Tuesday, March 28, 2023

The dismal science

 Dr Richard Werner, a Professor of Banking and Finance at the University of Winchester,  claimed some years ago to have found evidence that an individual bank on its own can create money ‘out of nothing’:

More recently, in an article on his blog,  he argues that banks should not be allowed to fail because they create most of the money needed to keep the economy going. He seems to think that banks have two quite different and unrelated functions: to act as a safety deposit box, keeping safe money that people don’t want to use for the time being, and to create new money. Apparently, for him, the two are unconnected.

His blog item doesn’t address the question of why, if individual banks can simply create money ‘out of nothing’, they don’t create some when they are in financial difficulty, to stop them going bankrupt; or, in fact, why they need depositors at all?   Surprisingly,, given what has just happened to Silicon Valley Bank (SVB)
 and Credit Suisse, those like him who argue that a bank doesn’t need depositors (whether individuals, companies, or other financial institutions) to be able to lend money would crawl away and hide in some dark corner. Unfortunately they won’t but will continue to point critics of the effects of the present economic system in the wrong direction.


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