Washington Consensus development policies have been widely argued to suppress rather than support economic development. This lecture will focus on how they misunderstand the role of the banking sector and monetary policy in ensuring stable, sustainable and equitable economic growth without financial crises. Interestingly, this is an area that has been been neglected to an extent also in traditional development economics, even though much attention was given to banking and monetary policies by successful industrialising countries. Problems such as these can be analysed with reference to the Quantity Theory of Credit, which argues that bank credit creation for GDP transactions determines nominal GDP growth, while bank credit for non-GDP transactions causes asset price boom-bust cycles and banking crises.
Richard Warner’s Bio
Professor Richard Werner, D.Phil. (Oxon) obtained his first degree in economics from the London School of Economics with first class honours. His doctoral degree, on monetary economics and economic policy, was awarded by the University of Oxford. Richard has been at the University of Southampton since 2004, first as Reader and since 2005 as Professor and Chair in International Banking. He is a member of the ECB Shadow Council, and the founding chairman of Local First Community Interest Company, which introduces not-for-profit community banks in the UK, and Convenor of the Association for Research on Banking and the Economy (ARBE). Richard has gained extensive experience in the private sector, among others as researcher, economist, strategist, fund manager and entrepreneur (including as chief economist at Jardine Fleming Securities (Asia) Ltd., foreign scholar at the Ministry of Finance Japan, visiting researcher at the Bank of Japan, first Shimomura Fellow at the Development Bank of Japan, senior consultant at the Asian Development Bank, senior managing director and senior portfolio manager at Bear Stearns Asset Management). He has also been a member of several corporate boards, including the asset allocation board of the TelWel (US$5.6bn) pension fund, the executive board of the Southampton Management School and the supervisory board of several major companies, where he has also served as chairman of the audit committee.
In 1995, Professor Werner proposed a new monetary policy to expand bank credit for the real economy, which he called ‘quantitative easing’. His book ‘Princes of the Yen’ (2003) became a no. 1 bestseller in Japan, beating Harry Potter for six weeks. In the English version Richard warned that the ECB was likely to create credit booms, asset bubbles, banking crises and recessions in the eurozone (a documentary movie about the book was launched in 2014). His 2005 book ‘New Paradigm in Macroeconomics’ (Palgrave Macmillan) warned of the recurring banking crises following asset bubbles and suggested workable solutions. Since the crisis, his approach to disaggregate bank credit and focus on bank credit for the real economy to model nominal GDP growth has found supporters among a number of central banks. His co-authored book Where Does Money Come from? has attracted much attention and citations, including by the Bank of England. In 2014, Richard published the first empirical test of the various theories of banking, demonstrating that banks do not lend money, but instead newly create credit and money.