The Secret History of the World #1: The Cost of Money
Central bankers can print money. To protect this power at all costs, they will cause misery and poverty, and engineer financial crises and launch wars.
This week I started a new course, in which I attempt to explain the present and predict the future so that we can connect the past, and reveal the secret history of the world.
I introduced the course by referencing Immanuel Kant. He taught us that rather than passive observers we are active participants in reality. When we perceive reality, we manipulate it in a way that allows us to process it. In other words, we imagine reality.
Dante taught us that that was God’s ultimate gift to us. Because His love for us was unconditional we have the freedom to create our own realities. He will never judge us for what we choose.
A series of historical accidents as well as the manipulations of the powerful have led us to imagine for ourselves a Hell that we call Heaven.
Let us look closely an example of this: money.
To understand how money works, let us do a thought experiment. Let us pretend we are a bank, and we’re able to attract one million dollars in deposits. We then lend one million dollars to an entrepreneur to open a restaurant. How much money do we now have?
The answer ought to be zero, but it is actually two million. Unbeknownst to the public, banks have the power to print money. In an interview with Tucker Carlson the German economist Richard Werner explains that banks always had this power.
In the beginning, banks took gold, and offered receipts (the promise to return the gold at any time), which was traded among merchants and became money in effect. When the banks lent money, they didn’t hand over their gold holdings. For the sake of convenience, they gave receipts instead, thus printing money.
This system worked well most of the time, but was always at the risk of sudden collapse. If too many people withdrew at the same time (a bank run) or if a king defaulted on a loan, the bank risked bankruptcy.
Over time, banks around the world recognized their optimal strategy was to band together. Collectively, they would have the global resources to withstand local bank runs.
As well, if a king defaulted, the banking cartel could sponsor a rival claimant to the throne. This is what led to the downfall of Richard III of England (who refused to pay back the Italian banking cartel), and the ascendancy of the House of Tudor. Henry VII let loose his tax collectors on the people so that he could repay the Italians, and then his son Henry VIII beheaded the tax collectors to establish his legitimacy and popularity with the people.
Bankers are always attempting to mitigate risks, and while they could overthrow monarchs they preferred not to. The ideal situation would be for these private banks to become embedded in the nation-state itself, so that the “people” would be the ultimate guarantors of loans to the state. This is what led to the creation of the Bank of England in 1694. It was an investor’s wet dream. It was a private central bank backed and protected by the Parliament of an island fortress. Dutch gold (accumulated from the extremely profitable East Indies spice trade) flooded England, allowing it to defeat all its continental rivals (including Napoleon).
The Bank of England would seed the British empire. Because the Bank of England could absorb wealth from anywhere, England pioneered a system in which local elites could be co-opted in helping to exploit their own people and steal local resources (the classic example is India). This system still continues today, and helps us understand why decades after independence the nations of South America and Africa and Asia are still mired in malfunction and corruption.
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If banks could just print money, why do we have poverty, inequality, and debt?
What mainstream economists teach us is that it’s because resources are scarce, and they are allocated to those who can make best use of it. As maverick economists (who just happen to be honest) Richard Werner and Michael Hudson explain so well, this is not true. Money can be created out of thin air, and if society so chooses poverty, inequality, and debt can vanish with the tap of a computer keystroke.
We do not do this because money is first and foremost an illusion designed to fool us into working hard (and thus creating real wealth). Poverty, inequality, and debt exist to force us to believe that money has real value when it does not.
But sometimes too much easy money is generated into the system, making people lazy and complacent. At this point, the central banks may engineer a fiscal crisis (a stock market crash or a recession) to wipe out excess money from the system. Now and then, following a crisis of faith in the system, central banks may create a war (for example, World War I) to destroy wealth and reduce the population so that people can be motivated again to work hard for their masters.
Here’s the main takeaway: If central banking sounds like a sophisticated system of slavery, it might be because it is.
Notes and References:
1. This week I have started teaching a 30-part series on the Secret History of the World. These posts are meant to supplement the video lectures, and are designed for those who want to delve deeper into the topics discussed. Because of Internet connectivity issues in China, there may be long delays in uploading the lectures to YouTube.
2. It is vital that we all learn how central banking works. The best source is the work of Richard Werner, who has his own YouTube channel: https://www.youtube.com/@wernereconomics
His interview with Tucker Carlson (
) is a MUST WATCH. In that interview, Richard Werner points out that during World War I one of the top bankers of the United States (Paul Warburg, one of the founders of the Federal Reserve) happened to be the brother of one of the top bankers of Germany (Max Warburg, a personal advisor to the Kaiser). What a strange coincidence.
3. Americans ought to educate themselves on the Federal Reserve. This video offers a good introduction:
4. As inflation skyrockets and national debt balloons, people are recognizing the absurdity of the financial system. To counter this, the bankers will use financial repression. We will no longer be able to hoard cash, and digital currency will track and limit our financial lives. As always, expect Canada to take the lead in testing the waters: https://www.bbc.co.uk/news/articles/c780rj9nve0o
5. Many believe that to prepare for the inevitability of digital currency and economic collapse we should invest in gold or bitcoin. The reality is that the system is set up that if people do reject the value of money all social institutions collapse. Basic services (water and electricity) will no longer be provided, police will not go to work, and hospitals close down. There is no Plan B, there is no failsafe, and there is no back-up. The bankers have created a system in which if they lose their power we lose our civilization.
Hello Professor Jiang,
I am an economist with a strong interest in monetary theory. I previously published extensively on Substack, but have since removed all of my posts. The subject matter—the fundamental nature of money, economics, and banking—often challenges deeply held beliefs, and I found that presenting its uncomfortable truths often provoke strong reactions from people. I am writing to offer a few comments on your recent video and this article, hoping to provide some refinements to the concepts you discussed. My aim is to bolster your understanding further so you can relay this valuable information to your audience and students.
I would like to respectfully outline a few key points that are fundamental to understanding our current modern monetary system, which may serve as valuable teaching tools.
Firstly, the vast majority of money is created by central banks and commercials banks, NOT governments. Printing of physical banknotes has become less predominant overtime (due to credit cards, online payments, digitalization, etc), nowadays money is mostly digitally created by central and commercial banks through keystroke entries of numbers in their accounting system ("book entries"). Once created, money is injected into the economy the instant a loan is approved or a government bond is purchased or when toxic or normal assets are bought during QE . Banks do not actually lend out existing deposits; they actually create deposit money ex nihilo by simultaneously crediting the borrower’s account (an asset for the borrower) and recording the loan (a liability for the borrower and an asset for the bank). This is a well-documented process, as confirmed by institutions like the Bank of England in publications such as their Working Paper No. 529 “Banks are not intermediaries of loanable funds — and why this matters.” This is standard practice across the entire banking sector everywhere. Simply put, banks are in the business of creating deposits ex nihilo and lending it out, and buying securities, they are not intermediaries.
Secondly, money equals debt, and debt equals money (since money creation is strictly tied to loan creation — a debt-based monetary system/currency). Consequently, broad money supply aggregates (such as M2 and M3) essentially represent outstanding debt in the economy. One person’s financial asset (a deposit) is another entity’s liability (a loan). This is why growth in the money supply is inextricably linked to growth in debt. One implication is that since GDP growth is largely correlated with expansion in money~debt, that means that GDP growth does not at all reflect real productivity gains in the economy, but rather, it reflects artificial gains — merely, money created ex nihilo, loaned out for investment and consumption — causing increases in price of assets, goods, and services which then translate into Inflated GDP numbers. Furthermore, it also implies that, since money can be created infinitely in this way, it theoretically allows for infinite GDP growth without corresponding increases in environmental impact—thereby challenging the arguments of those who advocate for degrowth or green taxes on the basis that economic growth inherently harms the environment.
Thirdly, the mechanism of inflation in this context is such that a systemic increase in the money supply—which is also an increase in debt—dilutes the purchasing power of each unit of currency. This means more units of currency are required to purchase the same goods, services, and assets, leading to overall price inflation. This is a core monetary principle that operates in tandem with supply-chain and demand-side factors. That is to say, for example, while a shortage of houses (and high demand for them) causes house prices to rise, the constant dumping/injection of newly-created money into the property market further amplifies house price hikes since each round of injection increases the money supply, which then leads to a proportional decrease in the purchasing power of that currency. According to my many years of research, supply and demand dynamics have been becoming more impotent over the years in regards to price discovery, but the devaluative monetary/currency factor has been becoming more potent, especially after 2008.
Fourthly, the process of money creation is symmetrical; money creation is counterbalanced by money destruction... and money is actually destroyed when loans are repaid. When a loan is repaid, the principal amount is effectively extinguished—the digital deposit is deleted from the bank’s ledger. This reveals a critical structural feature of the system: while the principal is created at the outset for repayment, the interest on that loan is not. This necessitates a continuous inflow of new money (via new lending) or real economic growth to generate the additional means for interest payments across the system.
To illustrate this, consider my simplified analogy below:
Imagine a secluded village with no physical cash, where all trade is done through barter. One day, a villager named Mr. Bank sets up a business. He provides everyone with a notebook (a bank account) and announces: “Instead of bartering, you can use my IOUs. I will create village dollars by lending them to you. We will all simply update our ledgers to show who owns what.”
1. The First Loan: Sarah wants to build a bakery. Mr. Bank approves a loan for 100$. Thereafter, he simply writes +100$ in her notebook (her asset) and records a loan of -100$ in his own master ledger. Ergo, at this point, money has just been created by a mere book entry. Sarah now tells Tom the lumberjack, Mike the toolmaker, and Lucy the cashier that Mr. Bank will update their ledgers whenever she pays them. Mr. Bank debits Sarah's account and credits theirs. The 100$ now circulate throughout the village as payment.
2. The Repayment Problem: Lets say that the loan terms require Sarah to repay 110$ within one year (100$ principal + 10$ interest). A year later, eventually Sarah has earned 100$ from selling her bread (her customers had Mr. Bank transfer credits from their accounts to hers). So, to repay the principal, she tells Mr. Bank to transfer her 100$ back to him. He does so, and upon receiving them, he crosses out the -100$ credit loan entry. That is to say, money (the original principal) is now destroyed (since -100$+100$=0$). However, she still owes him 10$ in interest.
The critical question here is: where will the 10$ for the interest payment come from? You see, it does not exist in the village's current money supply. Remember, the only money created was the original £100, which have now been returned and erased. Thus, the money supply of the village became 0$ after the money got destroyed when the 100$ was paid back.
Consequently, Sarah can obtain the 10$ only if:
(a) Mr. Bank issues a New Loan; He lends 10$ to another villager, lets say Dave, by writing +10$ in Dave's notebook (i.e., his bank account). Dave spends these 10$ by buying her bread, and thanks to this trade, Sarah eventually earns the 10$ necessary to pay the interest.
(b) Other Villagers Also Go Into Debt; that is to say, other villagers take out new loans for various purposes, thus injecting more $ into the system (i.e., increasing the money supply in the village economy) allowing Sarah to potentially earn the needed 10$ when she sells bread to some villager(s).
If neither (a) or (b) occurs then --> no new loans are made --> there are literally no $ in existence for Sarah to earn to pay the interest (since money supply is 0) -->Therefore she defaults. Consequently, as collateral, Mr. Bank seizes her bakery and everything therein — real, tangible assets. Then he records these new assets in his ledger, which he acquired in exchange for nothing but ledger entries he created and then destroyed. "Fake money for Real Assets".
Importantly, the entire village could become trapped in a cycle of debt if (b) occurs (which is what happens mostly in real life to countries). In order to have enough $ in circulation to pay the interest on existing debts, the villagers must continuously take out new and larger loans. Hence, the system requires perpetual, never-ending debt growth... and If the villagers ever become afraid and stop borrowing, the flow of new $ halts. Without this inflow, there is never enough money in the system to pay all outstanding interest, making widespread default a mathematical certainty. In the end, Mr. Bank ends up owning most of the village's real assets, all through the control of the ledger and funny-money creation.
This analogy unfortunately reflects the operational reality of our monetary system. These are not my speculative theories or notions, but an actual description of how the current system functions. If you need me to clarify something further, please let me know Professor!
I know this was a lengthy comment (I am sorry!), but I am passionate about these topics. My ultimate dream is to one day join you for a conversation on your channel. I synthesize economics, geopolitics, game theory, evo psych and evo biology, to build predictive models, and I believe a dialogue with you would be fascinating for your audience.
Keep up the excellent work, Professor.
Professor Jiang, you nailed the flaw: our civilization is chained to a financial system so fragile that if people lose faith in money, the whole architecture of society teeters. The problem isn’t just inflation or digital control—it’s that we’ve outsourced “value” to a priesthood of bankers.
But there is a Plan B. It’s called Knowledge-Based Currency (KBC).
In KBC, everyone is their own banker. Value isn’t issued by institutions or propped up by debt—it’s recorded in verified knowledge. Doctors, engineers, teachers, scientists, builders—what keeps water flowing, lights on, and hospitals running—is knowledge itself. That’s the real currency.
Unlike fiat, knowledge can’t be inflated into nothing. Unlike bitcoin, it doesn’t waste energy to prove scarcity. It appreciates as it spreads, and the more people share it, the stronger the system becomes.
Where money collapses, KBC continues. Civilization shouldn’t depend on whether banks survive; it should depend on whether humanity keeps learning, connecting, and preserving truth.
In KBC, everybody is a banker—because there are no bankers.