Overview
Bob Murphy and Jonathan discuss the recent Tucker Carlson interview with economist Richard Werner, focusing on Werner’s claims about money creation, banking theory, and their alignment or conflict with Austrian economic thought. The episode unpacks Werner’s arguments, historical context, and the implications for economic theory and policy.
Key Themes from the Tucker Carlson/Richard Werner Interview
- Werner claims to be the first empirically to show that banks create money out of nothing by granting loans.
- He outlines three theories of banking: pure financial intermediation, fractional reserve theory, and credit creation theory, favoring the last.
- Werner criticizes mainstream economics for omitting banks from their models and neglecting the true nature of money creation.
- He recounts the goldsmith-origin story of fractional reserve banking, highlighting alleged secrecy, fraud, and its historical illegality.
Responses and Critiques from Murphy and Jonathan
- Many points Werner claims as novel are longstanding in Austrian economics, detailed by Mises and Rothbard over a century ago.
- The three theories of banking are not mutually exclusive; fractional reserve theory encompasses credit creation and reserve dynamics post-loan issuance.
- Empirical tests on money creation must consider interbank settlements and ongoing transactions, which Werner’s analysis downplays.
- Mainstream and Austrian economists (including the Fed itself) have openly described banks’ role in money creation; it is not a suppressed secret.
Historical Context and Public Understanding
- The goldsmith-origin story and the mechanics of money creation are widely available in public documents, such as the Federal Reserve’s Modern Money Mechanics (1961).
- Werner’s framing of his insights as hidden from public view is inaccurate; these concepts are regularly covered in economic literature and textbooks.
- Murphy’s own Mises Institute course and writings echo the same mechanics Werner presents.
Policy Prescriptions and Austrian Business Cycle Theory
- Werner proposes restricting bank credit creation to only productive business investment to avoid asset bubbles and inflation.
- Murphy and Jonathan argue this prescription replicates what Mises warned against—namely, that artificially expanded credit for business investment distorts resource allocation and causes boom-bust cycles.
- Austrian business cycle theory emphasizes that malinvestment (not just overinvestment) from credit expansion creates real economic disruptions, not merely nominal price changes.
Conclusions and Takeaways
- Many of Werner’s claims are not new and are well-documented in Austrian and mainstream economics.
- The real issue is not the revelation of money creation, but how expanded credit leads to economic cycles and misallocation of resources.
- Restricting bank lending by regulatory fiat does not resolve the underlying problems highlighted by Austrian theory.
Recommendations / Advice
- Review foundational Austrian writings (Mises, Rothbard) for detailed exposition on money creation and business cycles.
- Analyze credit expansion’s real effects, not just nominal outcomes, to understand economic crises.
Questions / Follow-Ups
- Would Werner’s proposed lending restrictions avert, or simply change the nature of, economic cycles?
- How can public understanding of money mechanics be effectively improved given persistent misconceptions?