Friday , July 19 2019
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Central bank independence, inflation and political power

Summary:
Just a small observation, not particularly original to us. Politics has only controlled the value and quantity of money for a short period of history, roughly WWII through to the 1990s. Perhaps, for purists, really only the 1970s through the 1990s. The period of fiat currencies and government control of central banks.Before that period we generally had currencies based, however tenuously, upon specie. After we’ve had those independent central banks able to kick back against government policy. Which makes this long term chart of inflation in the UK interesting.There were inflations - Henry VIII debased the silver coinage for example. There were deflations, QE I tried to restore the value. But to get to consistent inflation we had to wait for politicians to control both fiscal and monetary

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Just a small observation, not particularly original to us. Politics has only controlled the value and quantity of money for a short period of history, roughly WWII through to the 1990s. Perhaps, for purists, really only the 1970s through the 1990s. The period of fiat currencies and government control of central banks.

Before that period we generally had currencies based, however tenuously, upon specie. After we’ve had those independent central banks able to kick back against government policy. Which makes this long term chart of inflation in the UK interesting.

There were inflations - Henry VIII debased the silver coinage for example. There were deflations, QE I tried to restore the value. But to get to consistent inflation we had to wait for politicians to control both fiscal and monetary policy, something that really only did happen post WW II.

One way of looking at this is that the more power politics had the worse matters got. Another, less cynical, is simply that the move to central bank independence from the 1990s onwards was well rooted in empirical justifications.

Our general view around here is that the correct question concerning politics is whether we’re being cynical enough. We’d thus take this record as being a warning about allowing politics, and politicians, to control too much. Or even much.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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