Prof John Hearn - The Economics of Free Markets, Inflation & Bitcoin

In this episode of the DM-Mi Podcast, host Sukh Hayre sits down with economist Professor John Hearn to unpack some of the most debated ideas shaping today’s global economy.

From the clash between free market capitalism and government intervention, to the role of central banks like the Bank of England, this conversation challenges mainstream economic thinking and explores whether modern policy is making economies stronger or weaker.

Professor Hearn breaks down:

•  Why he believes Keynesian economics and modern monetary theory are flawed
•  The real cause of inflation and how central banks control it
•  Why governments cannot “grow” economies, and the role of innovation and the private sector
•  The truth behind quantitative easing and money supply
•  Whether Bitcoin and cryptocurrency can ever replace traditional money 
•  How AI could reshape financial services and education

The discussion also dives into real-world examples, from Argentina’s economic reforms under Javier Milei to historical policy experiments, offering listeners a clear and thought-provoking perspective on economic policy today.

If you’re interested in economics, finance, business, or the future of money, this episode delivers a deep yet accessible breakdown of the forces shaping the modern world.

Visit Prof Hearns Website:

https://myprofessorjohnhearn.org/

www.dm-mi.com

Transcript

sukh hayre   0:04
 Professor johnhearn, welcome to the DM-MI podcast.
John Hearn   0:09
 Nice to meet you, Sir.
sukh hayre   0:10
 Yeah, just as we were saying, kind of post hitting the record button, came across your profile on mine, I think on LinkedIn, and I've had a keen interest in economics. I've not trained or had any kind of formal education in economics other than learning about the various schools of economic thought via YouTube videos, which is most of my education.
John Hearn   0:22
 Yeah.
 Okay.
sukh hayre   0:32
 But I digged into a little bit of your reading and some of the work you've published over your long and illustrious career. And I kind of had to speak to you, especially given the kind of current financial statement, state that the world is in. So for our audience, could you just explain that you're currently a professor at the London Institute of Banking and Finance?
John Hearn   0:40
 Yeah.
sukh hayre   0:53
 and I've been there for a number of years. Could you just explain a little bit to our audience your own background and what the institute's goals are and kind of some of the kind of economics economist works it does?
John Hearn   1:04
 Yes, I mean, I've, straight from university, I went into teaching economics and thought it would be a bit of fun to teach in a public school. So I did that. And then, so I took people like Simon Cowell and his brother Nick and among others at Dover College. And then I went and talked to the 6th form college and then at the end of the last century,
sukh hayre   1:18
 Okay.
John Hearn   1:26
 I started writing books and then I got picked up by universities to teach with them. And one of the ones was the bankers, which went through a sort of series of professional examinations.
 Chartered Institute of Bankers and then they got into degrees and I taught some of the professional exams for them and then they asked me to teach on their degree course. So they became the Institute of Financial Studies and then they became the London Institute of Banking and Finance and they've now renamed it as Walbrook.
 But these days, I'm more or less a guest there because during the pandemic, I gave my courses to other people and I set up a website to help them, undergraduates during the pandemic. And then that sort of went worldwide. So it
 It starts with the courses that I did. So there are sort of 10 introductory lectures on economics, 10 on banking, finance, and 10 more advanced lectures, chats with influential people like yourself around the world, and about 50 articles.
 All of which designed just to promote thinking because students like the fact that there are people out there with different arguments and they'll argue with each other. And when they suddenly reach that eureka moment, they go, wow, you've got it now. I can see that. And they'll go out and talk.
 on my behalf and on their behalf as well. So I these days guest on things. I advise in various countries like India and Uganda and I do podcasts and indeed anyone who asks me to do things and then I can pop them on my website and
 That other people benefit from your and my experience.
sukh hayre   3:28
 Awesome. So from my very layman's understanding of economic thought and study, there are many different schools of economic thinking, aren't there? Back in my A-level student days, I was quite enamoured with Karl Marx a little bit. But then I think as you kind of grow older and you start paying taxes, then I've discovered the
John Hearn   3:34
 Yep.
 Yeah.
 Yeah.
sukh hayre   3:49
 the Austrian school, which kind of appealed to me a little bit. What particular brand of economic thought do you kind of prescribe to yourself?
John Hearn   3:50
 Yeah.
 Yeah.
sukh hayre   3:59
 If any.
John Hearn   4:00
 Well, yes, exactly. I always tell everyone I'm A earnest, but influenced most by Austrian economics, understanding markets, and for monetarism, understanding how to manage an economy and how the aggregates
sukh hayre   4:02
 Yeah.
John Hearn   4:17
 work in an economy. And my teaching involves, I teach Keynesian economics, modern monetary theory, I teach all of the things that I've just mentioned. And I always tell my students with the added benefit, I'll tell them which one's correct and which ones are incorrect.
sukh hayre   4:35
 Must love a debate then. I said, can we just gather for our audience, just give a quick summary of those schools. So obviously, from a, obviously Karl Marx was an economist, which many people may not know, but I think his primary writings and Marx and Engels were
John Hearn   4:36
 Indeed, yeah.
 Yeah.
 Yeah.
sukh hayre   4:51
 Probably around the economist, the economy of in audience in Victoria in England and describing the.
John Hearn   4:52
 Yeah.
 No.
 NOT.
sukh hayre   5:08
 The not the benefits, but the misallocation of capital and the inequities of it. And then I think from my understanding, I think that later developed in the early 1900s with Keynesian economics. Keynesian economics is more around big government spending, if I'm right.
John Hearn   5:16
 Nick.
 Yep.
 It's influential in terms of making economists seem that they can do things in the economy that they can't do. So I can explain to you why Keynesian economics is wrong. And modern monetary theory now has sort of developed out of Keynesian economics. I often explain, I have to explain to them why they're wrong. So there's
sukh hayre   5:34
 Mm.
John Hearn   5:47
 really nice discussions with that group of people. But you're quite right, you're stepping from thought of economics into the real world and it really becomes a debate in the real world between socialism
 And, you know, I tell you what, I'd love to be a socialist. I'd love to be a person who said, let's all share things, let's all work for each other, let's work hard and we'll share it all out and we'll all be better off as a result of it. And then capitalism, which is that sort of tough world that you go out there, you take risks, you have ideas, you probably fail.
 but the one or two people who don't fail might be very successful and become very rich and very wealthy. So it's more in a political sense, it's looking at those two things. Well, Austrian and monetarism supports capitalism, if you like, whereas Keynesian modern monetary theory, Marxism all support.
 an intervention by government to manage all of these things. So I can explain why that doesn't work and why we should look much more to capitalism. So there's a nice article on my website about the wonders of capitalism. And of course, everyone blames
 capitalism for everything that happens and wants more and more government intervention. So I'm continually trying to correct the idea that governments can actually do anything positive. They tend to just intervene and cause problems rather than actually doing it. They can't grow the economy. Rachel Reeves, before her
 First budget I said this is what you've got to do and of course didn't and then I explained exactly what you're going to do. It will not grow the economy, it will cause unemployment to rise and create stagflation exactly. What has happened because you cannot grow an economy by governments spending money. You have to think about what grows an economy and what grows an economy is invention and innovation.
 An invention and innovation come from the private sector. There's nothing ever in government that is, well, they usually say government's full of failed businessmen and businesswomen, isn't it? Because they couldn't hack it in the real world out there. Sorry, I'll let you come in. Otherwise I could carry on for hours.
sukh hayre   7:58
 No, no, I think you can.
 No, no, you're more than welcome to. There's probably about half a dozen points I'd like to jump on. Let's just go back to the original first point you made about capitalism. I've had a thought or a capitalism seems to be suffering from a branding failure, because I think everyone, even whichever side of the aisle you fall on, everyone kind of accepts that capitalism is a dirty word and people are refrained from using it or are embarrassed to use it.
John Hearn   8:07
 Yeah.
 Yeah.
 Yeah.
sukh hayre   8:27
 I always prefer the term free markets because it seems to be kind of more descriptive and it's harder to challenge. Do we have a branding problem with capitalism?
John Hearn   8:29
 Yeah.
 Oh, yes, definitely. And it's quite nice in a sense, because whenever I mention it, I have loads of people jumping on me and saying that capitalism is terrible and it destroys economies and it creates great inequalities. And so it goes on. So I can always then sort of come in and tidy up that statement. But yes, you're right to say free markets, because
sukh hayre   8:57
 Mm.
John Hearn   8:59
 Free markets is what capitalism is all about. Capitalism is just about private property rights, the fact that people can own things and when they own things, they might want to do things with them. And then they might want to say, well, that's a good idea. I think I'll make myself rich by doing that. And I often said to my students, you know, if you go out there and you see a great Rolls-Royce pull up and out jumps a capitalist,
 who's made his money or her money doing things under free markets and go and thank them because they've raised your standard of living and they've made you better off and shake their hands. If out of that car jumps a politician, you can go out, go over and punch him in the nose. He hasn't done any good for the economy.
 other than interfere. There is a role for government. There's a limited role for government in the economy. We need government to provide the public good. Now, the public good is the good which is not excludable or rival, non-excludable, non-rival, which means it's something like street lighting.
 none of us would go out and buy st lighting because other people can benefit from it. We all agree st lighting is important and therefore you need a government to buy that through some process. You can buy it from the private sector, but it needs to buy it on our behalf. And there are other things like law and order, internal defence, external defence for public goods.
 So that's an area that government have got to get involved in. They don't do it well, they've got to get involved in that. There's also merit goods. These are the ones that will be under consumed in the marketplace and always too important here and that's health and education. I'm quite happy for governments to interfere in health.
 and education. I'm quite happy to have private education and private health to take the strain off of the public sector.
 That's it. After that, I don't really want governments to do any further interference because the markets deal with the other 90% of products much better. But one public good is regulation that the governments need to ensure that they create a level playing field for competition and don't go supporting
 natural monopolies and don't go succumbing to lobbying and very large firms and powerful voices. So yes, free market capitalism is what has raised living standards for the last two, three, 400 years.
 It's that that has improved things. And as soon as you stop promoting capitalism, then you actually stagnate. Things don't get much better. And I think there's a nice book, Unfinished History of the World by, what was his name? Thomas, Hugh Thomas, that's right, wrote that. And he more or less explained all civilizations fail.
sukh hayre   11:45
 Mm.
John Hearn   11:48
 when governments get involved in trying to manage them and to raise standards of living and improve things. And I've just seen that as I came back from Egypt 3000 years ago, a great economy growing, then destroyed by the pharaohs and Ramesses II particularly and all those people who thought it was better to have wars and go out fighting people and build statues to themselves.
 rather than just promote a better life for everyone in their country.
sukh hayre   12:17
 Massive deep dive that you can go on each of those, couldn't you, and just talk for us. But I was going to circle back to another point you made about governments. So I'm just very devil's advocate here that governments don't grow economies and don't innovate. I've that one of the challenges I've heard to that line of argument is one of the sample examples I use is NASA. I know they've been in the news recently with the
John Hearn   12:19
 Okay.
 Yep.
 Yeah.
 Yeah.
sukh hayre   12:38
 made his trip to the moon, if you believe him. But I think one of the arguments that big central planners or big fans of big government economies would make is to look at NASA and say, well, NASA has invented or without NASA, you would never have
John Hearn   12:39
 Yeah.
 Yeah.
 And.
sukh hayre   12:57
 the space exploration trips that as humanity we've had, so is you wouldn't necessarily classify space exploration as a as a as a public good, but it's maybe important to the global good. Is that a fair example of an exception to the rule?
John Hearn   12:59
 Yeah.
 Yeah.
 Oh, yes, exactly. Because governments by chance often innovate and create new things, but they do it very wastefully. So, yes, wars are great times to innovate and develop things. But in peacetime, government very rarely innovates. What you'll find
 often is the political system says, we're going to do this, we're going to do this, we're going to do this. So, you know, 20 things we're going to do, one of which turns out to be successful. They forget the other 19. No, we never said that. We never wanted to do that. They then focus on the one thing that actually works. I mean, my undergraduates say to me, you know, you've got great ideas. Why don't you become a politician? I said, no one would vote for me.
 I said, if I stood in front of you and I said, I can't do this, I can't do this, I can't do this, I can't do this, I'm just going to try and stabilise the economy and let all of you work and improve things. And someone stands next to me and says, I can do this, I can do this, I can do this, I can do this, I can spend on that. Who do you vote for? You vote for the person who says they can do all these things.
sukh hayre   14:15
 Yeah.
John Hearn   14:18
 And even when they try and do all of these things and they don't work, people will go, well, at least they tried, you wouldn't even try. So there's no political capital involved in not doing things when unfortunately the best thing is not to do things and allow the economy to flourish.
sukh hayre   14:26
 Yeah.
John Hearn   14:37
 through free markets and capitalism.
sukh hayre   14:40
 Yeah, I'm just thinking this.
 For the course of my adulthood, there's been very few examples of world economies taking on the free market approach. I think the one that's kind of making the most noise at the moment is Javier Mile in Argentina. Yeah, and I can't remember an example in my life, so many of any of the government that's actually tried, there may have been a smaller scale.
John Hearn   14:56
 I haven't seen that yet.
 Yep.
sukh hayre   15:05
 not overly familiar, but I remember all the use cases I've kind of read or learned about have been maybe Hong Kong or Singapore, which were obviously decades ago. But it's having MEA in Argentina kind of showing that a new way is possible without massive government spending, without big governments. If you rely on free markets, we've got a use case now that we can point to.
John Hearn   15:23
 Yeah.
 Very interesting. Yeah, very interesting because he says the right things and it's taking on board, if you like, that limited government is better than big government. Argentina has always gone through such bad times and hyperinflations in the past and no ever, no illustrations of governments ever doing things successfully.
sukh hayre   15:30
 Mm.
John Hearn   15:47
 So I think that there's probably a tendency there to give it a go. Let's see if this works. And it does seem to be working. It will work given time. Whereas we have never got quite that bad. And countries have never got quite that bad. So we'll go now. We'll give you another chance. See if you can do it. See if you can do it.
sukh hayre   16:00
 I.
John Hearn   16:06
 And through my whole lifetime, there has been a sort of little dribble of more and more intervention by government, trying to solve things, trying to improve things. And they really have, just from my observations, made things worse, not better.
sukh hayre   16:21
 I think one of the other big advocates of free markets was Milton Friedman and the Chicago school, right? The 70s and 80s. Now, you might correct my history here a little bit, but didn't they, didn't that Chicago school use Chile as an example for their economic policies?
John Hearn   16:25
 Yeah.
 Yeah.
 Yeah.
sukh hayre   16:39
 Was that East? I've heard conflicting stories about the success or failure of Chile when they tried to implement the Chicago School's economic policies. I'm not sure.
John Hearn   16:49
 Yes, I mean, it's almost the same thing with Thatcher as well, because, you know, Thatcher came in wanting to pursue a sort of monetarist approach. And once they get drawn into the politics of things, it gets distorted and misused. And the chilly situation,
sukh hayre   16:52
 Yeah.
John Hearn   17:08
 Actually, it's still one of the nicer countries to visit in South America, I must admit. But they took on board a much more intrusive form of monetarism than I would ever promote, because monetarism is only about one simple thing, and that is you can control inflation and stabilise an economy.
 if you do this. And Thatcher talked about it and unfortunately didn't do it. In fact, one of my students at the time who became, that was Cambridge at the time, and he wrote an article then for which I helped him that said,
 will Thatcher turn towards monetarism because she was always turning towards things. And although they said it, they never did it. They never pursued a monetarist policy, but they did talk about it. It's very, very difficult to implement a monetarist policy because
 There's some simple things to do which go against the current narrative of how economies should be managed. And there's lots of misunderstandings. Misunderstandings from Keynesian economics is that you can budget for a deficit to deal with high unemployment.
 when you've got full employment, you can budget for surplus to make sure you don't get inflation. And there is a nice little talk that I give on my website about this because it was mistaken.
 They budgeted for a deficit and it caused inflation. So along come the Keynesians, the followers of Keynes, and they say, no, no, that's all right. This isn't inflation caused by too much demand in the economy. This is inflation caused by cost push and an explanation of cost. So we can carry on.
 deficit budgeting and how you finance deficit budgeting is what causes the inflation. And you can blame all inflations upon supply shocks and cost push inflation. If you took Keynes properly to task, then you would have years of deficits and surpluses that will roughly equal out over time, trying to stabilise the economy and reduce the amplitudes of ups and downs.
 If you look at the last 80 years, I think you've had 73 deficits and about 7 surpluses, because deficits are what you can sell politically. I want you as a government to spend more money and to cut taxes. I don't want you to stop spending and I don't want you to raise taxes and I don't want you to balance your budget.
 So that is the problem that was created with Keynesian economics. Now you can say, this is what you've got to do to manage the economy. People will go, no, we don't want that. That means cuts in public spending. That means significant cuts if we don't want to raise taxes, or we've got to raise taxes. And of course, you may remember,
 if you've ever looked at some economics, something called the Laffer curve, and the Laffer curve explains exactly what happened. Now, when I said to Rachel Reeves that if you pursue this policy, you will get less tax, not more tax, because you've reached a point where you
 People are not, they're going to leave the country, they're going to sort of sit back and relax and not. Just reminding me, because many, many years ago, through my sister, a question came to me from Rachel Reeves. She wanted to know something when she was just sort of starting up in politics. And unfortunately, my sister
 is of the same persuasion of the socialists that I argue with. And so I explained, and the only reply I got from her was, oh, you're a monetarist, are you? And that was the last I ever heard.
sukh hayre   21:03
 Yeah.
John Hearn   21:04
 So no one wants to hear these sort of things regarding monetary. You see, I suppose you could see the difference between Keynesians and monetaries if you ask me the inflation question, because the inflation question is very easy for everyone to understand.
sukh hayre   21:04
 If.
John Hearn   21:20
 But they ignore it, they just sort of keep looking away from that.
sukh hayre   21:25
 That was going to be my next question, actually. So on inflation, so on inflation, I think the common understanding, or the base understanding is, well, things get more expensive. So prices go up. But is that actually what the definition of inflation is? Because I had the alternative is actually no, it's an increase of the money supply.
John Hearn   21:27
 Go for it.
 Yeah.
 Yeah.
 Yeah.
 Yeah, no, it's not an increase in the money supply. It's a simple definition of averages. So if the average price is rising, that is inflation. If the average price is falling, then the word deflation is used. So that's the definition. You can increase the money supply and not get inflation.
sukh hayre   21:45
 Which leads to.
John Hearn   22:05
 You might say, I'm inflating the money supply, aren't I? You are, but that's not inflation. Inflation is the result. Inflation is the average level of prices rising, the average level of prices falling. And it's important as well to talk about the average, because many of the arguments for cost push inflation are just keeping the average the same.
 changing relative prices. So oil prices going up now, whether they go up to 50, 80, 100, 200, don't cause inflation. That won't raise the average level of prices. It raises the price of oil and energy. Other prices will fall because people have got less money to spend on other things and to sell you other things. They'll start to bring the price down a little bit.
 Averages don't change. There's only one thing that can change the average, and that's the monetary demand, which is mainly the money supply, but actually a slightly different word, monetary demand growing faster than output. If monetary demand goes faster than output, the average will rise. Now that's easy to understand if I just say to you,
 How do you measure inflation? You measure inflation by more units of money in the same number of transactions. That's how you measure it. We've measured more units of money in the same number of transactions. So you ask the question, where do more units of money come from? They don't come from oil companies. They don't come from wages going up. They don't come from import prices. There's only one place that
 comes from, and that's through monetary policy managed by the Bank of England. The Bank of England is the sole source of for the inflations that we have had in this country, and cost push inflation is just a myth that is used, particularly by Keynesian economists, to carry on pursuing the wrong policies.
sukh hayre   23:46
 Perfect segue to my next question then on central banks and the Bank of England. So like I said, my layman's understanding of economics and my, one of my, one of the first videos I watched on YouTube was a video called the Money Masters. I think it dates back to the 90s. And he explained
John Hearn   23:47
 Yeah.
 Yeah.
 Yep.
sukh hayre   24:07
 rightly or wrongly, the history of central banks around the world and how they actually secretly control the world's economies. So the Bank of England dates back to the 1700s, 1780s, yeah, something like that.
John Hearn   24:10
 Yeah.
 Yeah.
 Ohh yeah, yeah, yeah.
sukh hayre   24:23
 So how do they control the money supply and are they ultimately responsible as you just suggested?
John Hearn   24:30
 Firstly, the Bank of England were involved under the gold standard and then the gold exchange standard, and then the gold exchange standard stopped in 71 when the Americans couldn't really continue to finance a situation where the actual price of gold was significantly different.
 from the official price of gold. They were losing too much of their Fort Knox Gould. Under those circumstances, they needed lots of money to finance the Vietnam War. They cancelled it. So from 1971, you have fiat currencies. So fiat currencies are not backed by anything at all other than the central bank's provision of currency.
 Now, the money supply is made-up of two components. It's made-up of currency or cash. It's made-up of a base money, which is the stuff that you use if you hold dollars or if you hold sterling. And it comes from what's credit created money, which was created by private banks when there was a net increase in their loans.
 because when you, a bank creates a loan, it creates a loan on top of its base, on top of its cash. And if you look at the money supply now, it's more than 90% of it was created by private banks and about 10% or less is the currency.
 that's circulating in the economy. And the whole thing works through confidence. As long as everyone thinks that they can get their currency whenever they like, they can. If they all tried, they can't. But if they all think they can have it, then they don't want to hold currency. They want to use currency to buy goods and services. So
 The monetary system needs to understand that. Now the central bank directly controls the amount of currency in the economy.
 but they influence what banks can do to create loans. So if you go back to the sort of 60s and 70s, there were strict rules about how much increase private banks could have in loan creation. Now there's less controls, and in a sense, less controls on private banks gives the opportunity for central banks
 to blame private banks. They're the ones causing all the inflation. They're the ones who are expanding the money supply to go, no, they're not. They're under your control. And if you think about it, the Bank of England's got an inflation target. Now, the Bank of England wouldn't have an inflation target if oil prices caused inflation or if any other things cause inflation. They have an inflation target because they can hit it.
 they can hit it by managing the level of monetary demand in the economy. With a few, they can't do it precisely, but within a percentage point or two.
 Central banks are controllers of the money supply and monetary demand. And what the central bank does will determine the rate of inflation in your country. So something I explained when we had the QE programme, which is just an expansionary
 side of currency provision, that will lead to double digit inflation in 12 to 18 months time. And exactly it did that. But people at the Bank of England are not, there's a big enough gap.
 one to two years before pumping money into the economy actually has the detrimental effect, by which time you can blame somebody else for that, rather than accept responsibility yourself. And on my website, there's a number of chats with Paul Fisher, who was on the Monetary Policy Committee for
 nearly 10 years, I think it was, and head of executive markets for the Bank of England. Eddie George, his private secretary, worked with Mervyn King and worked with the Canadian President Mark Carney. That's right, come back. And we have a little few chats on there.
sukh hayre   28:21
 Yes.
John Hearn   28:25
 One of them is on inflation and another on quantitative easing, quantity of money. And Paul's one of the better members of the MPC, mainly because I talked to him. But it's an interesting listen because he's, you know, within the Bank of England.
 So, you could hear that sort of for.
 Bank of England's speak, but with a sort of reverence for some of the things I say, because I used to be his teacher.
sukh hayre   28:56
 Okay, yes, I think one of the segues, another segment I've got is I've been a fan of cryptocurrency and Bitcoin especially for what, since about 2010, when I first kind of learnt about it.
John Hearn   28:59
 Yeah.
 Yeah.
 No.
sukh hayre   29:09
 How is Bitcoin and cryptocurrency specifically, is that a counter to the current monetary system that we have and the fiat money and the fact that the whole system relies on confidence? It could be otherwise classed as a confidence trick.
John Hearn   29:26
 Yes and no. The reason why is that we need to separate and Bitcoin people will love to do this. They want to separate Bitcoin from other cryptos. And I enjoy discussions with the Bitcoin community. And again, on my website, there are discussions with Bitcoiners.
sukh hayre   29:27
 Yeah.
 Yeah.
John Hearn   29:46
 that are on there and they invited me to one of their conferences on the Isle of Man a couple of years ago and more recently I was in debates with them because
 Bitcoin would be the perfect international currency, except for one fatal flaw. The fatal flaw in Bitcoin is 21 million Bitcoins. Because it has a limit on the amount that can ever be mined, it will never become a satisfactory medium of exchange, because the medium of exchange
 mustn't for to work efficiently, would have 0 inflation, 0 deflation. You can't quite achieve that target, but it would have very low one or the other. The thing about only 21 million Bitcoins in circulation is that's deflationary.
 So as economies grow, there won't be more money there to actually carry out transactions. Now that means that the value of the Bitcoins will actually rise when the average level of prices fall. But because the level of Bitcoin prices are rising, people will see it as an asset.
 and want to hold on to it rather than use it in exchange. So Bitcoin will never become a money, but its value is based upon the fact that it will become a money. And when that sort of gradually gets into people's heads, it will begin to lose value. And in fact, the last talk I gave to Bitcoin
 Bitcoiners, or the last discussion I had, let's say, with Bitcoiners, was they said, have you got any Bitcoin? So I said, no, I wouldn't. And I said, I advise people on Bitcoin, by all means, trade it. You can trade it and make money, but don't hold on to it long term because it won't be, it's not a long term investment.
 And they said, all right, we'll open you a wallet of Satoshi and we'll put some Bitcoin in for you and you can watch what happens. And on this particular day, they opened a wallet for me and they put in 65,000 sats, which valued then at 50 pounds. And I looked at it this morning before I talked to you and it's now worth 28 pounds.
 So it's almost halved in value since I gave this talk about eight months ago. But as I say, carry on looking, it will eventually go back up again. But that is the fatal flaw. Bitcoin cannot become a currency because it has not got the ability to grow with economies.
sukh hayre   32:23
 Okay.
John Hearn   32:24
 So use it as a trading.
sukh hayre   32:24
 That's counter to my personal biases, but I'll have to take that into consideration, and...
John Hearn   32:27
 No.
sukh hayre   32:32
 I did buy a few Bitcoin back when it was about $200 or pounds each. Unfortunately, I sold them before they actually skyrocketed. So I could have been sitting nicely mortgage free, but not to be the case, unfortunately. But I think you're right. People hold Bitcoin more of an asset than actual money in terms of trade.
John Hearn   32:34
 NOT.
 Yeah.
 No.
 Tide.
sukh hayre   32:51
 trading. I think, I remember when Bitcoin first started trying to use it and trying to send Bitcoin to somebody else, the amount of hurdles in the way and the barriers to doing so and the fear of actually losing your money was, or losing your Bitcoin, shall I say, was quite extensive. I think the friction in the system has become easier.
John Hearn   32:52
 Yeah.
 Yeah.
 Mm.
sukh hayre   33:13
 Another, I think you may be right in terms of the limitations of Bitcoin, even though I think it's divisible up to 8 decimal places or something like that. So
John Hearn   33:20
 It is, but the divisible, sorry, just take the divisible word because that's often something that they use to say, no, you can expand it because it's divisible into more and more units, but the total doesn't change. I mean, I can divide sterling into pounds, pence, farthings. You can divide
sukh hayre   33:30
 Mm.
John Hearn   33:39
 any total up into small and smaller unit. But if you want the total to increase, that's the Bitcoin problem. The total won't increase. So the divisibility is actually a sort of irrelevance.
 Unfortunately.
sukh hayre   33:52
 I will bow to your expertise, John. I want to jump to argue the case. I'm not smart enough, I'm not deep enough into it then. OK, so just kind of on the on the podcast, we try to kind of focus on tech and business, and we've talked about kind of various monetary policies and how they how they can work in some and some not work in some of the.
John Hearn   34:04
 No.
sukh hayre   34:11
 innovative technologies. The other big technology boom over the last couple of few years has been AI and artificial intelligence. How do you think that will kind of transform financial services in this country or will it even?
John Hearn   34:18
 Yeah.
 I'm not sure it would transform financial services, but what it may do, what I would hope it would do is sort of help split up financial services into component parts, because like we've just mentioned, there's a part of financial service which involves in trading.
 There's a part of financial services, which is investments for people long term, perhaps for their pensions and things of that sort. And there's a part of financial services, which is banking. And again, an article on my website explains why you've got to separate retail banking from what I could call casino banking.
 where you get into the trading side of things, because there's a cross subsidisation between them. And retail banking is something that should be safe for people to put their money somewhere and not think it might be at risk of being lost completely if the other side of the bank puts loads of money into Bitcoin at the point in time it collapses.
 Therefore, the whole bank goes down. So retail banking is a fairly sort of traditional thing. And artificial intelligence can improve that. Artificial intelligence can improve trading. Artificial intelligence can improve a lot. I'm amazed by artificial intelligence that it's so good.
 at trawling information. And I've even had conversations with artificial intelligence asking me questions and I've answered them. And it sort of talked to me like another person trying to adjust its points of view about something, you know, inflation, you say this and others say that. So can you explain why?
 So you find a lot of artificial intelligence does now explain inflation incorrectly because they have asked me to explain this to them. But yes, I'm amazed. In education, it's both an advantage and it's probably a bigger disadvantage to the development of intelligence
sukh hayre   36:15
 Yeah.
John Hearn   36:29
 With students, because...
 O levels, A levels, degrees, you don't want people to be accessing information. I mean, I can go on now and I can say rightly a 3000 word essay on the impact of inflation on the Argentinian economy and it will come out in a few seconds with exactly that. I can then hand that in as my
 work. And so that's got to stop. You can't do that, which means that really O levels, A levels have all got to be closed book examinations. You can't really allow them to just research through AI what they've got to do. Degrees, the same. Dissertations, so degrees, closed book examinations,
 dissertations and PhDs have really got to be 90% primary research and perhaps 10%, not 100% AI generated for my PhD. So AI is creating lots of problems in education, which I think you can overcome, but as
sukh hayre   37:26
 Yeah.
John Hearn   37:32
 often happens in education. The problem just gets worse and worse and worse because no one's prepared to deal with it until it's too late. But very early days, someone said, have you read this about yourself? And they just asked AI about me.
sukh hayre   37:42
 Yeah, I think.
John Hearn   37:51
 And it came back with a long piece about me telling jokes about Monty Python and Hitchhiker's Guide to the Galaxy, because somewhere it knew that I talked about these things. And it was amazing how precise it was just because it thought I was wonderful. No, I didn't think I was wonderful, but it was very precise in what came out.
 And I thought, wow, you know, this is a resource that we can all use to our benefit, but there are considerable disadvantages in this, particularly in the area of education and the same sort of thing in financial services, because there may come a time when people can just say, I need a long term investment for my pension.
 and just ask AI the question and AI will say, do this, do this, do this, do this. And it'll probably be more precise than going to a financial advisor saying, I need this. So AI could, you know, remove certain human actions, such as financial advice.
sukh hayre   38:52
 Yeah, I think there's the real actual LLMs and models that are specifically designed to do this. You put in all your characters and all your variables in terms of age, income, savings, etc, etc, etc. And it will chart out a for savings and investments plan for you.
John Hearn   39:02
 Yeah.
 Yep.
sukh hayre   39:11
 and do that. So yeah, I'm aware of a couple of platforms that actually do that already, and it's being actually been pushed by financial advisors. So it's sort of replacing them, but not quite using it as a tool. But if you kind of revert back to the start of the conversation, the cynic in me, because there's not going to be too long before some of the big banks and the evil capitalists kind of in inject their own training into those models and steer them
 Dan, invest his money with us, whether that's the right thing to do or not.
John Hearn   39:38
 Yes, that's right.
 Yeah, that's right. And I suppose it's interesting that you said evil capitalists, because you straight away jumped in onto that side of capitalism is evil. And you know, the whole thing about capitalism is that it's not evil unless it becomes part of something which is
sukh hayre   39:50
 Yeah.
John Hearn   40:02
 taking you away from free markets, taking you away from competition, taking you away from the truth and, you know, scamming you, if you like, almost. And that is a problem that government needs to deal with.
sukh hayre   40:10
 Yeah.
 Well, I think...
 I mean, at the centre of all kind of economists is a person. And you mentioned earlier about the banking system being about confidence. And I think there is a school of economic thought about behavioural economics, I believe, which is very much around this. So we can see a logical reason wouldn't necessarily cause a run of the banks.
John Hearn   40:24
 Yeah.
 Yeah, yeah.
 Yeah.
 And.
sukh hayre   40:46
 You may not be able to model on a spreadsheet, but when you introduce the human factor in it, that's one thing you can't calculate for, or you can't account for.
John Hearn   40:48
 No.
 I mean, the interesting thing was Northern Rock.
sukh hayre   40:57
 Yes, exactly. That's what I was thinking, yeah.
John Hearn   40:58
 As Northern Rocket as a bank went down when it had a fairly sound model, its problem was that it sold on its loan, on its mortgages to other markets to create funds to expand its business. And they didn't always coincide, so it often needed
 borrow to close this gap. And then at certain times it had a sort of mismatch and it asked for support in the Bank of England. Now the Bank of England would normally support banks under the radar because you don't want to tell people that there's a problem somewhere or other, but because of I think it was an EU director.
sukh hayre   41:38
 Yeah.
John Hearn   41:41
 The Bank of England had to be transparent. So they had to tell everyone that they were lending money to Northern Rock, which had a potential mismatch between funds coming in and funds going out. And then of course, next day, everyone was standing outside Northern Rock wanting to take their cash out. So let's get, so that made the problem even worse and made the problem even worse.
 And technically.
 It issues.
 With banks, the whole banking system is based upon confidence, because you have got to be confident that you can take your deposit and remove it whenever you like in the form of cash. As I said to you, there's less than 10% of all of the deposits at banks are available in cash. So you could, I mean, we could actually create a run because if I said,
 to you now something about the banking sector that I was absolutely certain was going to happen in the next two weeks and people trusted me and listened to my argument and thought, blimey, we better get out there and get our cash out of Barbies or NatWest or whatever it is.
 because they haven't, the cash is not there. And the cash is not there because people don't demand the cash until they do demand the cash through the hole in the wall or whatever it may be. And there's lots of economists, I have continual arguments with modern monetary theory, which is wrong, and other economists who
sukh hayre   42:52
 No.
John Hearn   43:05
 cannot understand the difference between cash and money. They just think they are the same thing. They think that currency and cash are slightly different, which technically they're not. And they talk about reserves as if they're not cash, but reserves are just claims on cash at the central bank where private banks
 settle in interbank loans at the end of the day.
 Because there's so much misunderstanding about this, there's so much, so many mistakes made going forward about trying to describe what's happening, that should probably worry us more that people don't understand this, rather than relying on the experts out there to tell you what they think and then walk away thinking, well, it must be right, because an expert's told me that, but we all know, don't we, the experts
 are often self-confessed people who are exactly not an expert.
sukh hayre   44:04
 Yes, I would wholeheartedly agree with you there. But one of the few times I'll say this, but thankfully, the audience of this podcast isn't big enough, I don't think, to create a run in the banks, so we can rest easy.
John Hearn   44:16
 That's right, yeah, and I haven't said anything, of course, and I just...
sukh hayre   44:18
 Yeah.
 Of course not, I will, it will, John, don't worry. So, okay, looking forward, just as we kind of wrap up a little bit here, you kind of mentioned that Rachel Reeves isn't taking your advice. If, as the odds would say, that this Labour government or Rachel Reeves herself may not be in position in 12 months time.
 What's one piece of advice you would maybe give to her successor, whether it's a Labour, Chancellor or one from another party?
John Hearn   44:46
 Well, there are two rules which...
 You could actually enshrine them in law and then politicians could say, I don't want to do this, but I've got to, it's the law. And that is the government should be forced by law to balance their budgets over a three-year term.
 which means no more budget deficits, no more budget surpluses. I would allow that to happen until perhaps government spending falls to below 20, 25% of national income. So that, you know, that will happen perhaps in about 100 years time. So
sukh hayre   45:21
 I was about to say, I hope you like leave it 100%.
John Hearn   45:24
 So, balanced budgets is one thing.
sukh hayre   45:25
 If.
John Hearn   45:27
 The other thing is for the central bank to manage the quantity of money in the economy without manipulating interest rates. There is no need for bank rate. There's no need for bank rate to go up and down. There's a market rate of interest. The bank should respond to that, not
 try and influence it, because when it tries to influence it, it just makes errors. So you get, if they put, say, bank rate down to nearly naught, which they did during the pandemic, what happens? You get a bubble of asset price rises. The reverse when you take it up, they all, and you don't want distortions in markets. You want stability in markets.
 And it was back in the 1980s, a decision was made on behalf of the Bank of England about whether to manage the quantity of money or whether to manage what was called the price of money, interest rates. And the decision was made. I said, no, you've got to manage the quantity of money. And they said, oh, right, we listened to you, but
 we're going to use the price of money, not the quantity of money. And so interest rates have been manipulated and it's unnecessary to manipulate interest rates. But it produces another discipline on government spending and another discipline on the central bank. So we have to do two things.
 enshrine in law, Bank of England cannot manipulate interest rates and government treasuries have got to balance their budget over a three-year term. So, and that will make us all better off and it would allow the economy to flourish. And we'd all become great fans of capitalism once again.
sukh hayre   47:06
 Free markets.
John Hearn   47:07
 In free market, that's it.
sukh hayre   47:09
 Well, John, I think I could speak to you for hours, to be honest on this particular area that fascinates me. If our audience wanted to learn more about your own work in your own writings, where could they go? You mentioned your website. We'll link to it in the description of the podcast, but you want to spell that out for us?
John Hearn   47:13
 But.
 Yes, I mean, it's fairly easy to remember, although it's not always easy to put all the letters together. It's all lowercase, and it's just my professor johnhearn.org. So if you type in my professor johnhearn.org, then that will come the economics lectures, which are economics lectures given to 1st year undergraduates. It's actually useful for A-level as well, because
sukh hayre   47:36
 Awesome.
John Hearn   47:49
 the first year undergraduates who are doing economics have to be given an introduction based upon the fact that they might not have done A-level economics. So those 10 lectures are there for banking and finance starts with the roots of money, banking and finance and goes through to the current situation with quantitative easing.
 etc. So there are 10 lectures which are introducing people to banking and finance and then as I say more advanced lectures where I solve all of the taxation and benefit problem by introducing reverse income tax and going through all of the things that I think we need to debate.
 argue about. And the nice thing is, you know, people do read it and comment favourably on it. And a lot of people will look at it and go, that can't be right. And they say, explain to me why it's not right. And they say, well, I can't. I very rarely get criticism other than just, you must be wrong because it's not what everyone else says.

sukh hayre   48:43
 You.

John Hearn   48:50
 which is quite nice because I'm right and disagree with what most other economists say.

sukh hayre   48:50
 Yeah.
 Well, we'll definitely link to it. I'm going to be getting a bit of a deep dive in having a read myself and I will definitely be pointing my kids towards it because you get them off their phones for a bit. johnhearn, thank you very much for appearing on the DM-MI podcast.

John Hearn   49:04
 Okay.
 Indeed.
 As you sukh. Thank you.