Sunday, September 22, 2013

Lord Turner: The Honourable Maverick for Credit Creation

Gillian Tett last week popped Lord Turner into a new category FT20Sept2013 because he is now saying things that 'maverick far-right and far-left economists have been saying for years'. The reference was to a paper delivered at a Swedish conference 'Credit, Money and Leverage: What Wicksell, Hayek and Fischer knew and Modern Macroeconomics forgot' to the Stockholm School of Economics, 12 Sept 2013 the slides are HERE. Turner's aim was to bring attention to the 'strange amnesia in modern  macroeconomics' about the role of credit creation in the economy which are highly pertinent to the 2007/8 crisis and its recurrence.

Turner shows how Sweden's Knut Wicksell (1851 - 1926) brought the insight that credit created by banks is a fundamental force in the economy, but that this was ignored in recent times to bring an orthodoxy that failed.

'Our new approach needs to be based on a return to fundamental analysis of the role which credit creation and resulting debt contracts play in our economies, an analysis which was central to the work of Wicksell, Hayek, Fischer and more recently Minsky, but largely ignored by much of modern macroeconomics'.

Lord Turner's paper can also be accessed from: The Institute for New Economics Thinking . He cites Richard Werner on his findings that explained the 'enigma' of Japan which showed that what is important is the uses to which the created credit is put. Turner suggests that only 15% of the UK's new credit creation goes to productive investment which is what affects productivity and general wealth. Much goes into asset price inflation (such as house prices) which results in wealth inequality. Besides causing economic crashes.

These findings will not be a surprise to anyone familiar with Richard Werner's work as often featured on this blog. His short interviews start with Banking and the Economy. See the series on The Free Lunch website.  Lord Turner's reference to the standard, false view of what banks do as per 'standard undergraduate textbook discussion' is the very theme that opens the above interview. Lord Turner was the keynote speaker at the first ECOBATE 2011 conference which was reported on this blog and the link to what seems Lord Turner's first mention in a speech of credit creation at ECOBATE 2011 is within this report . 

Let's take 'maverick' as a badge of honour.

Posted by Charles Bazlinton, maverick author of The Free Lunch with discussion on how credit creation could be used to provide direct wealth to each citizen.

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