John Kenneth Galbraith: Banks Create Money

Posted by admin on Saturday, July 24, 2010

John Kenneth Galbraith Money Quotation shows he is offended by the ease with which financial institutions manufacture money and wishes for some complexity to it
 

 

“The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent” — John Kenneth Galbraith

 

 

In this quote, John Kenneth Galbraith is commenting on how the process of money creation by commercial banks is actually quite straightforward and simple, yet this simplicity seems almost unbelievable or unsatisfying when considering something as important to society as the money supply.

His point appears to be that one would expect the means by which banks generate money through lending and fractional reserve banking to involve more complexity, mystery or depth given money’s significant role in the economy.

So the best interpretation is that Galbraith is acknowledging that while the mechanics of how banks create money are quite basic, there is a natural inclination to assume there must be more to the story behind such an impactful economic function.

Birthday: October 15, 1908 – Death April 29, 2006

“When banks extend loans to their customers, they create money by crediting their customers’ accounts” ~ Mervyn King, Governor of the Bank of England