Central Concerns

In his book, Value(s): Building a Better World for All, former governor of The Bank of England  Mark Carney,  looks at value beyond dollars and demands your attention.  Review by Guy Dauncey. First published in The MINT Magazine, September 2021.

When the world’s best-known central banker writes a new book, we should sit up and pay attention, especially since Mark Carney is one of the few central bankers who really gets the climate crisis.

It’s a quite personal book; his writing reveals a deep commitment to ethical values, and service to the wider community. He makes me feel that I know him, and we’d get along well over a pint of beer. He often shares stories from his time at the Bank of England, and as chair of the Financial Stability Board, which was set up after the 2008 financial crash, resulting in over 100 reforms. Will they work? Time will tell.

His introduction pulls no punches. He writes about “the malignant culture at the heart of financial capitalism”, that “by elevating belief in the market to an inviolable truth we have moved from a market economy to a market society”.

So what must we do? We must, according to Carney,  “channel the value of the market back into the service of the values of humanity”, and “build consensus around national goals, such as a just transition to a net-zero economy, combating Covid, or universal skills training, so that we can all reap the rewards of the Fourth Industrial Revolution.”

My problem with Carney’s analysis is that when he places the misuse of value at the core of our troubles he sidesteps the critical issue of power and domination.

Carney then dives into a long dissertation on the history of value in economics, how economists shifted from an objective definition based on actual goods (Smith and Ricardo) or labour (Marx) to a subjective definition in which value became price, degrading all reality to its dollar value. What are the world’s oceans worth? To a conventional economist they are worth $24 trillion. If Jeff Bezos was 100 times wealthier he could buy them and ship them to his colony on Mars, proving what nonsense subjective value is.

My problem with Carney’s analysis is that when he places the misuse of value at the core of our troubles he sidesteps the critical issue of power and domination. The same critique applies to all neo-classical economics, enabling it to serve as an ideological shield for self-interest, greed, and the dogma that “the market knows best”, which really means “self-interested business-people and bankers know what’s best for them, and – oops! Sorry about the climate.”

Make no mistake – the book is full of valuable insights. He has a great chapter on purpose-based companies, where, in effect, he supports a change to corporate law in the US and UK to balance profit and purpose better as the dual aims of a corporation. He also has great chapters on socially responsible investments, on values-based leadership, and on resolving the climate crisis by using the power of a well-regulated market, along with other tools. My concern is with what he doesn’t say. He reminds us that banks create money by making new loans based on trust in a borrower’s collateral, but he does not admit that when central banks create money they do so as a gift, based on the implicit collateral of the good governance of a nation, and their ability to control inflation if they print more money than the economy can absorb.

Central bankers have always been shy to admit to this reality. Ever since the Bank of England was created in 1694 they have operated, in Carney’s words, “on the sly”. To hide what they are doing, they use euphemisms such as “injecting liquidity”, “monetising the deficit”, or “quantitative easing”. Their fear is that if people knew they were printing money, politicians would pressure them to abuse the privilege, as they have in the past. This is why central bankers insist on their independence, that they alone should decide for what purposes they print new money.

This leads us into territory Carney seemingly doesn’t want to enter. In 2009, central bankers bailed out the banks by printing money to buy toxic assets off them. The bankers were supposed to lend to businesses, but they lent instead to the housing market, creating the very inflation they feared and thrusting millions into housing market misery. The Bank of England could, had its directors so chosen, have printed money to buy affordable housing bonds off the government, injecting the money directly into the construction of affordable housing. This gets no discussion. In 2020, the Federal Reserve printed $3 trillion, not to support ordinary people, but to bolster the Stock Exchange by buying corporate bonds.

This leads me to the widely-shared expectation that in a financial emergency, central banks will do whatever it takes, as Mario Draghi announced in 2012, to reassure markets that the European Central Bank would protect the Eurozone. Facing the climate emergency – which is far more dire – central banks must also do whatever it takes. Carney proposes that banks should be required to do climate risk assessments of their loan portfolios. That’s good, but hardly sufficient. What he fails to propose is that central banks – within the limits of inflationary risk – should also buy climate bonds, enabling a government to finance climate emergency programmes; underwrite public bank loans and green bonds to enable investors to receive a steady return; and issue credit guidance, banning banks from investing in fossil fuel expansion projects.

Carney ends with a call to “arise for the work of humankind”. He really gets the urgency of the time, which is heart-warming, and I thank him for it. I just wish that he had gone further.

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