Review Essay: The Inflation Threat

Inflation is back as both fact and fear, as highlighted by two recent books: Brian Griffiths’s Inflation Is About More Than Money and Stephen D. King’s We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years. The stakes are high, for if the argument of these books is correct, the future of Western societies as prosperous democracies is at risk. Christian economists might be especially interested in these two books because they emphasize the cultural and religious dimensions of inflation.

Brian Griffiths (more properly Lord Griffiths of Fforestfach, a Conservative peer in the English House of Lords) is an evangelical Christian who headed Prime Minister Thatcher’s Policy Unit in the 1980s, after being recruited from his role as dean and professor of finance at the City University in London, and prior to that at the London School of Economics and Political Science. Much of his time since leaving this government advisory role he has spent as vice-chairman of Goldman Sachs and as a member of various corporate boards. As well as these roles he has been instrumental in the Centre for Enterprise, Markets and Ethics, a think tank which has operated in Oxford and London since 2012. He has serious expertise in the matters about which he writes.

Griffiths has been writing about Christian faith and economics for over forty years. His first publications—Morality and the Market Place (Griffiths 1982), based on invited lectures delivered at a London church, and The Creation of Wealth (Griffiths 1984), written at the invitation of the UK Christian Association of Business Executives—made the Christian case for the market economy against the anti-market majority view in church and academic theological circles. Many Christian businesspeople deal with the tension between their work and what church leaders and theologians tell them by dismissing Christian theology as irrelevant—deciding that faith and economics must be kept separate. While an understandable response, it is unhelpful to their faith and to their business practice. Nor is it defensible theologically. Griffiths takes the more challenging route of arguing the right, indeed the duty, of Christians to bring their faith to the world of markets and economics, and further that a market economy fits well with Christian faith. Griffiths has consistently made the Christian case for markets and increasingly emphasized the importance of an ethic flowing from Christian faith for a healthy market economy that generates wealth and cares for the vulnerable. His latest essay, “Renewing the Spirit of Democratic Capitalism,” for the Alliance for Responsible Citizenship, defends democratic capitalism as a threefold system including “a market system, a political democracy subject to the rule of law, and a culture which expresses the values, ethics and morals of society” (Griffiths 2025, 88).

Inflation Is About More Than Money continues the themes of his previous writings. It is a concise, accessible and well-written book. Griffiths assumes no previous knowledge of financial economics. He argues, in summary:

• Government profligacy reflected in deficit spending is expanding the money supply dangerously, encouraged by a culture of entitlement, lack of recent experience of inflation, and poor economic advice.

• Inflation is always and everywhere a monetary phenomenon.

• We are therefore facing an inflation crisis.

• Such a crisis will cause great harm, especially to the most vulnerable in society, and has the potential to destroy Western democracy.

• The necessary cure is painful fiscal and monetary contraction.

• In the long term the only way to keep inflation at bay is to deal with the deeper cultural problems that led to government profligacy and makes administration of the cure difficult.

Before examining these arguments in greater depth, it is worth pausing to consider why inflation is bad, something that Griffiths discusses at length in chapters 2–6 of the book. Firstly, rapid and unpredictable inflation diverts real resources from productive to unproductive use as protecting oneself against inflation becomes the priority. Secondly, it jams the resource allocation signal in relative prices, as people struggle to distinguish between general inflation and relative price movements. Thirdly, there is the economic pain that comes from bringing inflation back under control. Griffiths emphasizes that the pain falls disproportionately on those with least economic power—those at the margins of the labor market who are more likely to lose their jobs, those on fixed incomes, and those with fewer resources to fall back on when times are tough. Even in relation to the modest rise in inflation following the COVID outbreak, he concludes: “All the evidence . . . points to the lowest income families having suffered most” (30). In addition to these economic arguments, Griffiths suggests that there is something deceitful and morally corrosive about inflation. He writes, “To issue banknotes when inflation is firmly expected to continue above its target rate is a form of deceit” (35), which has a snowballing effect of undermining trust across the economy. Inflation induced by deficit spending allows governments to extract wealth from their citizens because it is a tax on holding money, because it reduces the real value of government debt, and because in a progressive income tax system the real value of the higher tax rate thresholds falls, so that tax rates increase without any parliamentary scrutiny. Griffith describes it as a “discreditable form of taxation” (39).

The centrality of the money supply in Griffiths’s arguments is striking, as the money supply is absent from most contemporary policy and academic discussion. Griffiths does acknowledge that defining and controlling the money supply is much more difficult now than in the 1980s because of the greater complexity of the financial system, and he defends what he calls “pragmatic monetarism,” which includes the following elements: “There is a relationship between the sustained growth of the money stock and the sustained growth in money income and prices. There is a stable long run demand for money. The short-term impact and increase in money growth will be on asset prices, though if the money growth is unexpected it can boost output in the short term. There is a variably lagged response of money income, output and prices to money growth. The demand for money in the short term is noisy” (74). (Specialists in monetary economics are better qualified than me to assess these propositions (for instance, Laidler 1991; 2025; Hendry and Ericsson 1991; Moser and Savioz 2022), discuss the politics and practice of central banking (for instance, Roselli 2025), and evaluate modern monetary theory, which seems to me to survive only because it serves the interests of profligate governments and those who benefit from their spending. The Australian economist Richard Holden, who offers an excellent discussion of the consequences of financial innovation for monetary policy, sees modern monetary theory as “more wishful thinking than a coherent economic theory” (2024, 144). Whatever conclusions one comes to on these complex matters, Griffiths has put his case for pragmatic monetarism with admirable clarity

Even if there are theoretical and empirical doubts about aspects of Griffiths’s monetarism, his historical case (in chapter 1 of the book) that sustained large government deficits (most often associated with wars) inevitably lead to inflation is hard to resist. Whatever financial innovation has done to the measurability and controllability of the money supply, and whatever deeper doubts there might be about the endogeneity of money, government deficits not financed through borrowing put more money into circulation, which, other things being equal, feeds inflation. Combine that with the unprecedented scale of the current government deficits in the UK, Europe, and US, with no politically feasible path towards reducing them, and Griffiths’s concerns about a severe outbreak of inflation are in my view justified.

But what might a crisis look like? A scenario that Griffiths alludes to is some new shock provoking increases in government spending while at the same time diminishing economic activity and the taxation base, blowing out the deficit and pushing an already heavily indebted government into crisis. I doubt that such a crisis will be confined to just one country, like the UK about which Griffiths is most concerned, because the crisis-provoking shock is most likely to be worldwide and high levels of government debt and economic stagnation afflict almost all Western countries. A significant new shock may send many Western governments into crisis simultaneously, which is uncharted territory for the international financial system. We may not even need a new shock to provoke a crisis. There is no way at the moment I would lend to the US government, or in fact to most Western governments. If US deficits continue accumulating and are financed by borrowing, then at some point markets must cease accepting US government securities on reasonable terms. If the US government can no longer borrow on reasonable terms to finance its debt, then the only alternative is printing huge volumes of dollars, with predictable consequences for US inflation and the value of the US dollar. Again, we are in uncharted territory, for rarely has a major Western government been unable to finance its debt and been forced to print money. This is unlikely to be good for other countries, including those that have maintained more fiscal discipline.

If the government deficit financing crisis spreads and all Western governments are printing money, then inflation will accelerate in each. All the major Western currencies will go down together, perhaps with another currency (like Chinese yuan) replacing the US dollar as the international reserve currency. But who knows the effect of such a crisis on the large nondemocratic countries? Chinese consumer goods exports will struggle as will Russian and others’ fuel and mineral exports. Bitcoin, for all its high-profile boosters and its limited supply, seems an implausible candidate for an international reserve currency but will probably remain the dominant medium for trade in drugs, weapons, and perverted sex. Gold has traditionally been the haven in difficult times, but I suspect its time is past. My guess is that a flight to real assets is more likely—especially real estate and difficult-to-replicate high-value commodities like fine art and jewelry. But what if law and order breaks down and assets are stolen or confiscated by desperate governments or criminal elements? This may be all too dismally apocalyptic, but this possibility cannot be ruled out after seeing so many things in recent years that nobody (including economists) predicted.

What then can be done? Printing money to finance government deficits is only possible with the cooperation of central banks, but the power of this restraint on profligate governments diminishes as central bank independence is eroded across the Western world. This erosion may come about through changing the legislation under which central banks operate, or more subtly through appointing compliant board members and using governments’ considerable powers of influence over existing board members. If central banks are currently finding it difficult to resist pressure over interest rate decisions, will they be able to resist demands of desperate governments to extend credit in times of crisis? And perhaps more crucially, will they in the next few years be able to credibly deter governments from running large deficits? In my view, defending central bank independence is more important than ever.

Another dimension of the problem is that contemporary central banks have only the blunt tool of raising official interest rates to dampen inflationary pressure. This is a blunt tool because it operates only on borrowers, predominately home owners with mortgages (at least in places like Australia and the UK with variable rate mortgages) and business borrowers, but they are not the main source of inflationary pressure. In Australian property and natural resource markets (and I suspect elsewhere), asset prices are being driven up by foreign buyers who are unaffected by Australian official interest rates. Goods and services inflation is being mostly driven by non-borrowers who are not directly affected by increases in official interest rates. Government spending too seems unresponsive to interest rate increases, even where the government borrows domestically to finance its spending. It remains to be seen whether this will be so in crisis scenarios like those outlined in the previous paragraphs. This means that even if central bank independence is protected, it is difficult to see monetary policy conducted through interest rates being able to control a severe outbreak of inflation. We need other tools. Griffiths is skeptical about incomes policies where unions agree to restrain wages, and it is hard to see these working in the current politically polarized environment. He is similarly skeptical about legislated fiscal rules because they can easily be ignored or overturned. I’m not sure what other economic policy tools are available.

The most valuable part of Brian Griffiths’s book is his focus on the cultural underpinnings of our current crisis and the need for cultural renewal in order to deal with the threat of inflation. He writes, “Culture and economics are not unrelated subjects,” and, “Religion shapes the culture in which economic life takes place. It establishes a moral order 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, 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 recognising the importance of boundaries” (137). Sadly, we seem to be losing this cultural framework rooted in Christianity that has sustained healthy economic life in the West for so long.

Another cultural consequence of the loss of this religious framework is the decline of resilience, and this I believe will make future economic crises much more damaging. Contemporary Western society seems held together—if tentatively—by reasonably widely distributed fruits of economic growth (Friedman 2005). Economic inequality is an often-noted threat to social cohesion. But a major economic crisis is a much more profound threat to social cohesion. Our expectation of never-ending good times and our fragility in the face of even minor setbacks suggest that we won’t deal well with the next major economic crisis. Theodicies have disappeared. We no longer have the resilience-building Christian narrative (including a larger view of history, concerns that extend beyond ourselves, and hope) and nothing of substance has replaced it.

The other book is by Stephen King—Oxford PPE graduate, UK Treasury economist, for many years chief economist with the global bank HSBC, and more recently an advisor to the UK government. He is the author of several books including Losing Control: The Emerging Threats to Western Prosperity (2010), When the Money Runs Out: The End of Western Affluence (2013), and Grave New World: The End of Globalization, the Return of History (2017). King’s religious background is quite different to Griffiths’s. He is an adult convert to Judaism who is increasingly public about his religious identity and concerned about growing anti-Semitism.

Many of King’s arguments are similar to Griffiths’s. Like Griffiths, he begins with history, specifically the history of inflation induced by the desperate attempts by the Confederate government to fund its effort in the American Civil War. His fears about inflation are based partly on recent monetary expansion but are also motivated by concerns about the recent productivity slowdown and reversal of the post–World War II expansion of global free trade and capital flows. Like Griffiths, he writes passionately about the unfairness of inflation and the way it hurts the most vulnerable in society rather than those who are wealthy, well-connected, and financially literate.

King is less attached to monetarism than is Griffiths. As a nonspecialist in monetary economics I especially appreciated the very clear scene-setting chapter “History of Inflation, Money and Ideas,” which traced ideas about the causes of inflation from the influx of precious metals from the New World in the sixteenth century, through Locke’s and Newton’s involvement in seventeenth-century coinage debates, to Hume’s famous statement of what came to be known as the quantity theory, the nineteenth-century English controversies involving Ricardo, Thornton, Tooke, and then on to the twentieth century featuring Keynes, Irving Fisher, and Milton Friedman. It is worth quoting King’s summary of the issues at stake in turning the identity MV = PT into a causal theory of inflation. The following must hold for there to be a stable causal relationship running from M to P: “(i) prices moved in proportion to changes in money supply; (ii) the direction of causation ran from money to prices, not the other way round; (iii) real economic variables were determined by real things—demographics, technological change, human capital—with changes in the stock of money ultimately having no lasting effect on economic activity; and (iv) money supply was, in effect, an exogenous variable, controlled by the issuing authority” (37). His skepticism about many of these propositions leads him to conclude that while money does matter, so do many other things, including societal trust in government and the money it issues.

For me the strongest common thread in King’s and Griffiths’s accounts of inflation is their emphasis on the cultural dimensions of the problem. King is particularly concerned about the way a collapse in the currency, erosion of central bank independence, and lack of confidence in the rectitude of the government feed inflation through affecting the rules of thumb most people employ when making economic decisions. Like Griffiths, he describes a cultural spiral where inflation further undermines trust, fueling further inflation, and so on. This decline of trust also makes it much more difficult to deal with runaway inflation, because the policy levers a government or central bank has rely on trust to be politically implementable and effective.

I welcome these clear and challenging books about the danger inflation poses to democratic capitalism. But I suspect the situation is even worse than either Griffiths or King thinks. If government deficits and debt are out of control, if the monetarist remedies used against inflation in the 1980s are ineffective in our current complex financial system, if interest rates are a blunt instrument, and if central bank independence is under threat, then this means we are facing a large outbreak of inflation without effective remedies. The cultural situation is also much bleaker than the 1980s, with the Christian framework largely discarded, entitlement entrenched, rent seeking rampant, and the norms that once restrained governments now seemingly abandoned.