"[It’s] perhaps not very popular to say this, but the truth is we don't need central banks. The central banks came about originally in every country as a cartel of the big banks." - Richard Werner (Context: Critique of central banking structures) [00:00:00]
"Interest rates are the smoke screen... to divert everyone's attention. It is the alibi." - Richard Werner (Context: Discussing the ineffectiveness of interest rates as a policy tool) [00:18:02]
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"Central planners have no hope of getting this right... it’s the best way to totally demotivate people." - Richard Werner (Context: Centralized vs. decentralized decision making) [00:47:27]
"If the government just preserved life, liberty, property... you would actually maximize the number of small local banks and the decentralization of it all." - Robert Breedlove (Context: Defining the ideal role of the state in banking) [00:00:11]
"Nature to be commanded must be obeyed." - Robert Breedlove (Quoting Francis Bacon regarding natural laws of economics) [00:52:19]
2. Executive Summary
In this episode of the "What is Money?" show, economist Richard Werner argues that central banks are unnecessary institutions that serve as cartels for large banks rather than stabilizers of the economy. He presents empirical evidence challenging the consensus that lower interest rates stimulate growth, demonstrating instead that interest rates follow growth and that credit creation for the real economy is the true driver of prosperity. Werner advocates for a decentralized banking system with thousands of small community banks, citing historical success stories like the German decentralized model and China's post-1978 reforms.
[00:43:36] - The Prussian Model: Subsidiarity & Mission Tactics
[00:49:23] - The Federal Reserve’s Role in the Great Depression
[01:02:44] - The Story of Rolo, the King of France, and Normandy
[01:13:31] - William the Conqueror and the City of London
[01:26:28] - The Nixon Shock & Collapse of Bretton Woods
[01:39:40] - Origins of the Petrodollar System & Saudi Deal
4. Key Takeaways
Interest Rates Do Not Drive Growth: Empirical studies across 4 major economies (US, Japan, UK, Germany) for 50 years show a positive correlation between interest rates and growth; high growth leads to high rates. [00:15:02]
Credit Creation is King: The primary driver of economic growth is the quantity of bank credit created for the real economy (GDP transactions), not asset purchases or financial speculation. [00:20:51]
Decentralization Advantage: Economies with thousands of small, local banks (like post-war Germany and post-1978China) outperform centralized systems because local loan officers have better information. [00:37:32]
The "Subsidiarity Principle": Delegating decision-making to the lowest possible level (as seen in the Prussian Army) creates efficiency and motivation, whereas central planning demotivates. [00:45:04]
Asset Bubbles are Manufactured: Central banks often create bubbles by allowing credit creation for asset purchases rather than restricting it to productive business investment. [00:31:57]
Petrodollar Strategic Pivot: Following the 1971 default on gold, the US maintained dollar dominance by striking a deal with SaudiArabia to price oil in dollars and buy US Treasuries. [01:39:40]
5. Detailed Summary by Topic
The Tally Stick System & Medieval Accounting [00:01:22]
Werner demonstrates the medieval "TallyStick" system, a form of debt-money used in England for 700 years. The sticks were split to create a fraud-proof record. This system supported growth without needing gold, illustrating that money is an accounting system.
Werner challenges the universal economic consensus that lower interest rates stimulate growth. He details his empirical research covering 50 years of data. Findings show that high growth generates high rates, and central banks merely follow the market while using rates as an "alibi" for their power.
The true driver of economic activity is the quantity of credit. Werner distinguishes between credit for the real economy (GDP-based) and credit for assets. He suggests "WindowGuidance" (directing credit to productive use) as the only effective intervention, as seen in Japan and China.
Werner explains "Auftragstaktik" or "MissionCommand," where authority is delegated to the lowest possible level. This decentralized decision-making was the secret to Prussian military and economic success, contrasting sharply with the inefficiency of Soviet-style central planning.
After the Nixon shock of 1971, the US dollar was in freefall. To maintain global dominance, the US established the petrodollar system with SaudiArabia. This forced nations to hold dollars to buy energy, effectively backing the currency with "BlackGold."
6. Data & Figures
Data Point
Value
Context
Timestamp
Money Supply Creation
97%
Amount of money created by commercial banks through credit.
The Rolo Deal: The King of France made a deal with the Viking leader Rolo to settle in "Normandy" if he protected the Seine from other Vikings. [01:04:07]
Tower of London: Built by William the Conqueror not to protect the City of London, but to watch over the bankers and remind them of his power. [01:20:16]
Taiwan’s Reserves: During the 1997 crisis, Taiwan tried to defend its currency with US Treasuries, but the Fed prevented the sale through "technicalissues." [01:35:42]
8. References & Recommendations
Paper: "Reconsidering Monetary Policy" by Richard Werner (Published in Ecological Economics). [00:13:47]
Book:The Grapes of Wrath by John Steinbeck - Cited for its accurate depiction of the Great Depression. [00:51:26]
People:Deng Xiaoping - Credited with the decentralization of China's banking system. [00:37:32]
People:Frederick the Great - Prussian leader who implemented the subsidiarity principle. [00:44:00]
Tools:Substack - Richard Werner’s platform: rwerner.substack.com. [01:45:05]
9. Speakers & Credentials
Host: Robert Breedlove - Founder of the "What is Money?" show; specialist in Bitcoin philosophy and Austrian economics.
Guest: Richard Werner - Professor of Banking and Finance; author of Princes of the Yen; coined the term "QuantitativeEasing" in 1995.
10. Actionable Next Steps
Explore Decentralized Banking: Research local credit unions or community banks that prioritize small business lending over asset speculation.
Review Empirical Data: Read Werner’s study on interest rate/growth correlation to understand the lag between market rates and economic output.
Verify Custody: In light of the Taiwan anecdote, ensure your critical assets are not subject to third-party "technical" freezes during crises.
Jul 16, 2026
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Tally Stick Modern Value
$1,000,000
Modern purchasing power equivalent of a £1,000 notch.