Don’t ignore the money supply
4 September 2023
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4 July 2024
Julian Jessop writes for the Spectator
IEA Economics Fellow Julian Jessop has written for the Spectator on why the excessive pumping of money into the economy actually causes inflation.
Julian wrote:
“Every month, the Bank of England publishes new data on the flows of money and credit around the UK economy. Most commentators focus on the ‘credit’ part – particularly the amount of mortgage and credit card borrowing. In contrast, the ‘money’ part rarely gets a mention.
“Most people instinctively understand that inflation is something that happens when too much money is chasing too few goods and services. Despite this, you would be hard pressed to find a single reference to the money supply in any policy statements from the Bank of England.
“Some central bankers have even downplayed QE as simply an ‘asset swap’ (cash for government bonds) which only affects the economy through its impact on interest rates, and which is not really ‘money printing’ at all. But surely the clue is in the name: ‘quantitative easing’ works, at least in part, by increasing the quantity of money.
“ Appointing someone to the Monetary Policy Committee who has a much stronger grasp of monetary economics than me would be a genuine improvement in diversity. As it is, groupthink means that the role of money is repeatedly overlooked, making further forecast errors and policy mistakes much more likely.”
You can read the full article here.
Julian wrote:
“Every month, the Bank of England publishes new data on the flows of money and credit around the UK economy. Most commentators focus on the ‘credit’ part – particularly the amount of mortgage and credit card borrowing. In contrast, the ‘money’ part rarely gets a mention.
“Most people instinctively understand that inflation is something that happens when too much money is chasing too few goods and services. Despite this, you would be hard pressed to find a single reference to the money supply in any policy statements from the Bank of England.
“Some central bankers have even downplayed QE as simply an ‘asset swap’ (cash for government bonds) which only affects the economy through its impact on interest rates, and which is not really ‘money printing’ at all. But surely the clue is in the name: ‘quantitative easing’ works, at least in part, by increasing the quantity of money.
“ Appointing someone to the Monetary Policy Committee who has a much stronger grasp of monetary economics than me would be a genuine improvement in diversity. As it is, groupthink means that the role of money is repeatedly overlooked, making further forecast errors and policy mistakes much more likely.”
You can read the full article here.
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