Education Information

4. The problem is not “too much money”

There are economists and others who will try to explain persistently high inflation by claiming that there is “too much money” in the economy. They are usually known as Monetarists, or supporters of the Quantity Theory of Money, who were very influential in Margaret Thatcher’s governments. For working people today this view would immediately sound odd – the problem right now for most of us is the exact opposite. Prices are too high, and we do not have enough money. “Too much money” would be a problem that most people would dearly love to have. Nonetheless, for some politicians in the Conservative Party, this is the preferred explanation. Tories, such as former Cabinet minister Iain Duncan Smith, have blamed the Bank of England for “printing huge sums of money” (in Duncan Smith’s words) with “Quantitative Easing” (QE). The BBC quoted former Tory 10 leadership contender Tom Tugendhat saying:

“…what’s triggering inflation is the lack of sound money… we have not been tough enough on the money supply.

“I’m afraid the quantitative easing that has been pumping up the economy and inflating a sugar high… and it’s triggering this inflation.”

Thatcherite thinktanks, for instance, the Institute of Economic Affairs (IEA), make the same point. They are wrong, but it is important to go through the reasons 11 why. Quantitative Easing is the programme implemented by the Bank of England since early 2009 to create very substantial amounts of new money electronically. Originally, this was done by the Bank in response to the global crisis of 2007-9, See George Grylls, “Sunak ‘fuelled infation by printing huge sums of money during pandemic’”, The 10 Times , 18 July 2022, available at https://www.thetimes.co.uk/article/sunak-fuelled-infation-by-printing huge-sums-of-money-during-pandemic-xfjp8bls8 IEA o ff ers several publications and posts linking Infation and QE, for example George Maher, “Lessons 11 from Ancient Rome about the perils of quantitative easing”, 28 September 2021, available at https:// iea.org.uk/lessons-from-ancient-rome-about-the-perils-of-quantitative-easing/

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