Core Idea
Money creation is the process by which new purchasing power enters the economy, and in modern capitalism most of it is created through bank lending rather than by printing cash.
How It Works
When a bank issues a loan, it does not simply hand over someone else's saved money. It creates a new deposit and therefore new spending power. That is why money creation is inseparable from credit.
Varoufakis uses this point to collapse a common illusion. If banks create money through lending, then money is not a neutral background medium floating above the economy. It is tied to risk, judgment, repayment, confidence, and institutional privilege.
Example
The concept makes visible why banking crises are so destructive. If the same institutions that create most money begin to withdraw, fail, or panic, the economy's spending capacity itself contracts.
Why It Matters
This is one of the book's most important technical clarifications because it links banking, recycling, crisis, and apolitical money into one coherent picture.