Between Debt and the Devil by Adair Turner review – should the government start printing money?

Guardian Book Review

Lord Adair Turner

 Analysis of real force … Adair Turner. Photograph: Ben Smith/Rex

After the crisis of 2008, every concerned citizen wanted to understand what had been going on in the City to take us all to the brink of bankruptcy. It suddenly seemed important to unravel mysterious acronyms – CDOs, SIVs, CDSs – that you might previously have skimmed breezily over on the business pages. Terms like “derivative”, “Libor” and “shadow bank” became the parlance of the hour. Adair Turner refreshes the memory on all of this arcana, but the invigorating thrust of his brilliant new book is that much of it is beside the point. Head-spinning new practices may have intensified the frenzy, but their chief role was always to disguise an older enemy: debt.

For Turner, the credit crunch was in essence a debt crisis of the sort that has been a periodic occurrence ever since banking and modern money came into being. Once medieval goldsmiths realised that their clients were not all going to demand their bullion back at the same instant, they began writing out promissory notes for more treasure than they had in their vaults. Every economics undergraduate learns that modern banks still magic up money this way – lending out more than is paid in. But, perhaps because the implications of creating currency out of the ether are disturbing, economists rarely dwell on this point.

When capitalism works, debt channels money into factories, machinery and know how. There will be bumps along the road, but the economy will grow. In the run up to 2007, however, the made-up money was not going into anything productive, but rather inflating the price of pre-existing homes. Indeed, Turner locates the roots of the crisis in the mismatch between a limited supply of urban land, and the limitless potential to finance rising demand for it. For individual banks, it can make sense to lend for unrealistically costly houses, since mortgaged families will sacrifice everything else to keep up payments and avoid ending up on the streets. For the economy as a whole, however, concentrating debt in property is a disaster, draining resources from worthwhile investment and wagering collective prosperity on a one-way bet. Worse, while debt-fuelled bursts of real activity will push up inflation, when all the money is in property that warning light never flashes. We’re all left exposed: unsafe as houses.

This has implications for both prognosis and prescription. Interpreting 2008 as a debt crisis blackens the forecast, as total debt has not been reduced, only shuffled around. It moved first from the private to the public sector, and now – if austerity is to succeed – it must move back. George Osborne is relying on Britain’s household debt burden becoming heavier than ever by 2021. There are prescient passages, written before China’s recent wobbles, about the dangers of Beijing answering slackening western demand with a debt splurge of its own. While the underlying drivers remain – such as inequality that leaves workers reliant on credit to buy goods – the obvious danger is that, while debt may be squeezed around like air in a balloon, it will only grow.

To kick our addiction to debt, Turner argues, we can and should restrain the banks, for example by forcing them to hold more reserves. We can and should also devise new ways to privilege productive investment over property speculation. Turner, who became chair of the Financial Services Authority days after Lehman Bros toppled, puts great emphasis on explaining how regulators could do all this practically, a dimension that gives the book extra importance, albeit at the occasional expense of readability. Every so often you yearn for him to say “posh houses”, rather than “locationally desirable real estate”.

Even so, the dry prose crisply conveys analysis of real force. Its conclusion is that not only do we need to stop sinking into the red, we also need to reduce existing debts. This is where Turner becomes a devilish dissenter from the orthodoxy. So much has gone wrong with banks making up money, he says, that the government needs to consider creating purchasing power instead, whether by handing currency to citizens, or paying off its own debt. If it sounds like an invitation for the west to follow the ruinous Zimbabwean road, remember that the Bank of England has already poured £375bn of made up money into the banks through quantitative easing. Japan has now pushed QE to the point that it is almost indistinguishable from simply printing notes.  Turner, then, ends up entertaining ideas that are regarded as utterly unthinkable monetary policy. They are, however, already well on the way to becoming monetary practice.

 Tom Clark is the author of Hard Times: Inequality, Recession, Aftermath. To order Between Debt and the Devil for £15.96 (RRP £19.95) go to or call 0330 333 6846. Free UK p&p over £10, online orders only. Phone orders min p&p of £1.99.