On the one hand, you have direct, tangible beneficiaries of that money – government contractors who see an uptick in business, employees they hire or pay more as a result, and so on as multipliers play out. But those who miss out on the windfall pay the cost, in the form of slightly higher prices for goods and services. For instance, maybe one of these non-beneficiaries would have bought a new house, Grice said, but a newly enriched contractor got it first by offering to pay a little more – the cost, in other words, is slightly higher prices for goods and services, even though not everyone has extra money to pay those new prices.
But Grice framed this a little differently than it’s taught in Economics 101; when government expands the money supply in such ways, Grice said, “what it’s done really is redistributed the wealth.”
This has consequences. Non-beneficiaries get angry at those who are newly better off – after all, thanks to their increased ability to spend, you might have missed out on your dream house or been priced out of your favorite restaurant. The beneficiaries, meanwhile, feel victimized as well. Their response, Grice said, is: “‘We didn’t do anything wrong. We got the contracts, we employed people – we did what we were supposed to do!’”
This, Grice believes, is the deeper cost of loose monetary policy. “What we’ve effectively done with this $1 trillion increase, this $1 trillion money-printing exercise, is to turn society against itself,” he said. “We’ve actually weakened the trust, we’ve weakened the fabric of society.”
Would Keynes be a Keynesian today?
Even John Maynard Keynes shared similar sentiments, according to Grice; after posing the question above, Grice quoted the famous British macroeconomist as having argued the following in 1921:
“By a continuing process of inflation, Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. … Those to whom the system brings windfalls … become ‘profiteers’ who are the object of hatred. … The process of wealth-getting degenerates into a gamble and a lottery. … 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 it does it in a manner which not one man in a million is able to diagnose.”
The emphases are Grice’s, and he stressed that the above quote captures the way he thinks about monetary policy today.
“It’s not about inflation; it’s about wealth redistribution – this unseen, insidious wealth distribution,” Grice said. “As Keynes said, nobody is quite capable of diagnosing it, but it nevertheless is very real and has very real effects.”