The Institute for New Economic Thinking (INET) is holding its annual plenary conference in Hong Kong (April 4-7 2013).

Former FSA chairman Lord Adair Turner delivered a keynote speech entitled “Private Debt and Fiat Money: Lessons from the crisis and from some old economic texts” at this conference last night.

You can watch his groundbreaking keynote speech (with an introduction by George Soros) here (Adair Turner starts at 00:09:23):

[youtube height=”390″ width=”640″]http://www.youtube.com/watch?v=ZhrY_coLK_k[/youtube]

 

“There is a huge wisdom in some old economics texts. And I’m going to begin by referring to some old economics texts, and perhaps the surprising ones… some of the founding fathers of the Chicago school of economics, people who supported very strong, clear laissez-faire economics, but to some particular issues in finance were not laissez-faire at all. I’m talking about Henry Simons, I’m talking about early Milton Friedman (in 1948) and I’m talking about Irving Fisher. Those economists came up with two really quite radical propositions in their writings in the 30’s and 40’s. *

The first was that the finance – and in particular banking – was subject to such potential instability that not only we should regulate banks tightly but that we should regulate banks out of existence. They didn’t believe that fractional reserve banks should exist. They believed that we have made a major elementary mistake in allowing banks to create private money and credit, that the creation of money was an essential monopoly function of the state and therefore they argued for 100% reserve banks in which the monetary base is the money supply.”