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The Socialist Myth of the Greedy Banker and of Economic Monopoly

Most people are convinced that private banks are responsible, or at least mostly
responsible, for the current economic crisis. The truth is that the crisis is the outcome of
the policies followed by the political systems of the U.S.A., the E.U. and China. But I
describe the major causes of the crisis in my essay “The causes of the economic crisis”,
and therefore the purpose o f this document is not to explore them, but rather to explain in
very simple words, why private banks are not at all responsible for the crisis, since they
cannot “create” money. Even though I have postgraduate studies in economics I am not a
specialist, and this document is the knowledge I gathered in an attempt to answer my own
questions. Moreover English is not my first language and you will have to excuse my
To show that private banks cannot “create” money, is very important since excessive
mo ney creation in the U.S.A., the E.U. and China, was one of the main causes of the
current crisis. Equally important is to explain why excessive money creation is always
and everywhere a government act. What happened in reality is that excessive money
creation was simply used to accommodate the unsustainable fiscal policies followed for
years by many countries. Unfortunately it is much easier to notice the private banks credit
expansion with the abundance of cheap credit, and the resulting bubbles, and much
harder to realize that it was state policies and laws that dictated such expansions and led
to bubble creation.
Since the average person is well aware of the credit expansion and the inflationary
money of the pre-crisis era, it is not unreasonable for him to assume that the cause of the
crisis is the “uncontrollable” and “unstable” private banking sector. But if a person is
mistakenly convinced that the private banking sector is responsible for the crisis, a very
reasonable response would be to ask for more government regulation. Wouldn’t that be
the most natural response? I therefore believe that it is of great importance for the general
public to realize that private banks cannot create inflationary money. O nly governments
can do so by introducing relevant laws as I explain below.
In order to do so, I use various economic examples to show that private banks cannot
“create” money. First I use an example where private banks issue their own bank notes
and there is no central bank. In the second example private banks still issue their own
bank notes, but there is also central bank that only keeps the private banks’ gold at its
vault, and clears their transaction. In the final example which is very realistic, there is a
central bank that issues bank notes, which keeps at its vault all the gold, and that clears