abundance. As the Bank of England says: ‘Banks create money, not wealth.’ The clues are all there! (8)

Recently I listened to Harald Kautz Vella’s ideas about money (9). He has even created the tokens, apparently, though I have not been able to find these or the detailed instructions, but we could use buttons, for now, I guess. If you need something, a haircut, say, you go to the  salon and get your hair cut. Instead of you paying the barber, he gives you a token, representing what you now owe to the community. When you perform a service or create something for another, then you give your token away to the other person. The object of the game is to give away your tokens, not accumulate (hoard) them, as is the case with money. Eventually, everyone starts to give and receive freely, and they, naturally stop using the tokens. They realise that the tokens were never needed…. Just a fluid exchange of time, services, and creative skills. This way, the good deeds we do that we currently can’t get paid for (which, consequently, become lower on the priority list because we are all just surviving, trying to repay digits on a screen) have the value they deserve. We are happy because we get to do good deeds, creativity is rejuvenated, and abundance is created.  How you would actually buy a house in this paradigm, I don’t know. Maybe the terminology and the way we think of these things would change, who knows.  We do know that we do not want a cashless society, but maybe we do want a moneyless society, because, as Veronica Chapman says: ‘We can’t go on for much longer under the absurd and preposterous illusion of money’ (10).

Maybe we don’t need to #KeepItCash, or even #BuyWithButtons. Maybe we just need to learn to give and receive freely. We might just need some device, a token, until we can learn to do this on our own.



(1) Prof. Werner brilliantly explains how the banking system and financial sector really work



(4) This quotation was reprinted in the Idaho Leader, USA, on 26th August 1924, and has been read into the Australian Federal Hansard twice: by John Evans MP, in 1926, and by MD Cowan MP, in the session of 1930-31.

(5) Dairy is Scary

(6) Richard A. Werner, Can banks individually create money out of nothing? — The theories and the empirical evidence, International Review of Financial Analysis, Volume 36, 2014,Pages 1-19

(7) Justin Walker, ‘The Bradbury Pound to the Rescue’

(8) For more on money as mind control listen to Mark Passio’s brilliant podcast ‘What on Earth is Happening’  I can’t tell you which episodes, because Mark insists you listen from the beginning! 

(9) Harald Kautz and Cabin Talk - Talking about Money

(10) Veronica Chapman, ‘Freedom is More than Just a Seven letter word.’ 2009.