EH: So we've come to the same conclusion, but I like to put the moral vocabulary in, you tend to avoid it.

DJ: Perhaps he should have gone down on his knee before the voters rather than Nancy Pelosi, because it is the voters who are most angry, rather than the legislators. It turned out Nancy Pelosi couldn't deliver it even if she wanted to. But the other great moral question here is: does what's happened, whoever's to blame for it, call into question the entire system? Is this a problem that the state can cure? Whether we like it or not, the state will take a much bigger role for a long time to come because of what happened, but is this a good thing, or a regrettable evil?

SB: I've got a very definite view here, and I've been helped here by George Cooper, who has written a very good book, The Origins of Financial Crises. Now there are two aspects of the market system - I'd rather talk about the market system than capitalism - and a very good French journalist called Frédéric Bastiat wrote about the miracle by which food was delivered to Paris, its citizens clothed and housed, without any great plan. I think that remains, and it'll tend to happen anywhere where foolish mullahs don't get in the way.

But it's the other aspect of it, for which I'm here going to use a Marxist term (although most of these Marxist terms aren't original to Marx when you look at them): use value. When people are acquiring objects, or not only objects, but if you sing a song and I play a harp, and the songs get better and the harp gets more tuneful, it's an increase in wealth, even of GDP. It's when people buy things for their resale value that the system gets rather wonky, and this is described in financial circles as "asset bubbles". The central banks haven't done much about them because they don't know when there is an asset bubble, but in fact, the asset side, when people buy things for their future value rather than present value, is not working very well.

Now we have to be careful here, because the sort of investments in steel mills which Carnegie would have approved of were in a sense entered into because of their resale value, but where that takes over completely is when people buy a home not because they think it would be a good place to live but because they think it would be a good investment. The system goes mad, and I am pretty sure we are going to move away from this rather naïve preoccupation with one set of prices known as the consumer price index [CPI]. We will move towards trying to deal with asset bubbles - not very perfectly or successfully, but the current doctrine, that if we try by small adjustments in interest rates to prevent the CPI going up too fast or down too fast everything will else will take care of itself, has, I think, been exploded.