mark carney : three truths for finance remarks by mr mark carney, governor of the bank of england and chairman of the financial stability board, at the harvard club uk southwark cathedral dinner, london, 21 september 2015. * * * i am grateful to ben nelson and iain de weymarn for their assistance in preparing these remarks. “ all england is an american shrine, full of rich records of the makers of their nation. ” 1 none more so than glorious st saviour ’ s – southwark cathedral – a few minutes south of the river from here. its connection with harvard makes it something of an american mecca. for at st saviour ’ s was baptised a southwark butcher ’ s son who became benefactor to the university that would bear his name. john harvard would doubtless be delighted with what has become of the 320 volumes and £800 he bequeathed to posterity : a college founded for the avoidance of leaving “ an illiterate ministry to the churches, when our present ministers shall lie in the dust ”. from that bequest sprung one of the world ’ s leading universities. a community dedicated to its motto : veritas – truth ; the pursuit of truth in the sciences, humanities, even economics. truth to create a better world. but recall pilate ’ s question that has echoed down through the centuries from the pulpits of southwark cathedral to memorial church, “ truth? what is truth? ” indeed, upon arriving at harvard, students and visitors are confronted with a curious truth, or rather, three untruths. in harvard yard sits a statue of john harvard, seated on a bronze throne, commemorating 1638, the year of the university ’ s founding. tour - guides relish in pointing out that, in fact : no - one knows what john harvard looked like, so it is unlikely to be a great resemblance of him ; the college wasn ’ t founded in 1638, but two years earlier ; and it wasn ’ t founded by john harvard, but by the court of the massachusetts bay colony, which first voted to set up the university. the “ statue of the three lies ” is part of harvard legend. the three lies in question are harmless fun. but they should remind us how deeper untruths can persist, embodied in monuments or sustained by conventional wisdom and mores. we gather this evening almost seven years to the day that the failure of lehman brothers shattered conventional wisdom and laid bare three lies about finance.

, innovate and grow. repeated episodes of misconduct ( such as the libor and fx scandals ) have called that social licence into question. to restore it, we need to rebuild fair and effective markets. knight, f ( 1921 ), risk, uncertainty and profit, signalman publishing. in keynes ( 1936 ), chapter 12, he wrote : “ even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic. most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits – of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. ” keynes, j m ( 1936 ), the general theory of interest, employment and money, palgrave macmillan. bis central bankers ’ speeches not markets that collapse when there is a shock from abroad. not markets where transactions occur in chat rooms. not markets where no one appears accountable for anything. real markets are professional and open, not informal and clubby. their participants compete on merit rather than collude online. real markets are resilient, fair and effective. they maintain their social licence. but real markets don ’ t just happen ; they depend on the quality of market infrastructure. robust market infrastructure is a public good in constant danger of under - provision because the best markets innovate continually. this inherent risk can only be managed if all market actors, public and private, recognise their responsibilities for the system as a whole. true lies so this time is the same. markets don ’ t always clear. and we can suffer from their amorality. so what to do with such knowledge? and how to retain it? the longer you are a central banker, the more careful you become in your forecasts. “ irreducible uncertainty ” and “ multiple equilibria ” are occupational hazards ; so if you must predict the future, you are tempted to hedge heavily and must modify constantly. but in two areas i ’ m confident : the three lies of john harvard will continue to be revealed for years to come, and with time, the three lies of finance will come to enjoy widespread credulity again. to resist their siren calls