Sir, Gordon Brown is contemplating a Zimbabwe-style policy to get him out of his economic troubles — simply print more money (report, Jan 8). It will produce the same effect — stagflation.

When governments print money and spread it around, people do feel richer. So they do go out and spend, which is what the Government wants. But all this new spending just pushes prices up again, the new money buys less, and eventually people realise that they are actually no better off. By that time, businesses have to abandon all the investment they have made to capture the extra money, which just adds to our troubles.

Furthermore, the new money that government creates is not dropped uniformly across the economy. It goes into government industries and agencies, and is supposed to spread out from there. This can take a long time, and have many perverse effects on the way. And while the rest of us are cutting back, a spending boost for our bloated public sector is unlikely to be popular.

Money is a hugely powerful instrument — it affects everything in the economy. By messing around with it, politicians can (and usually do) cause a lot more harm than good.

Eamonn Butler

Director, Adam Smith Institute

Sir, The possibility of the Government printing more cash illustrates how woefully uneducated politicians are about basic economics. It is correct that deflation is a huge threat to all of us. Sustained expectations of deflation pervading society would lead to a further decline in economic activity: why spend or invest when assets or goods will be cheaper tomorrow?

However, it is the real price of assets or goods that is relevant, not nominal prices. If you simply print more cash, you change nominal prices but not real prices. It is perfectly possible to have real price deflation with nominal prices rising. For example, just because the money supply has increased by 10 per cent in a year, this does not mean that I should expect to pay 10 per cent or more for my goods if I know that companies are in distress.

It is true that printing money is not a completely blunt instrument if it is able to fool people into thinking price rises are occurring because of real growth rather than inflation. However, this cannot work if the Chancellor announces his intention to do so. Rational economic agents simply adjust their expectations of price rises and are no longer fooled. One can attempt to disguise this with the concept of “quantitative easing”, but this is inflation by any other name. Money is printed and unproductive assets are shifted from private hands to government hands. But the asset still exists and the economy in general continues to suffer the dead weight of this. So again, nominal prices increase but expectations and productivity do not change.

Comments that misunderstand these issues from the economics spokesmen of all parties represents nothing less than the final stages of pure panic. If things are really this bad, should we not engage professionals to guide us out rather than frantic amateurs?

Jack Edmondson

London SW6

Sir, It is tragic that we no longer maintain diplomatic relations with the Zimbabwe Government; its Treasury ministers could be so helpful in advising our Chancellor on printing money.

Julian Rivers

Earls Barton, Northants

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