John Kay

Irrationality lies not in failing to conform to some preconceived notion of how we should behave, but in persisting with a course of action that does not work.

The distinction between the creation and the appropriation of wealth is vital, if not always clear. But our ability to recognise it will determine, not just the fate of individuals, but the future of modern capitalism.

Activities that are good in themselves are good for the economy, and activities that are bad in themselves are bad for the economy. The only intelligible meaning of “benefit to the economy” is the contribution – direct or indirect – the activity makes to the welfare of ordinary citizens.

Wherever there is uncertainty, market prices reflect the beliefs of those who are more than averagely sanguine. The result is a reserve of illusory value, constantly depleted by events and replenished by fresh uncertainties.

There is no simple answer to the question: “How should capital gains be taxed?” So there are as many different regimes as there are national tax systems and they are often, as in Britain, in a state of seemingly endless flux.

Britain cannot aspire to continental European levels of public services with lower tax rates. Any British government has to confront that simple fact.

Was there a “third way”, a politics which reconciled the market economy with the values of compassion and fairness that had traditionally motivated the political left? When was government interference with the operation of free markets justified, even necessary, and when did such intervention reduce choice and welfare?

The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

Insurance is partly a market in securities, partly a mechanism for collective action; a means by which risks are traded, but also a means by which risks are socialised.

The substitution of transaction-oriented dealings for relationship contracting added to profitability in the short run; but in the long run it eroded relationships that had been the underlying source of much of that profitability.