The Radical Middle Podcast Episode 2 - How Banks Create Money

In this the second episode of The Radical Middle Podcast, Thomas McMurtry and Ian Hull discuss how modern banks create money through lending, and why this matters for the real economy. Moving beyond the traditional "fractional reserve" view of banking, the conversation explores the modern credit creation theory increasingly acknowledged by central banks themselves: when banks issue loans, they simultaneously create new deposits within the financial system.

The discussion then turns to a deeper question: what happens when most new credit flows into housing and existing assets rather than productive investment? Using Canada as a case study, Thomas and Ian explore how mortgage lending, rising real estate prices, and household debt may shape broader economic outcomes, including weaker business investment, declining productivity growth, rising costs, and the growing concentration of capital in real estate markets. Rather than treating finance as separate from the real economy, this episode examines how credit allocation influences investment, innovation, entrepreneurship, and long-term economic development. Further Reading - Bank of England (2014) — Money Creation in the Modern Economy - Deutsche Bundesbank (2017) — Money Creation Process - Jakab & Kumhof (2015) — Banks Are Not Intermediaries of Loanable Funds - Werner (2014) — Can Banks Individually Create Money Out of Nothing? - Jordà, Schularick & Taylor (2016) - Bezemer et al. (2023)

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