Most of us grow up believing banks simply take deposits from savers and lend them out to borrowers. But behind the curtain, the truth of how banks create money out of nothing is very different. For centuries, insiders, judges, and economists have admitted that banks don’t just move money around — they create it.
This post explores ten quotes from influential figures, unpacks their meaning, and connects them to today’s financial system.
How Banks Create Money Out of Nothing – Insights from Insiders
Sir Mervyn King – Banks Create Money When They Lend
“When banks extend loans to their customers, they create money by crediting their customers’ accounts.”
Who he was: Governor of the Bank of England from 2003 to 2013, leading during the 2008 crash.
Context: In a 2012 speech, King explained that when a bank issues a loan, it creates a new deposit.
Meaning: Most money in circulation is created this way. Banks don’t lend out pre-existing funds — this is how banks create money out of nothing in practice. The Bank of England itself explains this process in detail.
Why it matters: Private banks, not governments, create the majority of our money supply.
[Image: Mervyn King speaking at a financial conference]
Caption: Sir Mervyn King – Banks Create Money When They Lend
Graham F. Towers – Brand New Money, Every Loan
“Each and every time a bank makes a loan, new bank credit is created — new deposits — brand new money.”
Who he was: First Governor of the Bank of Canada (1934–1954).
Context: Testimony to Canada’s Parliament in 1939.
Meaning: Loans expand the money supply by creating new credit entries. This process is often referred to as money creation, and it underpins most modern economies
Why it matters: Towers openly admitted how banks create money out of nothing whenever they lend.
If this reminds you of the idea that debt is not always what it seems, you might also find my post on The Spiritual Meaning of Debt worth reading.
[Image: Historic photo of Graham Towers]
Caption: Graham F. Towers — Brand New Money, Every Loan
Lord Adair Turner – How Credit Creation Caused the Crash
“The financial crisis of 2007/08 occurred because we failed to constrain the private financial system’s creation of private credit and money.”
Who he was: Chairman of the UK Financial Services Authority during the crash.
Context: Reflecting on the 2007–2008 crisis..
Unchecked lending and credit creation fuelled the global meltdown. Campaign groups like Positive Money argue this is why we need reform of how banks create money out of nothing.”
Why it matters: Regulators now admit that how banks create money out of nothing — when left unchecked — can destabilise entire economies.
[Image: Financial crisis newspaper headline montage]
Caption: Lord Adair Turner — How Credit Creation Caused the Crash
William Paterson – Interest on Money From Nothing
“The bank hath benefit of interest on all moneys which it creates out of nothing.”
Who he was: Scottish trader, founder of the Bank of England (1694).
Context: Attributed to him during the Bank’s early days.
Meaning: Banks profit by charging interest on money they simply create.
Why it matters: This model of how banks create money out of nothing has underpinned financial power for over 300 years.
[Image: Painting of the early Bank of England]
Caption: William Paterson — Interest on Money From Nothing
Major L. L. B. Angus – Sleight of Hand Banking
“The modern banking system manufactures money out of nothing. The process is, perhaps, the most astounding piece of sleight of hand that was ever invented.”
Who he was: A military officer, commentator on banking.
Context: Critique of the banking system’s creation of ledger money.
Meaning: Banking compared to a magician’s trick.
Why it matters: Even outsiders recognised how banks create money out of nothing as a kind of sleight of hand.
[Image: Hand pulling coins out of thin air like a magic trick]
Caption: Major L. L. B. Angus — Sleight of Hand Banking
Reginald McKenna – Banks Control Governments
“They who control the credit of the nation direct the policy of Governments and hold in the hollow of their hand the destiny of the people.”
Who he was: Former Chancellor of the Exchequer; later chairman of Midland Bank.
Context: Speech to bank shareholders in 1924.
Meaning: Credit = political power.
Why it matters: He admitted outright that control over how banks create money out of nothing shapes governments and destinies.
[Image: Reginald McKenna speaking to parliament]
Caption: Reginald McKenna — Banks Control Governments
H. W. White – Bankers Can’t Deny It Anymore
“The banks do create money. … Today I doubt very much whether you would get many prominent bankers to attempt to deny it.”
Who he was: Chairman of the Associated Banks of New Zealand.
Context: Statement in 1955 during New Zealand’s Monetary Commission.
Meaning: Admission that bankers had long hidden the truth.
Why it matters: By the mid-20th century, even insiders couldn’t deny how banks create money out of nothing.
[Image: Vintage photo of 1950s New Zealand bank building]
Caption: H. W. White — Bankers Can’t Deny It Anymore
Ralph M. Hawtrey – Credit Out of Nothing
“Banks lend by creating credit. They create the means of payment out of nothing.”
Who he was: Economist and Treasury official in the UK.
Context: Attributed in writings and speeches on monetary policy.
Meaning: Lending creates new credit — blunt proof of how banks create money out of nothing.
Why it matters: Hawtrey confirmed the hidden mechanism of money creation.
[Image: Treasury documents and old fountain pen]
Caption: Ralph M. Hawtrey — Credit Out of Nothing
John C. Calhoun – Paper Worthless Made Valuable
“The power to make a small piece of paper, not worth one cent, … to be worth a thousand dollars, was a power too high to be entrusted to the hands of mortal man.”
Who he was: U.S. Senator and Vice President in the 19th century.
Context: Senate speech, 1841.
Meaning: Warning against private control over currency issuance.
Why it matters: Americans feared how banks create money out of nothing centuries ago.
[Image: 19th-century US Senate chamber illustration]
Caption: John C. Calhoun — Paper Worthless Made Valuable
Lord Justice Clarke – Strict Law, Unenforceable Loans
“Failure by a lender to observe strictly the intricate requirements of the Act can lead to a loan being completely unenforceable with no right of restitution or other form of relief.”
Who he was: Senior UK judge, later a Supreme Court Justice.
Context: Commenting on the Consumer Credit Act 1974.
Meaning: Strict compliance is essential.
Why it matters: Even within the system, how banks create money out of nothing is checked by statutory law.
[Image: Gavel resting on legal documents]
Caption: Lord Justice Clarke — Strict Law, Unenforceable Loans
Why Understanding How Banks Create Money Out of Nothing Matters
Looking across the centuries, a pattern emerges:
- Banks have long admitted they create money “out of nothing.”
- Politicians and judges have warned that this power is dangerously concentrated.
- Modern activists are teaching people to challenge and question the system.
If banks really create money by keystroke, why do we spend lifetimes paying it back — with interest? That’s the question these quotes force us to confront.
Recommended Reading
- Clearing Karmic Debt: Releasing the Past to Embrace Your Divine Future by Nikeya Banks (already in your universal blog book list).
- Optional extra: Modern Money Mechanics (Federal Reserve Bank of Chicago, 1961; often cited in monetary reform debates).
- Money by Rob Moore
Disclaimer
This article is for educational and informational purposes only. It does not provide financial, legal, or professional advice. Always do your own research and, where appropriate, consult a qualified professional before making financial or legal decisions.