Book Review: BETWEEN DEBT AND THE

DEVIL:
MONEY, CREDIT, AND FIXING GLOBAL
FINANCE
by Adair Turner
Sergey Avetisyan∗1,2
1
Central Bank of Armenia, Economic Research Department, Armenia
Dilijan Training and Research Centre,
email: avetisyan.sergej@gmail.com, sergey.avetisyan@cba.am
2
Yerevan Brusov State University of Languages and Social Sciences

September 2018

Abstract
Turner’s book presents a new approach to monetary theory and policy. What’s
novel in Turner’s book is not the proposition that debt can be dangerous, but that
debt is what modern financial systems naturally create; and always to excess. Debt
as an economic evil is an old characterization. Aristotle was sniffy about the money
lenders, some of the world’s major religions have prescribed or stigmatisedusury.
And modern economic thinkers have denounced leverage just as sternly as the
ancients. Irving Fisher saw the Great Depression as stemming from the curse of
”debt deflation”. The shocking results of that 2008 failure meant that subsequently
the authorities, quite rightly, did what they had to do to avoid a complete meltdown
in the markets. But this book is not a memoir of his role in steering us through the
financial crisis. Instead, he addresses deeper questions about what got us into such
a mess in the first place, and demolishes much of the conventional wisdom about
the functioning of financial markets and monetary policy.

Key Words: Adair Turner; book review; financial crisis; monetary theory.

JEL: B26; B31; Y30; Y50.

1 About Adair Turner

Adair Turner is not a mere academic economist, but he was one of the regulators who had
to deal with the financial crisis in UK. Adair Turner held no official policy role before the
crisis. As a head of Financial Services Authority (FSA) he was involved in dealing with
the consequences of the global financial crisis and its effects on the financial industry in
the City of London, who is still global financial centre and the most important financial
centre in European Union. In introductory pages of this excellent book, Turner made a
clear statement that he was not fully aware how deep was the crisis and obviously it was
the main motive to write this book.
∗ This Review should not be reported as representing the views of Central Bank of Armenia. The

views in this Review are those of the author and should not be interpreted as those of Central Bank of
Armenia.

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 Jonathan Adair Turner, Baron Turner of Ecchinswell, is a British businessman,
academic and was Chairman of the Financial Services Authority (FSA) until its abolition
in March 2013. He is the former Chairman of the Pensions Commission and the Committee
on Climate Change, as well as the former Director-General of the Confederation of British
Industry (CBI). On 29 May 2008, it was announced that he would take over as Chairman
of the Financial Services Authority. He took up this post on 20 September 2008 for a five
year term to succeed Callum McCarthy. Currently he is Chairman of the The Institute
for New Economic Thinking (INET). From that, he wrote a book “Between Debt and the
Devil: Money, Credit, and Fixing Global Finance”. On Sept. 7th 2005 he was created a
life peer as Baron Turner of Ecchinswell, awarded in recognition of his public service to
the nation. In 2016 he was elected an Honorary Fellow of the Royal Society.

2 Provocative Solution To The Economic Crisis

According to Giles’s review on Between Debt and the Devil, Leo Tolstoy wrote with such
sweep that, as one critic has noted, a reader can pluck from Anna Karenina a recipe for
strawberry jam. Readers of Adair Turner’s latest book may feel something similar. Part
theory, part history and the rest policy advice, Between Debt and the Devil ranges from
thrifty German consumers to house-obsessed Londoners, from China’s reserves to the
eurozone’s flaws. No big name goes unchecked: Minsky and Keynes jostle with Friedman
and Hayek (Giles (2015)).
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 – CDOs1 , SIVs2 , CDSs3 – 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. 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 Clark (2015).
Between Debt and the Devil challenges the belief that we need credit growth to fuel
economic growth, and that rising debt is okay as long as inflation remains low. In fact,
most credit is not needed for economic growth—but it drives real estate booms and busts
and leads to financial crisis and depression. Turner explains why public policy needs to
manage the growth and allocation of credit creation, and why debt needs to be taxed as
a form of economic pollution. Banks need far more capital, real estate lending must be
restricted, and we need to tackle inequality and mitigate the relentless rise of real estate
prices. Turner also debunks the big myth about fiat money—the erroneous notion that
printing money will lead to harmful inflation. To escape the mess created by past policy
errors, we sometimes need to monetize government debt and finance fiscal deficits with
central-bank money.
Between Debt and the Devil shows why we need to reject the assumptions that
private credit is essential to growth and fiat money is inevitably dangerous. Each has its
advantages, and each creates risks that public policy must consciously balance. That we
could understand the cause roots of the financial crisis and how to avoid the next crisis?
He stated that ”the lack of foresight did not re flect blind fate in free financial
markets. We always believed that financial markets were susceptible to surges of irrational
1 CDO - Collateralized Debt Obligation
2 SIV- Structured Investment Vehicle
3 CDS - Credit Default Swaps

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exuberance: We were unconvinced by the Efficient Market Hypothesis.” To understand
that, we have to return to the questions usually ignored by the policy makers and financial
industry. Author had to return to the insights of the early and mid – twentieth – century
economists, such as Knut Wicksell, Fridrich Hayek, John Maynard Keynes, Irving Fisher,
Frank Knight and Henry Simmons.
Adair Turner said that he had to ”discover” the writings of Hyman Minsky, monetary
economist that was largely marginalized by the mainstream of the discipline. Adair
Turner understands the need for more financial regulation, and he said: ”Radical policy
implications follow”.
We now believe that banks should operate with leverage levels (the ratio of total assets
to equity) more like five than the twenty – five or higher that we allowed before the crisis.
And he argue that governments and central banks should sometimes stimulate economies
by printing money to finance increased fiscal deficits.
To many people the first proposal is absurdly radical and the second dangerously
irresponsible: to many, too, they appear contradictory. But he hope to convince you that
they are entirely consistent and appropriate, given the cause of the 2007 – 2008 crisis and
severe post – crisis recession.

3 Main Idea
The book contains five basic chapters. The first part (”Swollen Finance”), begins with the
explanation of (potential) instability of the financial sector of the economy, the pre–crisis
assessment of the “financialization” (excessive credit expansion in deregulated economy,
when there are many incentives for financial deepening and creation of the debt overhang)
Turner describes a process whereby households and firms borrow in great quantities
from eager banks not to fund productive investments but primarily to finance purchases
of real estate that already exists. This drives up asset prices, prompting lenders to create
still more debt, turning the leverage ratchet again and again until, inevitably, the machine
blows up. Instability, says Turner, becomes ”hard-wired” into the system. And debt
drives the world after the bubble bursts too.
Policymakers, it turns out, have been wasting their time in recent years trying to get
banks to lend more to drive growth and to coax the private sector into borrowing and
spending again. The fundamental reason growth has been so weak in recent years, says
Turner, is a lack of demand for credit in a still excessively leveraged world, not inadequate
credit supply.
It’s a radical analysis. And Turner doesn’t shy from some radical policy responses.
Government debt that cannot feasibly be paid back, he argues, should be effectively
cancelled by central banks.
He’s talking about ”monetisation” – the ultimate heresy in central banking circles.
Turner also argues that the ability of private banks to loan out customers’ deposits should
be heavily curtailed for the sake of future financial stability – the ultimate heresy as far
as private bankers are concerned.
Turner is admirably fearless. He goes where his fundamental analysis tells him to
go. But is his underlying thesis right? A weakness of the book is that Turner doesn’t
fully engage with the counter evidence. For instance, there are signs that small firms in
the UK have been turned down for loans by their banks, or at least discouraged from
seeking credit - an indication that lack of credit supply is part of the problem. Demand
for mortgages in the UK seems to have bounced back, despite still elevated household
debt to income ratios here in Britain.
Curiously, although Turner emphasizes repeatedly that real estate speculation and
lending is at the center of our financial miasma, he does not suggest the Henry George4
4 Henry George (1839 – 1897) was an American political economist and journalist. His writing was

immensely popular in the 19th century, and sparked several reform movements of the Progressive Era.
His writings also inspired the economic philosophy known as Georgism, based on the belief that people
should own the value they produce themselves, but that the economic value derived from land (including
natural resources) should belong equally to all members of society. His most famous work, Progress and
Poverty (1879), sold millions of copies worldwide, probably more than any other American book before

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solution in his trial balloons in the Conclusion. He mentions George once, and lists his
epoch-making book in the bibliography, but that’s it. George addressed the 2007 financial
crisis in advance - 150 years in advance. He said if we taxed real estate, the speculators
would leave, prices would fall, homeowners could not only afford their homes but have
extra cash to spend, and the entire economy would benefit.
Turner’s solutions, if they can be so classified, are a kludge of patches that if imple-
mented, might temper the wild swings somewhat. But he inspires no optimism that even
this little is possible. There is no global political will to tame the private sector bank
beast. At least we know the why now. When it happens all over again, shame on us.

4 Summary
Turner (2017) said governments should finance fiscal deficits by printing money. And he
said that the stock of government bonds already held by central banks should be written
off (more precisely: restructured to become ”perpetual” bonds, which never mature, and
which therefore never get repaid). These two steps would mean that, at a stroke, we could
stop worrying about government debt and keep the economy afloat with government
spending, while households gradually paid off their mortgages.
Can it really be that simple? No. As Turner acknowledges, you can’t just burn debt
obligations without hurting somebody. But who gets hurt in this case? You would only
be writing off that portion of debt that was held by another branch of government. Net
effect on the government as a whole: zero. A bit like transferring money from your savings
account to your current account.
The most obvious objection is that if you save someone (the profligate government)
once, you are implicitly promising to save them every time: expect their behaviour to
change as a result. Turner is sanguine about this risk. If the central bank allowed its
holdings of government debt to be restructured in the way Turner proposes, then it
would be holding a worthless asset. But it would have a corresponding liability (cash
in circulation and reserves posted at the central bank by private banks) that is worth
something - at least to start with. That inequality would matter if the global economy
ever got back to ’normal’. It’s a bit like turning the heat up to maximum under a pan to
bring it up to the right temperature - makes sense as long as you can turn it down again
later. Restructuring the asset in the central bank means you can’t turn it down: you’re
committed to having that much high-powered money in circulation for good.
Once back to normal, we would either have to reverse the debt restructuring and sell
the debt back to the market, or accept much higher inflation (like burning the contents of
the pan). Turner waves away this objection by saying that central banks could tighten
policy rates to prevent excessive inflation (like adding ice to the pan). But that would
imply a far more aggressive path for policy rates than in the past (you would have to
keep on adding ice, because normally the gas is not stuck on full).So be it, Turner might
say: we need the economy to run hotter, even if we have to break some taboos and risk
overheating to get it there. If the problem is deficient demand, as he asserts throughout
the book, then he has a case. But what if the problem is on the supply side? What if the
debt-fuelled, housing-market-led cycle of the last 15 years has undermined the long-run
supply potential of the global economy? What if ’excessive debt’ is really another way of
saying ’misallocation of resources’ ? Then boosting demand, without reallocating those
resources, will just lead to inflation, in asset prices or consumer prices or both. We’ve
seen that film before - in the 70s (consumer prices) and in the noughties (asset prices).
Here we go again.
Right or otherwise on his central thesis, this is an important book because Turner
thinks clearly where much analysis has been fuzzy. A particular highlight is his dismantling
of the dominant pre-crisis delusion among regulators and academics that hyperactive
trading by financiers and mountains of debt securitisations were to be heartily welcomed
because these practices aided ”price discovery” and efficient ”risk allocation”.
In the end, this stimulating book leaves an intriguing thought. Turner applied to be
that time.

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 Governor of the Bank of England in 2012. He was beaten to the top job by Mark Carney
(2013). But what if Turner had won the keys to Threadneedle Street? Would he now
be busy monetising debt and revolutionising high street banking? Or would the devil of
institutional economic conservatism have caged even his restless spirit?
Turner tells us that one of the reasons no mainstream economist predicted the financial
crisis is that their economic models do not include banks. Central banks, but not the
hundreds of thousands of banks that create money by lending for real estate. Yet we base
mission critical decisions on them.
We learn that real estate financing is a dead end. It does not produce new industry or
new consumption; it produces more wealth for those who don’t need it, and more debt
for those who can’t afford it.
Those who don’t follow this system do far better. The catch-up successes of Japan,
Taiwan and South Korea resulted from banks lending only to business, not consumers.
Money is almost entirely a product of credit creation for real estate. The amount of
actual government-issued cash in the system is a percentage in the low single digit
It was interesting, that scattered throughout Adair Turner’s “Between Debt and the
Devil” is a little word that rarely features in most books about finance. The word is
“we”. Its repeated appearance is a reminder that Turner is not just analysing the malaise
of post-crisis economic policymaking: he is campaigning to upend the consensus. In
the opening chapters of this lucid and forcefully-argued book, “we” refers to the central
bankers, regulators and other policymakers who battled to save the financial system.
Turner joined that crew in September 2008, when he took over as chairman of Britain’s
Financial Services Authority - a position he held until the Conservative government
dismembered it in 2013.

References
T. Clark. Between debt and the devil by adair turner review – should the government
start printing money? The Guardian, 25 Nov, 2015.
W. Giles. Between debt and the devil by adair turner (a wide-ranging overdue challenge
to a financial tabo). Financial Times, November 1, 2015.

A. Turner. Between debt and the devil: money, credit, and fixing global finance. Princeton
University Press, 2017.

Sergey Avetisyan (2018), ”Book Review: Between Debt and The Devil: Money,
Credit, and Fixing Global Finance by Adair Turner.”
Sergey Avetisyan (2018), ”Book Review: Between Debt and The Devil: Money,
Credit, and Fixing Global Finance by Adair Turner.”
Sergey Avetisyan (2018), ”Book Review: Between Debt and The Devil: Money,
Credit, and Fixing Global Finance by Adair Turner.”

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