Book Review: Inflation is more than Money

Inflation is about more than money: Economics, Politics and the Social Fabric

by Profesor Brian Griffiths

London Publishing Partnership ( for the Centre for Enterprise, Markets and Ethics)

£17.99

This is a timely book. Post Covid, the proportion of the working age population out of work in the UK and dependent on the state for income has risen by about a million.

Government debt continues to rise as it seeks to fund its expenditure, raising questions about sustainability. Added to this, the unpredictable tariff policies of recently elected US President Trump have disrupted global trading, increased economic uncertainties and consequentially a rise in the price of gold as traders are attracted to the metal which has long been seen as a secure store of value.

The invention of the wheel is often seen as being a fundamental technological innovation which facilitated the development of civilisation. So also was the invention of money. If the wheel made it possible for farmers to bring their produce to market, the invention of money facilitated trade in goods and services at markets, transforming the limitations of a barter economy. To work as a means of exchange, coins also had to be seen as a secure store of value. In modern times, bank notes came to be accepted as reliable currency if backed by a convertible link to silver or gold.

In the book, we are offered a useful historical survey. Towards the end of World War 2, faced with the massive tasks of reconstruction, economists led by John Maynard Keynes saw the importance of laying foundations for currency stability. Structures were agreed in 1944 at the Bretton Woods Conference. The dollar was pegged to gold at $35 per ounce and other currencies including the £ sterling to the dollar, though the dollar’s convertible link at a ﬁxed price with gold was subsequently removed by President Nixon. Whilst there were reasons for that, the truth is that today the functioning of all our currencies is totally dependent on conﬁdence. Were inﬂation to become high and if expectations that it would continue to rise were to become embedded, hyperinﬂation could easily follow. This in turn could lead to the disintegration of civil society. Griffiths reminds us that inﬂation in the UK did actually rise to over 27% in 1975.

Two generations ago, most people thought of money as a mixture of notes and coinage in pounds, shillings and pence. There was an additional facility of writing a cheque to draw on what was in a bank account, or sometimes not if there was an agreed overdraft. Today, money is harder to deﬁne and many people do not carry cash at all, using debit cards, credit cards or mobile phones, not to mention crypto-currency. There is in fact a spectrum of ﬁnancial liquidity which leads economists to use slightly different

deﬁnitions of money for different purposes. Griffiths mentions this,but does not expand on it.

It is however the context in which Professor Griffiths has written his timely book. Now honoured with a peerage, Lord Griffiths of Fforestfatch had a background at the London School of Economics before he became Dean of the City University Business School and at one point Head of Prime Minister Margaret Thatcher’s Policy Unit. For the whole of his adult and professional life, he has also been a Christian who has thought hard and sought to integrate the moral insights and ethical priorities of Christ and the Bible with his professional rigour as an economist in shaping policy.

On one level, the book offers a clear explanation of the causes of inﬂation and a clear explanation of how it can be controlled by adjusting the money supply. He explains how he sees the different but complementary roles of the Treasury and the Bank of England, and also the Office for Budget Responsibility which he thinks should have a higher degree of independence from Government in one area than it has at the moment. He helpfully offers empirical evidence with data to illustrate what has and has not worked well in the past as evidence of his policy prescriptions.

This is also a very good and clearly written economics textbook. It would be invaluable to an undergraduate reading for a degree in economics or banking as well as offering an accessible framework of thought to the general reader wishing to understand the relationship between inﬂation, money and the Bank of England base rate.

What is distinctive about this book are the reﬂections of an economist who also draws on the rich heritage of Biblical and Christian thinking about economics. Adam Smith, Edmund Burke and the late Chief Rabbi Jonathan Sacks in their different ways are also among those who have been aware that there is a societal and moral dimension to good economic policy. Griffiths’ passion about this is clear.

Consequences of inﬂation

He lists a number of socially undesirable consequences of inﬂation. When there is uncertainty about the future level of inﬂation, canny investors may be more likely to defer investment in productive industry or business and look to gold, objets d’art, or property as a safe hedge against inﬂation. The latter clearly distorts the housing market and effectively increases the number of empty properties when there is a shortage of housing, as at present.

Griffiths sums up his concerns in these words, “Inﬂation imposes a real cost on the economy in terms of reduced output, inefficient allocation of capital and labour, higher unemployment and investment in hedges against inﬂation”. He adds “All the evidence points to the lowest-income families having suffered most from the current inﬂation.” This brings him to the passion which is at the heart of this book. “Inﬂation has a moral and ethical dimension that is easily glossed over”.

There follows some interesting comments on Keynes: “When he wrote on the subject of inﬂation, he pointed out not just the signiﬁcant economic and social costs of inﬂation,

but also its ethical and moral character. He described it as an ‘arbitrary conﬁscation’ by governments of their citizens’ wealth and an ‘injustice’ to those who had saved……… Keynes invoked the words of Lenin, whom he claimed had said ‘the best way to destroy the capitalist system was to debauch the currency’. Keynes endorsed this view (and) asked the question ‘What moral from our present purpose should we draw from this?’ His answer ‘We must make it a prime object of deliberate state policy that the standard of value, in terms of which they are expressed, should be kept stable.’”

There is more in this vein, seeing inﬂation as a form of taxation without Parliamentary mandate (Keynes again), summed up with the words “Inﬂation is more than an economic issue. It has a moral and ethical dimension. It is at heart a form of deceit.”

There follows a chapter on the consequences of inﬂation – “A culture of distrust” which fuels blame culture in society, proﬁteering, speculation, strikes and general industrial unrest. In a worst case scenario, when inﬂation moves towards hyperinﬂation a serious breakdown in civil society and its institutions becomes a serious possibility.

It will be for the reader and students of economics to judge whether the monetarist economic policies advocated by Lord Griffiths will be enough to ensure stability by keeping inﬂation under control. He addresses one further factor in the last chapter and conclusion.

Between the end of the Napoleonic wars and 1914 the value of our currency was remarkably stable with generally balanced budgets. In a section titled Contemporary Culture and Economic Life, Griffiths quotes the distinguished historian GH Trevelyan “who argued that the foundation of the period’s success was not just economic, but related to cultural factors. If any unity is to be ascribed to the Victorian era in England it must be found in two governing conditions: ﬁrst, there was no great war and no fear of catastrophe from without; and secondly, the whole period was marked by interest in religious questions and was deeply inﬂuenced by seriousness of thought and self- discipline of character, an outcome of the Puritan ethos.’” More recently the contemporary historian Tom Holland has made very similar points and Lord Griffiths takes a similar view. He puts it this way:

“Culture and economics are not unrelated subjects. Economic trends and events are inﬂuenced by the culture in which economic life takes place. It establishes a moral code of right and wrong. It provides respect for the law and prudence in economic life, especially in relation to debt, whether that is the debt of households, corporations or government. It provides purpose in work, recognises the value of deferred gratiﬁcation and is a counter force to self- interest, competition and individualism. It sets as an objective the attainment of the common good, not simply the amalgam of private interests. A robust sacred canopy is helpful in preventing excess spending leading to inﬂation by recognizing the importance of boundaries.”

This sums up the passion which drives this excellent book and I commend it warmly.

Norman Russell, who read Economics at Cambridge, is a former Archdeacon of Berkshire and Chairman of the House of Clergy of General Synod.