Banking Is The Dark Matter of Economics (Part 2) - Bob Murphy & Steve Keen, DemystifySci #388

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Dec 19, 2025

In this engaging discussion, Bob Murphy, an Austrian economist advocating for market-based monetary policies, and Steve Keen, a critic of conventional banking models, explore the intricacies of money creation. They challenge the textbook portrayal of banking, dissecting concepts like fractional reserve banking and the flawed money multiplier. Their contrasting views reveal how public confidence underpins banking stability and raise critical questions about accountability during financial crises. Both propose intriguing alternatives to the current system, highlighting the complexities of our economic landscape.

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INSIGHT

Textbooks Misstate How Money Is Created

Textbook 'fractional reserve' models misdescribe money creation and are misleading.
Real banks create money by issuing loans that simultaneously create deposits, not by lending out reserves.

INSIGHT

Base Money Isn’t The Whole Story

'Base money' (central bank notes/reserves) differs from bank-created deposit money.
The textbook multiplier treats reserves as the fuel, but that view misses how private banks actually expand credit.

INSIGHT

One-Line Reality: Loans Create Deposits

The single clear rule is: loans create deposits.
Banks uniquely expand both assets and liabilities simultaneously when they lend.

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