"Inflation is as great a danger today as unemployment." Discuss

One of the most important essays that TheArticle has ever published is “The Spectre of Inflation” by Brian Griffiths, which appeared here this week. Readers who have not yet caught up with it are strongly urged to do so.

Lord Griffiths is a distinguished economist who resigned his chair at the City University to serve as head of the Downing Street Policy Unit under Margaret Thatcher. Hence he witnessed at first hand the economic crises of the 1970s and 80s, in particular the gruelling struggles of successive British governments to overcome inflation, which peaked at 25 per cent in 1975 but remained in double digits for most of the next 15 years. After 1979, unemployment also became a major problem, as Mrs Thatcher’s monetarist policies began to bite. At the nadir of her first term in 1981, inflation and unemployment rose to alarming levels, while the economy shrank. Eventually inflation was squeezed out and growth returned, though unemployment remained high for several years. Brian Griffiths thus has more experience of tackling both inflation and unemployment than any other British economist still active today.

Right now, the British economy is entering a post-pandemic recession. Unemployment is already rising; next year it may reach four million. The Treasury and the Bank of England are using monetary policies to tackle the recession, but Lord Griffiths contends that in doing so they risk taking the brakes off inflation. In particular, abandoning or diluting the Bank’s target of limiting inflation to 2 per cent would, he argues, be dangerous.

Here at TheArticle we hope to stimulate a debate about the Griffiths thesis, which will include comments from across the economic and political spectrum, written in easily comprehensible language and shorn of econometric jargon. We are confident that readers will enjoy the cut and thrust of this debate. But we also hope that it will help to inform public opinion and, indeed, remind ministers, advisers and officials that they do not operate in a vacuum.

In his luminous essay, Lord Griffiths quotes a celebrated passage from The Economic Consequences of the Peace by John Maynard Keynes. Written and published in 1919, in the aftermath of the Versailles conference which he had attended as an adviser, Keynes had also observed the economic consequences of the Communist revolution in Russia:

“ Lenin is said to have declared that the way to destroy the capitalist system was to debauch the currency… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in a million is able to diagnose.”

Nobody has been able to find the source in Lenin’s works of the words Keynes attributes to him, but the sentiment is doubtless in keeping with the doctrines of the Bolshevik leader. The use of the phrase “debauch the currency” is, however, pure Keynes. The metaphor suggests seduction or corruption and has, of course, a sexual connotation that seems a world apart from that of monetary economics. In Keynes’s world, however — moving as he did between Cambridge and Tilton, Bloomsbury and Bretton Woods — money and sex were never far apart. It is precisely the unexpectedness of the metaphor that renders “debauching the currency” so memorable and has made it part of the vocabulary of economics ever since.

Whether or not inflation may rightly be seen as debauchery, it is certainly a kind of surreptitious theft. As the the fate of the Weimar Republic was to demonstrate in the years immediately after Keynes’s coinage, hyperinflation can destroy the stability of a political system by undermining the pillars of society, especially the bourgeoisie, with catastrophic results. But even less ruinous levels of inflation have the effect of distorting markets and investment, confounding long-term expectations, penalising thrifty savers and rewarding reckless borrowers. Inflation is the enemy of virtue and the friend of vice.

As a society, we have forgotten the perils incurred by an inflationary mindset, which dominated the academic world — ironically, in the name of so-called Keynesian economics — but began to lose influence two or three decades ago. Now we hear again their siren song. The debauchers of the currency are back with a vengeance. The battle of ideas must be fought again in each generation. Collective memories are short, but individual memories are long. In “The Spectre of Inflation”, Lord Griffiths of Fforestfach has thrown down the gauntlet to those who propose to rescue the economy from unemployment by loosening the money supply, rather than undertaking the more difficult microeconomic measures that were ultimately successful under the Thatcher, Major and Blair administrations. Those who believe he is mistaken now have the chance to put their case here on TheArticle, Britain’s fastest-growing platform, with no paywall and — we trust — no holds barred.