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_______________________________________________________________________________THE REITH LECTURES 2020: HOW WE GET WHAT WE VALUE
Reith Lecturer: Dr. Mark Carney, former Governor of the Bank of England
Lecture 1: From Moral to Market Sentiments
TX: 02.12.2020 at 9am, BBC Radio 4(00:00) Anita Anand: Welcome to the 2020 BBC Reith Lectures. In this tumultuous year, ourlecturer is a man who brings a truly international perspective to some of the biggest global
challenges facing all of us right now. In his series, ‘How We Get What We Value’, he willassess how the world has come to prioritise financial values over human values. He’s going
to argue that this has helped leaders into a minefield of triple threat; credit, COVID andclimate, and possibly having scared us all out of our wits, he's going to suggest what we cando about it. This year’s lecturer has been called a rock star banker, the outstanding central
banker of his generation and the man with the most comprehensive book of contacts infinance. After completing a doctorate in economics, he went on to work in some of the biggest
global financial institutions before becoming a central banker in both his home country ofCanada and in the UK as Governor of the Bank of England, a post he left only earlier thisyear. Since then, he has been appointed as the UN Secretary-General Special Envoy for
Climate Finance, and the finance advisor to our Prime Minister, Boris Johnson, for the UN
Climate Change Conference in Glasgow next year. Let’s meet him. Please give a very warm
welcome to the BBC 2020 Reith Lecturer, Dr Mark Carney.
(01:30) Dr Carney: Thank you very much.
(01:33) [Audience applauding](01:40) Anita Anand: Well, look, it is very good to have you here and it has not been an easy
2020 for anybody. You’ve spent quite a lot of it isolating, haven’t you?
(01:50) Dr Carney: Yes.
(01:50) Anita Anand: How’s that been for you?
(01:51) Dr Carney: I’ve spent more than I’d like in time just with myself. I’m just out of two
weeks of quarantine here in the UK and had two weeks when I originally had moved back toCanada, and will have two weeks next week when I go back again. So that’s six weeks, butthere’s many people have it much tougher, so.
(02:07) Anita Anand: Well, I hope you have many, many good books to read while you’re
doing that.
(02:10) Dr Carney: I had some lectures to write this past month, yes.
(02:11) Anita Anand: Yes, well, and we’re going to - we’re going to enjoy some of those. You
know, normally when we speak of finance we talk about bulls and bears, but sharks havefigured ----(02:19) Dr Carney: Mmm.
(02:21) Anita Anand: ----- very peculiarly in your life. Tell us about that.
(02:23) Dr Carney: Well, there’s a few sharks in finance, but maybe not the one people might
think. It’s interesting. As you mentioned, I did my graduate work here in the UK and I used totake the Oxford bus to London, to the capital, and to keep my eye out for a landmark, andthe landmark was on an otherwise nondescript set of row houses in Headington where there
was a giant shark sculpted - still is I believe - sculpted, going through the roof----(02:49) Anita Anand: Yeah.
(02:50) Dr Carney: -----of one of the houses and I understood that it had been put there
because of the nuclear threat post-Chernobyl and the age of CND, but I took a bit of a different
message, or a broader message of just the limits of sovereignty and independence and how
threats from beyond our borders, at that time financial threats, cyber threats I guess
developed over time and now of course, the threats of COVID. So what is true independence,what’s sovereignty and how do we protect ourselves from it?
(03:16) Anita Anand: Mmm. You were Governor of the Bank of England for seven and a halfyears. You left in March this year.
(03:23) Dr Carney: Mmm.
(03:23) Anita Anand: You must be----(03:25) Dr Carney: Timing is everything.
(03:25) Anita Anand: -----quite a sigh of relief. I mean, I wonder, actually, for a man like youwhether it is a thing where you think, phew, good timing, or where you think, oh, if only I was
still there?
(03:35) Dr Carney: Well, two things. First, I was handing over to an incredibly able individual,
Governor Bailey, and so I felt absolutely at ease with that and he has a great team with him.
Secondly, I was getting a little tired of crises. I joined, I became a central bank governor at
the start of the global financial crisis. We had the Euro crisis, we’ve had the ongoing climate
crisis and then of course the COVID crisis was raring. I wasn’t leaving because of the crisis,
but I seemed to have a correlation with them and maybe somebody else should have a go.

(04:03) Anita Anand: Yeah, I just sort of - in my mind I see you playing fantasy governor of
the Bank of England and sort of laying out your own strategies. Is it hard to let go and do you
find yourself still doing that, this is what I would have done?
(04:15) Dr Carney: No, not really. I’m interested in what the governor and the various
committees are doing at the bank. I am interested in that, but I - they’re the ones in possessionof all the information and are deliberating about it and taking the right decisions, so, no, I’m
not sitting there second guessing, nor am I - I was in the Bank of England the other day,socially distance - I mean, I could have - it’s a very large institution so it’s easy to stay two
metres away and saw the governor and it was great to see him there, but I didn’t - no, I didn’t.
(04:47) Anita Anand: When you look back at your governorship, seven and a half years is along time. Do you have a proudest moment?
(04:53) Dr Carney: To be honest, there’s not a specific point in time. I think that to someextent - this will sound a bit odd - I think the way the financial system performed once the
COVID crisis start would - I had some quiet pride - now it’s not quiet anymore because I’m
broadcasting it, but quiet pride – no-one would listen to me before, now I get to say it because it was one of the things that we had tried to do was to prepare the system, not justfor the risks we knew about, but for those we couldn’t imagine. And that really is the test of afinancial system is when the shock comes that you don’t expect that the system is able toperform, and the UK system I think, I think everyone would agree, has performed throughthat. So, yes, I think that’s probably my proudest moment.
(05:35) Anita Anand: Well, maybe ‘perform’ is not the right word, but it is time now to hearmore from you, so Mark Carney the stage is yours.
(05:41) Dr Carney: All right. Thank you very much. At some point every North American childlearns a sentimental story by an American writer, O. Henry. It tells the tale of a newlywed
couple one Christmas eve, penniless and frantic to find a gift for her husband, Jim, Della sells
her long tresses of hair and uses the proceeds to buy a chain for his beloved watch. Whenthey’re reunited for dinner in their small apartment that evening, she discovers that Jim has
just sold his watch to buy a set of combs for her hair. He has no watch, she has cropped her
hair. And although they’re left with gifts that neither can use, they realise how priceless theirlove really is. Now, when I first heard that story, it had its desired effect. I momentarily forgot
about the hockey stick I’d been coveting and thought more about my mother’s need for new
slippers. It’s in the giving that we receive. Of course, I was only eight then, and I hadn’t yet
learned the true economic meaning of Christmas. I’ll come back to that later.
(06:51) For now, I want to take you on a journey from grotto to Glasgow, the city where theselectures begin and end. They start in Glasgow at the height of the 18th century Scottish
enlightenment, the dawn of the industrial revolution and the home of the father of modern
economics, Adam Smith. To many, this marks the rise of the market economy. The beginningof Smith’s triumphs of his best-known idea, how the invisible hand works through markets tocreate prosperity. These lectures will end in the Glasgow of COP26, the United Nations
Climate Change Conference of the Parties where the world will gather a year from now to try
to put right what has gone so wrong, to turn what the industrial revolution has wrought into
the sustainable revolution. These lectures will chart how Smith’s moral sentiments turned into
market sentiments, how societies’ values became equated with financial value, how thiscontributed to this century’s crises of credit, COVID and climate and how we can turn thisaround.
(08:05) Consider three paradoxes of value. Great minds from Plato to Adam Smith have
pondered why water, which is essential for life, is virtually free, but diamonds, which have
limited utility beyond their beauty, are so expensive. Why do financial markets rate Amazon
as one of the world’s most valuable companies, but the value of the vast region of the Amazon
appears on no ledger until it’s stripped of its foliage and converted into farmland? And how
can we reconcile our celebrations of the extraordinary values of public service dedication andthe heroism of healthcare workers with their low wages and perilous working conditions?
These are all issues of how we get what we value. Concepts of value are rooted in philosophy,
and more recently and narrowly in economic and financial theory. Values and value are
related, but distinct. Values represent principles or standards of behaviour, their judgementsof what is important in life, such as fairness, responsibility, sustainability, solidarity,
dynamism, resilience and humility.
(09:23) Value is the regard that something is held to deserve, its importance, its worth, its
usefulness. Value isn’t necessarily constant but, rather, specific to time and situation. So thinkof Shakespeare’s Richard III who despairs in battle, “A horse, a horse, my kingdom for ahorse,” or the value that we have placed on daily essentials during the pandemic. Over the
centuries, there have been two broad schools of thought about what determines economic
value. Objective and subjective. Objective theories contend that the underlying value of a
product is derived from how that product is produced, and those theories focus on how that,in turn, affects wages, profits and rents. Proponents of objective value theory span Aristotle,
Adam Smith, David Ricardo and Karl Marx. These last three classical economists lived during
a period of unprecedented urbanisation, industrialisation and globalisation, and they placed
the growth and distribution of value squarely in the context of the enormous social andtechnological changes then underway. All three would have found profoundly alien the view,widespread today, that economics is a neutral, technical discipline to be pursued in isolationof such dynamics.
(10:57) Adam Smith published two magisterial works. His second, ‘The Wealth of Nations’,is the most purchased, often cited and, arguably, least read book in economics. To
understand the totality of Smith’s thinking we should consider it alongside its much lessfamous predecessor, ‘The Theory of Moral Sentiments’. Smith’s writings warn of the mistakesof equating money with capital and divorcing economic capital from its social partner. Sucherrors can arise from reading a few, admittedly brilliant, pages of ‘The Wealth of Nations’.
This leads to the portrait of Smith as the father of laissez faire where individuals have full
freedom to transact business without any interference. But this is a caricature that grossly
devalues this most considered and universal of the worldly philosophers. The phrase‘invisible hand’ appears only once in that book, but three times in Smith’s collective writings.
The central concept that links all of Smith’s works is the idea that continuous exchange forms
part of all human interactions. Exchanges of goods in markets, exchanges of meanings inlanguage and exchanges of regard and esteem in the formation of moral and social norms.
(12:24) Smith believed that we form our norms or values by wishing to be loved and lovely.
That is, to be well thought of or well regarded. We receive feedback from perceiving how
others judge us, creating incentives to achieve mutual sympathy of sentiments. This leadspeople to develop habits and then principles of behaviour. So moral sentiments are notinherent. To use the modern terminology of Richard Dawkins, they’re social memes that arelearned, imitated and passed on. Like genetic memes, they can mutate in behaviouralcascades and tipping points. Smith’s conception of markets, like all his economics, must be
seen in their broader social context. Markets are living institutions embedded in the culture,practice and tradition and trust of their day. Those markets determine the distribution of value,
which he believed, as did Ricardo and Marx after him, is fundamentally derived from labour.
In the late 19th and early 20th centuries a group of economists known as the neo-classicists,
launched an upheaval in value theory, comparable to the Copernican revolution in science.
Copernicus transformed astronomy by moving its axis from the earth to the sun, and the neoclassicist shifted the axis of value theory from the factors of production, like labour, to theperceived value of goods to the consumer. In other words, from the objective to thesubjective.
(14:05) According to this new group, people value goods that satisfy specific wants. It’s only
because people value these goods that the inputs that go into making them have value.
Labour does not give goods value, labour is valued because the good it helped to create isvaluable. Value is in the eye of the beholder, not in the sweat of the labourer. In the century
since the neo-classicist, subjective value theory has gone mainstream, and the combinationof this subjective value theory, in which price equals value, and a cursory understanding of
the invisible hand, in which markets yield optimal outcomes supported by unseen andunchanging moral sentiments, promotes a view that all market outcomes equal value creation
and, through them, the growth of the wealth and welfare of nations. The concept of value,
synonymous with economic theory a century ago, is now barely discussed. But in her
magisterial book, ‘The Value of Everything’, the economist, Mariana Mazzucato, makes thecase forcefully that we need a contested debate on value. So let’s have one.
(15:24) The starting point is the right balance between the market and the state, and this has
shifted in recent decades with markets gaining in stature and influence. The market isbecoming the organising framework, not only for economies, but also increasingly for broader
human relations with its reach extending well into civic and family life. In parallel, the social
constraints on unbridled capitalism, religion and the tacit social contract have been steadily
eased. The Thatcher/Reagan revolution fundamentally shifted the dividing line between
markets and governments. This change in direction was long overdue and their reforms
unleashed a new dynamism. With the fall of communism at the end of the 1980s, the spreadof the market grew unchecked. And so by the time I joined the G7 as the Deputy Central
Bank Governor in the early 2000s, the conventional wisdom of market efficiency reigned
supreme. Policymakers like myself had nothing to tell the market, they only had to listen andlearn. Put it another way, the market was always right. But as my central bank colleague, andlater Italian Minister of Finance, Tommaso Padoa-Schioppa once observed, when we grantan entity infinite wisdom, we enter the realm of faith. Faith can guide life, but blind policy, andsuch cognitive capture led to the self-cancellation of the policymakers’ judgement as only themarket knows. And such trust dictated that the only solutions proposed to market failures
were to add more markets or to reduce regulation further. And we’ll examine the fallout fromthis approach in the next lecture.
(17:17) For now, let’s concentrate on three related risks that the combination of subjective
value and market fundamentalism encouraged. Now all economic theories are based on a

number of assumptions, and subjective value theory is no different. At its core, it assumes anidealised world of perfect competition, commodity goods, complete markets and rational
consumers and financiers. The many cases when these assumptions don’t hold drive awedge between private and social value. For example, when one or just a few companies
control a market, prices are too high and production is too low. Or if markets are incompleteor suddenly collapse under stress, small shocks can lead to widespread damage to asset
prices, to jobs and to welfare. Or when there are externalities, that is when there are costs or
benefits that we bear over which we have no control, individual actions can drive social
disasters, like the climate crisis.
(18:27) Now the second set of risks relate to human frailties. Behavioural science has
demonstrated we’re far from perfectly rational when making decisions. We tend to support
our past decisions, even if new information suggests they’re wrong. We tend to think ofexamples that come readily to mind and think that they’re more common than they actuallyare. And we’re irrationally impatient. In this context, it’s important that subjective values aretime and situation specific. Ice cream on a hot summer afternoon is more valuable than on acold winter morning. Water in a desert is essential, as are healthcare workers, ventilators andtesting capacity during a pandemic. If we value the present much more than the future, thenwe’re less likely to make the necessary investments today to reduce risk tomorrow. So
despite a history of financial crises that stretches back centuries, banks didn’t build adequate
rainy day buffers in advance of the global financial crisis. Or despite overwhelming scientificevidence, society is still underinvesting in addressing climate change, even though actions
today will be less costly than those required in the future. And despite varied and ample
warnings, we didn’t invest adequately in preparedness or healthcare capacity for a pandemic.
These tragedies of the horizon won’t be addressed by fixing market imperfections alone.
(20:04) The third and most profound set of risks arise from the drift from moral to market
sentiments. They include the undercutting of the social foundations of the market, thecorrosion of values arising from pricing of goods, services and civic virtues, that have been
traditionally outside the market, and the flattening of values by forcing decisions to be madeaccording to utilitarian calculations. Let’s take the first of these drifts, the changing nature ofmarkets. Now of course markets don’t exist in a vacuum, the market is a social constructwhose effectiveness is determined partly by the rules of the state and partly by the values ofsociety. It requires the right institutions, a supportive culture and the maintenance of social
licence. Values of trust, integrity and fairness are critical to effective market functioning, andthese values have increasingly been taken for granted. Milton Friedman’s classic pion toshareholder value includes the following caveat: A corporate executive’s responsibility is tomake as much money as possible, while conforming to the basic rules of society, both thoseembedded in law and in ethical custom.
(21:28) And where do these basic rules come from? Economic and political philosophersfrom Adam Smith to Friedrich Hayek have long recognised that beliefs are part of the inherited
social capital which provides the social framework for the free market. That social capital is
the product of both formal institutions and culture, including what the Nobel laureate,
Douglass North, referred to as incentives embodied in belief systems. The question iswhether the expansion of the market, an expansion that Friedman helped unleash, ischanging the underlying social contract on which it has been based. Could the emphasis on
the individual over the community or on our selfish traits over our altruistic ones imperil boththe market’s effectiveness in determining value and ultimately society’s values? In short, inmoving from a market economy to a market society, are we consuming the social capitalnecessary to create economic and human capital? The ethical customs that Friedman
assumes can change. Indeed, many of those necessary to support market functioning arecorroded when financial returns become disembodied from their impact on otherstakeholders. Friedman himself revealingly acknowledged the importance of such moral
sentiments when he observed that a company might devote resources to provide amenities
to its community, but only in the expectation of attracting employees, and that it could engage
in such hypocritical window dressing by calling this social responsibility lest it, and I quote,“Harm the foundations of the free market to admit that this fraud was all in the pursuit of profit
alone.” This is how corrosion happens, and did happen in the ensuing decades.
(23:31) And that brings me to the second drift, which is the way the spread of market
mechanisms can change and corrode society’s values. A traditional concern is what happens
to our values when we have a hierarchy based only on wealth, whereas the novelist, Tom
Wolfe, might have put it, “Boom, a statisphere built on money.” Smith’s theory of moral
sentiments argued that people form their norms and values by wishing to be well thought ofor well regarded, yet, increasingly, the value of something, some act or someone is equatedwith its monetary value, a monetary value that is determined by the market. The logic ofbuying and selling no longer applies only to material goods, but increasingly it governs thewhole of life from the allocation of healthcare, education, public safety and environmental
protection. Standard economic reasoning is that the spread of market exchanges increases
efficiency without moral cost, but when everything becomes relative is anything immutable?
(24:40) The philosopher, Michael Sandel, takes the view that market values and reasoning
are reaching into spheres of life previously governed by non-market norms, including
procreation, child rearing, health and education, sports, criminal justice, environmental
protection, military service, political campaigns, public spaces and civic life. There isconsiderable evidence that commodification, putting a good or service up for sale, cancorrode the value of the activity being priced. Take the celebrated study of how to incentivise
children who are raising money for charity, would students raise more money if they werepaid? In fact, the group of children motivated only by charitable and civic virtue raised themost. Similarly, fines for late pick-ups of children from day care are viewed as a fee for extra
hours, and voluntary blood donations in the UK out pays blood for sale in the US. In all thesecases money crowds out civic norms. A moral error of many mainstream economists is totreat civic and social virtues as scarce commodities. This ignores the extensive evidence that
civic virtue and public spirit atrophy with disuse would grow like muscles with regular exercise.
As Aristotle observed, virtue is something we cultivate with practice, we become just by doing
just acts, temperate by doing temperate acts, brave by doing brave acts.
(26:15) This observation will be familiar from the civic response to COVID. No-one paid thegroups that spontaneously volunteered to sew and donate makeshift PPE and protective
masks. No citizen drew on government payment to help elderly neighbours or the homelessin their communities. And no government fiat told over one million people to volunteer for the
NHS. Solidarity during the first lockdown was, yes, contagious. When we outsource civic
virtue to pay third party providers, we narrow the scope of society and encourage people towithdraw from it. There is extensive evidence of a commercialisation effect. When people areengaged in an activity that they see as intrinsically valuable, offering them money weakens

their motivation. By depreciating, we’ve been crowding out the intrinsic interest orcommitments. In these ways, the spread of the market can undermine community, one of themost important determinants of happiness.
(27:22) Now the final corrosion of the drift from moral to market sentiments is how the spreadof subjective value flattens values when we make decisions. An advantage of the subjective
approach to value is that it is neutral. Most things can be compared by a common, widely
available standard, that is, the market price. The disadvantage is that it sets in train a process
in which welfare is interpreted simply as the sum of all prices. This flattens values, adding
them up with no hierarchy or consideration of their distribution. As we shall see, it encourages
trade-offs of growth today and crisis tomorrow. Trade-offs of health and economics, tradeoffs of planet and profit. And this is compounded by something which should be a familiar
problem, that subjectivism implies that anything not priced is not valuable. This encourages
bringing more goods and activities into markets, a process that can affect perceptions of theirvalue. The alternative is to have many assessments of the costs and benefits of new policies
that infer prices because there isn’t a market. But as we shall see in the third lecture, howreasonable are complex and literally vital estimates of the value of life? Moreover, our general
failure to put a price on social infrastructure and social capital can lead to underinvestment inwhat matters for wellbeing.
(29:01) In standard GDP accounting, government contributes no value added beyond public
sector salaries. But what captures performance during the crisis? The pay of the healthcare
worker or their heroic efforts throughout? There are two ways to address the gap in thesecalculations, both of which originated in the 19th century, the utilitarian approach of Jeremy
Bentham and the welfarist approach of John Stuart Mill. Bentham defined utility as thatproperty in any object whereby it tends to produce benefit, advantage, pleasure, good orhappiness, or to prevent the happening of mischief, pain, evil or unhappiness to the party
whose interest is considered. The very idea of happiness needs to be defined, purely hedonic
measures of welfare, that is, pleasure and pain, are inadequate. Mill described what
Bentham’s calculations missed, including a sense of honour and personal dignity, the love of
beauty, the passion of the artist, the love of order, of congruity, of consistency in all things,
the love of action and the love of ease. Mills’ intuition is backed by extensive research into
the science of wellbeing which finds that a wide range of determinants of human happinessaren’t priced, and these include mental and physical health, human relationships, community,
dignity and the general social climate. These can be hard to calculate and, again, efforts tocalculate them can be corrosive.
(30:46) And a final point, distribution matters. When there are large benefits for
disadvantaged groups, and only small costs for others, a policy may enhance welfare, despitewhat market values suggest. A Christmas bonus of £1,000 pounds means less to Mark
Zuckerberg then £500 does to someone on a minimum wage. Which, as promised, brings
me back to the season of goodwill. To many economists all this gift giving is fraught withinefficiencies. Joel Waldfogel has calculated the loss in utility that results from imperfect gifts
in kind, rather than efficient gifts in cash, and he attributes the practice of presents overpayments to the stigma over cash giving. He calls this the deadweight loss of Christmas, ho,
ho, ho. His article, published in the most prestigious economic journal, fails to consider thatthe stigma against monetary gifts reflects norms worth honouring and encouraging, likeattentiveness and thoughtfulness. And it’s this juxtaposition of the magi and the merchantthat captures much of the story of value thus far. Today, the subjective approach to value has
spread widely. Market value is taken to represent intrinsic value, and if a good or activity is
not in the market, it is not valued. We’re approaching the extremes of commodification ascommerce expands deep into the personal and civic realms. The price of everything becomesthe value of everything. In the next three lectures I’ll explore how these dynamics contributed
to a series of crises of credit, COVID and climate and how, by recognising these dynamics,
we can build a society that better works for all. Thank you very much.
(32:42) [Audience applauding](32:55) Anita Anand: Mark, thank you so much. I mean that was a really very fascinating firstlecture. We’re going to open this up to our audience in just a moment, but there was just one
thing that occurred to me. You talk about values, we’ve had a referendum here, we’ve had
two elections in America that tell us that values can be completely split down the middle.
(33:15) Dr Carney: I think part of what I’m trying to say is let’s start with the values that arenecessary for the market to function effectively, but also as we will see when we talk about
the financial sector, of responsibility, of fairness within markets, those are the types of values
that I do think cut across the broader choices that society makes. And then there is a question,and these are the questions where decisions are made by society about where is thehierarchy of value? So, for example, in the referendum, society is asked the question aboutsovereignty in the United Kingdom versus the other benefits and costs of being part of theEuropean Union. Society makes that decision. The UK decides to leave the European Union.
That is a hierarchy of value. Then the question becomes how do we organise ourselves tobe most effective within that decision?
(34:05) Anita Anand: Okay. Well, as you know, we are in extraordinary times here with our
virtual audience. So we’re going to take a question from Justin Onuekwusi who is a fundmanager with Legal & General Investment, based in the city of London. Justin, over to you.
(34:20) Mr Onuekwusi: Thank you. So you mentioned about the rise of the market and the
reduction of the state and how it’s positive, yet this has been taken to, have led to a rise ininequality and now we’re seeing the rise of companies who are less interested in, I’d say,pure profit maximisation, and instead of pursuing profit with a purpose, right, either theenvironmental, social or governance. So, I suppose going back to your lecture, if the market
is a social construct, why has it taken so long for the market to explicitly take into accountthese social costs?
(34:57) Dr Carney: That’s a great question. And it’s interesting, originally there was thispurpose, we moved into the direction, and I don’t want to pin it all on Milton Friedman who
was partly the pendulum moving, but we moved into this direction of the primacy of profit.
What’s happening now, and you would see this, Justin, with I think your own direct work, butalso your firms, is bringing that pendulum back and trying to find the right balance between
purpose and profit. My sense is we’re at a stage where we have companies that in many
respects are looking for pursuing purpose, but solving problems for society and, therefore,
they will be profitable over the long term. And I would assert that that is absolutely now thecase - it didn’t necessarily used to be the case - but that is now the case with the move to net
zero. If you can help unlock that, you will be profitable. The question is, for some, will they gofurther, do they actually give up some profit for broader purpose or broader means?

(35:56) Anita Anand: Justin, thank you very much indeed for that question. Former Labourcabinet minister, academic, broadcaster, ballroom dancer, the list goes on, Ed Balls, over toyou.
(36:07) Mr Balls: Thank you very much indeed. And I’d like to ask Mark about this difference
between financial value and society value, two areas where the market has become more
into our lives, there’s more families who have two people working, have a lot more aboutchildren being looked after in childcare, and if people are living longer, they spend more years
in care homes, the reality is that we pay childcare workers and care home workers much,
much less. For example, we pay primary schoolteachers or nurses and doctors, is that the
failure of the market or the private sector? This happens in the state sector as well, in publicnurseries, is it the fault as us as individuals, do we just not pay enough for these services?
Isn’t the reality, the law says, the rules say, a primary school teacher must have a graduate
degree and is paid commensurately. Say, in nursing, in care workers and in early years
childcare, the government doesn’t do its job, it doesn’t set the right social norms and people
get badly paid, isn’t the answer the government of whatever colour and start making sure therules of the game reflect what we value and improve the pay of people who look after theoldest people and the youngest people in our society?
(37:27) Dr Carney: Yeah. I mean, it’s a fundamental question. Let’s say you home schooledor you took care of your parents or relatives, your action there, there would be no value
ascribed to it even though tremendous value is transcribed and it, again, shows the limits.
But let’s take what does happen, which is that these services are increasingly performed inmarkets. And I think one of the areas that I would draw, and it’s been quite clearly shown tous, what we’ve seen with the crisis for care workers, frontline health workers and for
educators is just how valuable they are. This is a challenge we have as society, we value
things on the average across, but don’t realise what essential means and don’t pay for
essential, we pay for average, and then that average gets pushed down. And there is amismatch between the value derived and the value paid. My personal judgement is that thathas gone too far, it’s too undervalued, and that gap needs to be closed.
(38:33) Anita Anand: If you really want to change things, if you really want people to value
the things that are important, as you’ve described them, isn’t it important to have a much
more interventionist government?
(38:44) Dr Carney: Well, it’s important that society makes clear what it values. So these arechoices ultimately governments are following through, the choice, and that these questions
are put in clearer ways to society. Do we value education? Do we value recognising - I saw
Camilla Cavendish who is an expert on many things, including the aging of society, do wevalue and do we recognise the pressures that are on our system? And, if so, how do we makechoices in terms of how we allocate our resources?
(39:15) Anita Anand: Okay. I mean, you mentioned Camilla Cavendish, she is actually partof our audience today, Columnist for the Financial Times, senior fellow at Harvard and former
Director of Policy under David Cameron, the former Prime Minister. Camilla?
Ms Cavendish: So, Mark, you described what you called the tragedies of the horizon, which
are the things that go wrong when we put too much value on the present and not enoughvalue on the future. And, of course, one of the examples of that is insufficient action on theclimate emergency. And I wondered what you thought democracy should do because, ofcourse, democratic governments have very short electoral cycles, how do you think those
governments should be making long term decisions and taking account of the interests offuture generations, and do you actually fear, as I sometimes do, that maybe authoritarianregimes have a better chance of reaching net zero?
(40:03) Dr Carney: Well, let me answer it from a democratic perspective, if I may. So part of
it is being done, not necessarily fast enough, but has been done, which is to get to the point
where we have in the UK, have in Canada, which is to be clear about the objective, in thiscase net zero by 2050. But then you have to start to fill in, well, what is required in order to
get there and to provide some of that information, some of that analysis, in an objective way.
So the Climate Transition Commission is an example of something in the UK where you haveexperts – am I allowed to say experts again, is that allowed? Hopefully. You have experts
who look at where we are on that transition and what else needs to be done and whether
we’re ahead or behind. And they, you know, they clearly say we’re still behind. So you provide
some element of objective assessment. You can do the same for the carbon price as well.
There’s an argument that Janet Yellen and I made the other day which was that for carbon
pricing, once we decide where we want to go as society, through a democracy, that there’s
certain technocratic decisions that can be taken that start to move it towards that path. It’seasier to be a central banker in a democracy than it is to be a politician in a democracy.
(41:17) Ms Cavendish: I always wonder when we’ve got a situation where I think societies
are now showing that they really do care about climate and the science is overwhelming, I
just sometimes wonder if you almost need to take some of this out of the purview of the shortterm electoral cycle and stop it becoming partisan and political?
(41:36) Dr Carney: I agree. Very clearly defined, take it out and make it accountable that way.
Yes.
(41:40) Anita Anand: Okay. Mike has asked, “Is there a country or company today which canshow us what a better balance between values and value looks like?”(41:50) Dr Carney: Well, I think there are a few and Unilever has shown consistently a focus
to Justin’s question earlier on purpose and accountability around that. I’d also take theexample, a similar sector, Danol in France, which has totally re-orientated itself and, in fact,
has shifted along that continuum more towards rebalancing purpose and profit. So thosewould be two. I mean, these are major global companies that would be examples.
(42:15) Anita Anand: Let’s hear from somebody who was - figured large in a government thatyou’ve served as the governor of the Bank of England during his time, George Osborne,
former conservative chancellor from 2010 to 2016, now editor-in-chief of the Evening
Standard.
(42:29) Mr Osborne: Thanks, Mark, that was a great lecture. We know the value of money, apound equals a pound, in fact, partly due to the effectiveness of central banking in recent
decades, but values are under attack, institutions are under attack, the institutions that Adam
Smith would have valued are now criticised. And so how do you achieve that consensus that
I think is implicit in what you’re saying about how we need to approach these different crises
and the kind of way we regulate markets and don’t we end up with money being effective
because it is the lowest common denominator that everyone can agree upon?

(43:05) Dr Carney: Good to see you, George. Certainly money is a means to an end in helping
to move us forward, absolutely right, but the question of the range of values that we’re putting
weight on, so fairness, responsibility. I mean, part of our crisis in values has been perceptions
and realities around fairness. We have issues in the COVID crisis about is there one rule forone set and another for another set? We have issues in terms of fairness of opportunity whichcome up through education and other things. And so a real emphasis in terms of value - andI - maybe it’s a slightly unfashionable word, but solidarity, as a value that goes alongside
fairness, and more of an emphasis on that and less of an emphasis, to go to the previous
question, which is about trickling down ultimately through monetary efforts and making that
explicit, I think that’s part of the challenge we face with a range of things that governments
need to do.
(43:59) Anita Anand: So much easier to be a central banker than a politician?
(44:03) Dr Carney: It is much easier to be a central banker than a politician. I know that, I
know that. But it wasn’t that easy, as George knows.
(44:12) Mr Osborne: It’s true.
(44:12) Anita Anand: Thank you very much, George Osborne. We’ve got another question
from a member of our virtual audience. Chandra would like to know, “What do you think has
been lost by the wholesale repudiation of socialism in the late 20th century? What lessons
could we still learn for the 21st century from what was observed in the industrial revolutionthat inspired some of the earliest socialists?”(44:35) Dr Carney: I’m not sure that the more recent repudiation of elements of socialism, atleast from my perspective, that we’ve lost a great deal from that, I think in the ideals ofsocialism, in the - certainly in that period the response to the industrial revolution, and I think
one of the challenges we have, if we step back from the COVID crisis, the climate crisis, theaftermath of the credit crisis, is something that’s very positive, but could also be as
challenging, which is, to use the nomenclature, the fourth industrial revolution, thistechnological revolution which really is starting and has been accelerated by the COVID
crisis. So artificial intelligence, e-learning, e-Reith lectures, et cetera, and how are we going
to channel those technologies in a way that benefits most of society very quickly because thehistory of previous industrial revolutions is it takes a very long period of time, last point whichthat needs, it goes back to the need to think about the values we have as society and thatsense of solidarity so that we move more quickly and deliberately so that all benefit.
(45:44) Anita Anand: You’ve mentioned that your thinking about values stemmed fromreading Mariana Mazzucato.
(45:50) Dr Carney: Yes.
(45:50) Anita Anand: And I’m delighted to say that Professor Mariana Mazzucato is with us,
so a professor of economics, of innovation and public value at the University College London.
Welcome, Professor.
(46:00) Professor Mazzucato: Thank you, Mark, for your amazing lecture and of course forthe name check. So you talk about the problem of confusing price with value, and you’re
absolutely right that this is just so stark today, where care, you know, care workers who weclap on our doorsteps are actually not considered valuable in terms of the accounting

mechanisms and that’s very much a tautology, right? They are paid little so we don’t value
them, we don’t value them so they’re paid little. But another problem, and this is my key
question to you, is we actually end up confusing rents with profits, and this is a really tricky
one and I’m quite curious that you didn’t actually use the word, ‘rent’. I think you used it once
when----(46:35) Dr Carney: Yeah.
(46:35) Professor Mazzucato: -----you were talking about profits, rents and wages, but, youknow, where does that fit in terms of your own analysis because Adam Smith what he actuallymeant by the free market was probably one of the most, you know, confused words ever, he
did not mean, free from the state, he actually meant, free from rent.
(46:50) Dr Carney: Yeah.
(46:52) Professor Mazzucato: And here, you know, I mean, a key problem, as he said, is thatjust because an activity earns a price, it’s been included in GDP, regardless of what it’s doing.
And so if you look at the financial sector, for example, a hedge fund or a private equity firm
or a financial institution like a public bank that is actually helping to finance innovation, thereal economy or public or private venture capital fund, they’re all actually treated the same interms of what they’re doing, all that actually matters is the----(47:15) Dr Carney: Yeah.
(47:16) Professor Mazzucato: -----income that’s being earned and that’s what goes into GDP.
So, you know, a lot of people have actually been thinking about the GDP problem and value,
and you mentioned Sandel and there’s others, and they also talk about in terms of wellbeing,that we actually have to put happiness and wellbeing at the fore, but very few have been, youknow, going to the core of what it means then in GDP to get rid of the rent. And as you, youknow, were the Bank of England governor I’m just wondering can you just comment a bit on
this, specifically around the financial sector and what we can do within that to distinguishrents from profits?
(47:45) Dr Carney: Okay, well, I think this is an incredibly important point. You need a value
theory to think about how we’re going to channel those opportunities and what is valuablefrom that and how do we - how we account for things matters to how - where our priorities
are, which is part of Mariana’s - you’ve made many points in your question, but that’s part ofit, and particularly at these times. Normally when you have big shifts, shifts from theagricultural age, which was the physiocrats, to the age of trade, which were the mercantilists,and from the mercantilists to the age of commerce, which is the classicists and on and on
and on, is you have different perceptions of value. So if you just rely on what is priced in themarket, you miss what is productive and which has these longer, longer term effects. Last
point, this is part of what I’m trying to say around the flattening of values, which is once you
take everything into the price, then they can be equated. So the hedge fund that makes X inpounds is compared to the care workers as an industry, who potentially make less, and as ifthat is a value calculation. And that is part of the challenge where you have to look - and I
said that was the last point, this is my last, last point because Mariana also said - she rightly
points out wellbeing, and I think one of the challenges we have is it’s not necessarily right totake issues of wellbeing and put a market price on them in order to make these judgements,and these are the fine issues that Mariana, Diane Coyle and others are thinking about interms of what goes into GDP and other accounting mechanisms.
(49:17) Anita Anand: Mariana, thank you very much indeed for your question. We have thesculptor, Antony Gormley, with us, creator of course of the Angel of the North and many otherfabulous sculptures. Antony, your question?
(49:27) Mr Gormley: It seems to me that capitalism is completely unable to curb its addiction
to endless growth or to find an effective, quick or serious response to the climate crisis, andI’m just wondering if you ever lie awake in your bed at night and think is there another systemother than liberal, capital, free economy that we could be working with that would actually dowhat you’re talking about which is re-balance the relationship between broad human purpose
and profit?
(50:09) Dr Carney: Well, I think there is two aspects. First is the simple aspect, if you will,
which is hard anyways, but simple, which is improving the functioning of markets in a waythat moves the motivation of the individual in the market, not just about a sense of self, but asense of responsibility for the system. So one of the things we did, and it’s a microcosm point,
which is post-financial crisis, is we made the senior managers of all institutions responsible,
believe this, heaven forbid, actually responsible for the people who work for them, to makesure they were trained or that they managed risks, and if they didn’t and they did things that
undercut the value of the system that they would lose their bonuses and other - this is what
motivates them. So that is not the alpha to mega answer to the question, but it is a way to
begin to inject a sense of responsibility for the system for individuals. The bigger point,
though, the bigger point is to organise the market in pursuit of what society values and thatwhat society values is not going to be priced, but once it’s clear what society values, and you
have a political system and a dialogue and a broader sense of that, then the market will startto put a price on it, but price in pursuit of purpose, to go back to Justin’s point at the start.
And so what I think is possible, and I know you’ve dedicated a substantial proportion of yourlife to try to move this along, what is possible, but not assured is that with climate we are
getting towards that point which it’s very clear what society wants and then we can organise
the market in pursuit of that.
(51:47) Anita Anand: I know we’ve – yeah.
(51:48) Dr Carney: And that is the trick.
(51:49) Anita Anand: We have a climate----(51:50) Dr Carney: Yeah.
(51:52) Anita Anand -----lecture to look forward to. Thank you very much, Antony Gormley,
for your question. I mean, since Antony Gormley brought it up and wants to know what keeps
you awake at night, can I also ask when you were governor of the Bank of England you spokeout about the dangers of Brexit to the UK economy.
(52:05) Dr Carney: Mmm.
(52:07) Anita Anand: Do you stay awake at night now thinking I should have done more, I
should have said more?

(52:12) Dr Carney: No, because I think what our responsibility was to make sure the system
was prepared for whatever society decided. We had to move hundreds of billions of pounds
in order for that to be the case. The system worked together and that was the bit of theeconomy that was ready so, you know, I’d lay awake at night trying to make sure that it was
ready for that. But by the way, one of the values is responsibility and accountability and you
can’t, as an unelected official, move hundreds of billions of pounds and not explain why you’re
doing it.
(52:44) Anita Anand: Helen is wanting to ask a question. Helen?
(52:48) Helen: I was interested, I heard the discussion about understanding the value of theessential and then paying only for the average, but what about expanding that to unpaid
labour, you know, what kind of price can we put on childcare and the other elements ofdomestic life which are overwhelmingly performed by women?
(53:06) Dr Carney: Yeah.
(53:06) Helen: I know Mark mentioned the sort of value of the unfelled tree in the rainforest
and I’m uncomfortable referring to a woman as such, but I mean can a comparison be made?
I’m particularly interested in his thoughts on this, given in the current environment it’s women
who are being hit hardest by the kind of changes we’ve seen in the last year. Thanks verymuch.
(53:25) Anita Anand: Thank you very much, Helen. Briefly, if you would.
(53:25) Dr Carney: Yeah. Okay. Well this big issue that Helen is raising it’s absolutely correctand it’s part of the reason, Helen, why I did bring it up with Ed Balls is that there are, youknow, these huge services that are performed and they’re performed out of love, out of
responsibility, but there’s not the value that’s subscribed to them. And, actually, in somecases we have our tax system and other systems organised that penalises this type of
behaviour, and at a minimum that has to be stripped out of the system very consciously. It
actually had been a big issue in Canada and had been addressed in the last few years toensure that those decisions are made in a way that is consistent with financial value. What
Helen just said about the distribution, the impacts of the COVID crisis disproportionately on
women, disproportionately on a series of already disadvantaged groups in our society andregions, is fundamental to how we respond going forward.
(54:24) Anita Anand: Thank you. We have time for one more question.
(54:26) Dr Carney: Okay.
(54:27) Anita Anand: Lets go over to Professor Michael Minelli for this, a scientist financier,and one of the claims to fame for Michael Minelli, I know, is that he created the world’s firstcommercial digital map. Welcome to you, Michael.
(54:41) Professor Minelli: Thank you. Money can be defined as a technology communities
use to exchange value across space and time and a lot of market price absurdities highlight
community value clashes, taxpayers versus art lovers, fisher folk versus environmentalists,
currency traders versus tourists, yet supposedly communities change their values slowly.
Could you please share your thoughts on why market value is important for long term
decisions, such as carbon prices, seem to fluctuate so wildly and swiftly today and whether

these fluctuations are for good or ill, giving us better decision making information or justmisdirecting us to focus on the short term?
(55:22) Dr Carney: That’s a fantastic, absolutely fantastic question. The economist in me willtell you that it’s rationally discounting all the available information and there’s all of a suddena marginal bit of new information that comes in, market reacts, such as, you know, progress
on a vaccine, being actual material information - but these swings are too big, they’re too
frequent. That goes to the limits of relying on the market, particularly as the policymaker. So
a general orientation, yes, but the market always right, no. And that brings in these questions
about when the market is in conflict, your fishers and the environment, for example, in conflictis some guidance and some judgement and bringing the values in the market back in linewith the values of society, which are the toughest judgements to make.
(56:08) Anita Anand: Michael, thank you very much indeed for the question. That is,unfortunately, all that we have time for. Next time Mark is going to be looking back at thedrama of the 2008 financial crash, examining why it happened and asking how we might
prevent a new systematic financial meltdown. But, for now, our thanks to all of our guests,
our audience and, of course, to our Reith lecturer for 2020, Dr Mark Carney.
(56:33) [Audience applauding]

END OF RECORDING (56:42)