Inflation is theft and it is now widely agreed that inflation is a major underlying cause of Australia's economic malaise. Peter Jonson, former Head of Research at the Reserve Bank of Australia, argues that the costs of curing inflation should be endured for the sake of the lasting benefits of price stability.
Inflation is the persistent erosion of the value of the monetary standard. Allowing inflation to arise and to persist is tantamount to endorsing theft. In an inflationary economy it should come as no surprise that standards of private and public morality come under pressure.
Inflation forces up rates of interest, saps competitiveness, reduces incentives to save and to invest and, ultimately, puts at risk a country's financial and economic stability. Eliminating inflation requires a national consensus that the costs of inflation are much greater than generally thought. Establishing and maintaining such a consensus is a crucial step in restoring Australia's prosperity.
Achieving a climate of price stability is obviously difficult. Twentieth-century experience suggests that changes to current arrangements will be needed. Possibilities include giving existing central banks a stronger, or even binding, charter to fight inflation; reintroducing something akin to the gold standard, but with supply of the relevant standard more rigidly controlled; and introducing a regime of competitive moneys. Inflation is theft, so one of these solutions is required if Australia is to remain a decent place to live and work.
The Costs of Inflation
The moral costs of inflation are impossible to quantify, even in principle. Inflation is theft and an economy built on inflation is built on deception. In an inflationary economy, those who are good at theft and deception will be rewarded and so more effort will go into sharp practices of one sort or another. The evident decline of standards of morality in some segments of our business community and in aspects of private behaviour can be traced partly to the incentives and distortions created by inflation. The more obviously economic costs of inflation relate to equity, efficiency (growth) and stability. In all three areas costs are greater than commonly realised.
Equity Inflation involves large and arbitrary redistributions of income. Inflation generally rewards borrowers and cheats than owners of assets that yield fixed rates of interest. The classic case is that of the 'widows and orphans' who purchased government bonds to finance wars and whose assets were subsequently wiped out by inflation. But there are more recent examples:
- During the wage explosions of 1974 and 1981 wage earners who kept their jobs gained hugely at the expense of owners of capital and those workers who lost their jobs. These tendencies have been partially redressed in the past seven years, but the gainers now are not necessarily those who were the earlier losers.
- Borrowers (including governments) gained massively at the expense of lenders when inflation greatly exceeded nominal rates of interest in the 1970s. Once again these tendencies were reversed in the 1980s, but those who gained recently were not necessarily the earlier losers. Moreover, the risk to borrowers increases when nominal interest rates are high, even if 'real' (inflation adjusted) rates are unchanged (which in general they are not - see below).
I venture the judgment that all of these changes to the distribution of income have been larger than any that have resulted from the effects of deliberate policy choice.
Growth When the value of the national measuring rod changes in an unpredictable manner, sensible long-term planning is impossible. Businessmen tilt their activities toward short-term gain and the general business mentality comes to view speculation and paper shuffling as likely to produce larger gains than investment in projects with a long gestation period. Australia has suffered increasingly from this tendency in the past 20 years and it is no coincidence that this has been an era of high and variable infla tion.
Inflation worms its way into the very structure of interest rates. Typically there is a premium for inflation so that rates are high when inflation is high. With inflation at 2 per cent and interest rates at 7 per cent, long-term investment is much more likely to proceed than when inflation is 8 per cent and interest rates are 18 per cent. This is the most obvious and direct way in which inflation discourages investment and inhibits the growth of a country's productive capacity.
As this example suggests, real rates of interest are higher when inflation is higher. This is in accord with experience and seems mainly to reflect the greater uncertainty premium that inflation builds into nominal rates. Tax deductibility of nominal interest costs reinforces this tendency.
Household behaviour is similarly not immune from the uncertainties created by inflation. With the value of future savings cast into doubt by inflation, is it any wonder that consumption is preferred to saving? 'Buy now and beat the price rise' is a common advertising slogan, while the observation'why save, you only pay tax on the interest' is a frequent complaint by ordinary folk.
A very specific cost of inflation is its direct contribution to the growth of Australia's international debt. Inflation saps the competitive strength of a country's business units. When domestic costs are rising more rapidly than costs in overseas countries, it is progressively cheaper to import rather than to produce locally. When domestic prices are rising more rapidly than prices on overseas markets, it is better to sell locally than to export.
Of course, periodic currency depreciation goes some way to restoring the competitiveness of an inflationary country's business units. But compensation by currency depreciation is a hit-and-miss affair. The extra uncertainty systematically undermines the will to invest to provide export capacity and to compete with imports. It seems far easier to produce for the soft environment of the local market.
The tendency for inflation to contribute to the growth of international debt will not be seen as a cost by those who believe that such debt is not problem. Even though much of Australia's international debt is in private hands, I am not among those who are relaxed about its continued growth. This is because continued growth of debt is a result of imbalances between saving and spending and between production and consumption.
If not checked, these imbalances will erode Australia's economic sovereignty. One important aspect of this is the credit risk that arises with the growth of debt. if international lenders lose confidence in our economic performance and policies, the value of the currency will plunge and there will be a sizable premium added to our interest rate structure. While debt continues to grow, this risk will be ever present.
Inflation also reduces growth by draining resources from the private sector to the government sector. With 'progressive' tax systems, inflation produces an automatic fiscal dividend for governments. This increases government outlays, many of which will inevitably be subject to less rigorous standards than those in the private sector. When expenditure decisions are made in an environment of easy funding, it is no wonder that they do not all provide the maximum contribution to national efficiency.
The Austrian school of economists has emphasised both the fraud involved with inflation and the way in which inflation creates 'discoordination' of economic activities by distorting relative prices. Mistaken investment decisions can severely limit a country's growth potential. The American literature has also identified 'shoe-leather costs' (extra trips to the bank) and ‘menu costs' (unnecessary printings of menus). The point, of course, is broader than these terms suggest. Variable prices mean that considerable time can be spent by enterprises trying to decide on the appropriate prices for their products, while consumers and workers also spend extra time searching for goods and/or jobs.
All in all, inflation erodes our growth potential in many ways. The problem is to put an explicit cost on these (and other) costs: Is inflation reducing growth by GDP by 0.1 per cent annually, by 1 per cent or 2 per cent? My instinct tells me that the costs are nearer the upper end of this range, but we are in desperate need of expert analysis of the question.
Stability A final cost of inflation is the threat it poses to financial and economic stability. A climate of inflation introduces unnecessary uncertainty into a wide range of decision-making processes. This creates the general possibility of avoidable errors. Inflation at a higher rate than in other countries produces depreciation of the value of the inflating currency on international markets. This depreciation rarely proceeds smoothly but rather involves major lurches. Typically, the currency becomes overvalued for a time and then drops suddenly. Both the upward pressure and the sudden fall are highly disruptive, as we have seen many times in recent years.
Periodic attempts to check inflation also produce disruption. The major credit squeezes of 1961, 1974, 1981 and 1989 imposed costly checks on people's plans. In the postwar period in Australia the periodic credit squeezes necessary in an environment of inflation have not threatened the stability of the financial system as a whole. But in earlier eras, such as the 1890s and the 1930s, and in other places, extensive damage to financial stability has been done by major unexpected changes in asset values.
Australia is not yet in the danger zone entered twice in the past century, but if present trends continue the risk of financial instability will rise sharply. No one can confidently place reliable estimates on the costs of inflation. The costs that have been catalogued here, however, add up to a formidable list. This list needs to be debated widely and costed authoritatively.
I feel confident that failure to cure inflation would involve costs that greatly exceed the costs of the cure. I cannot prove this in a scientific manner but I believe it is provable. Accurate assessment of the costs of inflation is one of the main challenges before us.
The Costs of Stopping Inflation
Stopping inflation requires an understanding of the causes of inflation. Economists are agreed that inflation is fundamentally created by growth of demand exceeding growth of the productive capacity of an economy - 'too much money chasing too few goods'. Once it is under way, a host of factors tend to maintain it. There is the 'wage-price spiral': wage increases are based on past price increases and price increases are based on increases in costs, including wage costs.
Inflation at rates in excess of overseas rates causes currency depreciation and this raises the costs of imports. Inflation produces higher interest rates, which raise the cost of capital. Government taxes and charges rise in line with (or in excess of) costs and this in turn adds pressure to prices.
Entrenched inflation becomes widely accommodated. Everyone acts to protect himself from it in ways that ensure its continuation. Economists regard inflationary expectations as the main reason for the persistence of inflation. Reversing inflation involves costs. Cutting growth of demand below the growth of productive capacity usually involves lost output (but not when production for export replaces production for domestic consumption).
If inflation is high and/or deeply entrenched, a long period of low growth, even a deep economic depression, may be required to break the inflationary psychology. For example, in 1960-61 in Australia unemployment rate rose from 1.5 per cent to over 3 per cent before inflation fell to zero. In 1974-75 unemployment rose from 2.5 per cent to 6 per cent before inflation was checked, i.e. falling from a peak of around 16 per cent to around 12 per cent. In 1982-83 unemployment rose to over 10 per cent of the workforce, after which inflation declined from around 12 per cent to below 5 per cent.
Clearly the loss of output and the associated human misery were considerable in each of these episodes. But the enduring cost was that inflation was not beaten. After each episode inflation eventually rose again. There is 'no gain without pain', but enduring the pain and then losing the gain is the height of folly.
In the light of persistent failure to eliminate inflation, many have concluded that the costs of cutting inflation are simply too great. Treasurer Keating sometimes speaks of the 'scorched earth policy' of those who wish to get rid of inflation. There are two points to make in reply. The first is the technical point that the costs of inflation are continuing costs. They persist while inflation persists. So in balancing the immediate but temporary costs of eliminating inflation against the continuing and permanent costs of inflation, it may be rational for a country to accept the short-run costs in exchange for the longrun gains. Full analysis of this point would require accurate estimates of all costs with appropriate discounting of the future. Politicians implicitly use a very high rate of discount and so conclude that the costs of stopping inflation are too high.
The second point is that it may be possible to reduce the transitional costs of breaking an inflationary psychology. Instead of using a draconian 'scorched earth' policy, it may be possible to introduce a circuit-breaker of some kind. Incomes policies are sometimes seen as potential circuit-breakers.
“If people believe that monetary policy will be held firm until inflation is squeezed out of the economy, they will quickly adjust downward their inflationary expectations.”
The theory is that, if labour costs can be constrained for a time, inflation will be reduced, even eliminated, and the wage-price cycle broken. Many incomes policies have been tried with conspicuous lack of success, especially in countries with British-style industrial relations. A typical problem is that governments are tempted to allow demand to outstrip productive capacity while their incomes policy temporarily suppresses inflation. Eventually the pressure proves too strong. Wages catch up and even overshoot, rewinding the wage-price spiral and further embedding the inflationary psychology.
Curiously, the so-called Accord in Australia must be judged as one of the more successful incomes policies. In conjunction with the wages freeze imposed by the Fraser Government, the Accord allowed inflation to be reduced to around 5 per cent, and later it held inflation to around 8 per cent despite one of the strongest episodes of economic overheating in Australia's history. Arguably, if monetary policy had been noticeably steadier and firmer during the operation of the Accord, inflation would now be much lower.
The circumstances are rare in which an incomes policy will be helpful. For most times and places success in reducing inflation will depend on firm monetary policy. However, research shows that the costs of lost output when monetary policy is tightened will be minimised if monetary policy has credlbility. The argument is simple. If people believe that monetary policy will be held firm until inflation is squeezed out of the economy, they will quickly adjust downward their inflationary expectations. Wage and price increases will be minimised without recession or depression.
Obtaining and maintaining credibility is of course no easy task. There have been successful examples of monetary circuit breakers at times of hyperinflationary crisis, for example in both Germany and France. These examples involved currency reforms. There were also clear and believable changes in both the objectives and the operational procedures for monetary policy. But less dramatic examples can also be found. The US Fed's shift of operating procedures in 1982 also involved a greater commitment to fighting inflation. While there were transitional costs of lost output, the experience laid the basis for a much better record on inflation. Australian experience in 1960-61 was similar: the willingness to accept costs in the short run provided the credibility that laid the basis for a decade of relatively good economic performance. The early Thatcher years also seemed promising but her abandonment of a coherent medium-term strategy has harmed the British economy.
What Is the Balance?
In the current state of knowledge there can be no sure answer. My judgment, however, is firmly in favour of eliminating inflation. The continuing costs of inflation are much larger than generally thought. The judgment of E. Gerald Corrigan, President of the Federal Reserve Bank of New York, in testimony before the US Congress on February 6, 1990, is one that I fully share:
Virtually every observable facet of economic history - here in the United States andaround the world - tells us that high and/or rising rates of inflation are simply incompatible with sustained economic prosperity.
It is also worth quoting the view of John Phillips, Deputy Governor of the Reserve Bank of Australia. In a recent speech, Phillips concluded: "In the battle for national advantage, inflation ranks as one of the three or four great scourges. It probably ranks behind greed and apathy, although it is closely related to both ..."
I doubt that it is possible for any country to be genuinely competitive, to achieve and maintain restructuring objectives of the type we have set for ourselves in Australia and to promote the economic welfare of its citizens with an inflation rate consistently higher than its competitors. I would also argue that the transitional costs of disinflation can be eased by the adoption of a credible anti-inflationary policy by a strong central bank. That is the next subject.
The Role of the Central Bank
Just as there is a role for theologians and moral philosophers to oppose the moral expediency of the day, there is a role for central bankers to oppose the economic expediency of politicians. As the Economist put it, rather colourfully, on 10 February 1990:
Citizens need to be protected from their own governments as much as from muggers and invading armies. just as a separation of powers between the judiciary and the executive helps to shelter citizens' rights, so does the creation of a truly independent central bank.
In an earlier article (Jonson, 1988) 1 argued the case for power sharing in monetary policy. I said then that a more independent central bank would improve our economic performance since it is 'more concerned for longer-term economic stability' whereas political government is 'moe alive to economic problems in the short term'. I argued then that 'It is appropriate in a democracy that governments have the final say'. Nonetheless, I was arguing that greater weight should be given to the longer-term views and that our central bank should be more independent and more outspoken in providing such views.
I also argued that monetary policy should not be assigned simply to fighting inflation. I effectively endorsed the 'multi-objective' charter of the current Reserve Bank Act. The idea is simple. Because monetary policy has widespread and pervasive influences on the economy, it should be varied in the light of all the available economic indicators. As a further point, monetary policy should be operated in close coordination with the other arm of economic policy. These points have consistently been accepted by the Reserve Bank of Australia. They lead naturally to close cooperation between the Bank and the government of the day, and strenuous efforts to reach accommodation when differences arise. Section 11 of the Reserve Bank Act, which specifies procedure s for the settlement of disputes, has never been invoked.
I would still stand by the principles of power sharing and multiple objectives as useful in an ideal world. But I now think my earlier judgments were unduly idealistic. Continued and conspicuous failure to address the problems of entrenched inflation and burgeoning debt suggests that an approach that is both stronger and simpler may be necessary.
How much independence? Legal philosophers have thoroughly analysed the question of the separation of powers. They have provided a powerful argument in favour of great, or even complete, independence in certain matters of public policy. The argument is that, by binding or disciplining itself, the ultimate authority - whether this be God, the monarch or the elected government - can maximise its ultimate influence.
The point is put brilliantly in jean Bodin's Six livres de la republique (1576). Professor Steven Holmes quotes it in an apt context: "By accepting limitations on his own caprice, a prince can increase his capacity to achieve his ends." The idea that self -binding can be a strategy of freedom explains why Bodin - the advocate of absolute monarchy - nevertheless argues that the commonwealth 'should by laws, and not by the prince's will and pleasure, be governed'.
After all, there are only twenty-four hours in a sovereign's day. General laws are much less time-consuming, that is, yield greater return per unit of effort, than particular proclamations and decrees.
Similarly, the king should pre-commit himself to coinage of a fixed value. By so doing, he can increase his control of the economy, resist factional pressures to depreciate, and cultivate the confidence of creditors. (p.214)
'Self-binding' monetary arrangements have existed in the past. Proponents of the gold standard used to argue that basing the monetary standard on a precious metal in fixed supply would enforce sensible monetary rules.
The Act of Parliament that established the Bundesbank created the world's most independent central bank with the explicit objective of' safeguarding the currency'. At the high point of monetarism in the 1970s, the Humphrey-Hawkins legislation in the United States required the Federal Reserve Board to try to achieve a pre-specified growth of money; some wished to enshrine this as law in the US Constitution.
Most recently, the Governor of the Reserve Bank of New Zealand has signed an agreement with the Minister of Finance on the 'price stability objective', now enshrined in the Reserve Bank Act of 1989. A price stability objective for monetary policy is in a Bill now before the US legislative assembly.
As these examples show, selfbinding is not obviously inconsistent with democracy. While the technical responsibilty for achieving the objective of monetary stability may be taken out of the hands of elected politicians, the objective itself is a matter for the parliament.
My present view is that some self-binding arrangement for of monetary policy is necessary if we are to maximise Australia's economic performance. In the Australian context, the existing law would allow a strong central bank to assume greater independence. If the Reserve Bank decided that the objectives of its rather general charter would best be achieved by giving primary weight to the achievement of price stability, the Bank could act accordingly. It may seem that all that has to be done is for government and central bank to agree on the need to eliminate inflation. But as Hugh Morgan (1990) has recently asked, 'Can any government, no matter how determined, give us long-term stable prices and sound money?'
One conclusion is that the Reserve Bank of Australia should be given greater independence. This raises the issue of its charter.
Which objective(s) for monetary policy? The current Reserve Bank Act says: It is the duty of the Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Board, will best contribute to:
Monetary policy influences a wide range of economic variables. As already noted, tightening monetary policy to reduce inflation will reduce output and raise unemployment. It also tends to raise the exchange rate, which to an extent conflicts with the objective of improving competitiveness by reaucing inflation. Monetary policy has pervasive effects on the distribution of income.
But economists are agreed that the most lasting influence of monetary policy is on the rate of inflation. Given the wide-ranging influence of monetary policy, its ease of use, the wide-ranging charter of the Reserve Bank and the tradition of close cooperation with government, it is not surprising that in Australia (as in many other countries) monetary policy is constantly seeking an appropriate balance between objectives which often seem to conflict.
Trying to achieve a lot of things is often a recipe for achieving little. In particular, it is hard for a central bank to have credibility in fighting inflation if it is also supposed to concern itself with restraining unemployment. This point has recently been argued by Sir William Cole (1990), the distinguished former public servant. He asked: 'How long has the Reserve Bank gone along with things against its better judgment - not for crude political reasons but because of its own reading down of its charter?'
I have already argued that the existing charter could be read differently. But there is a further point. It cannot be denied that, in Australia, the attempt to achieve too many objectives has meant that the primary aim of monetary policy, the elimination of inflation, has not been achieved. So it seems to me that policy overall would be more effective if the Reserve Bank were to be given as its main task the achievement and maintenance of price stability.
This could be achieved by simply deleting (b) and (c) from the list of objectives in the existing Act. Or it could be achieved by a more wide-ranging revision of the Act, including changes to the composition of the Board, such as removing the Secretary of the Treasury and replacing part-time non-executive directors by full-time executive directors. (The article by Sir William Cole develops these points in a persuasive manner.)
“Trying to achieve a lot of things is often a recipe for achieving little. in particular, it is hard for a central bank to have credibility in fighting inflation if it is also supposed to concern itself with restraining unemployment.”
Price stability could not be achieved overnight, but a reasonable period, say three to five years, could be specified. For technical reasons, the Bank should also be given discretion as to how to achieve this objective, and also to respond to unexpected events. The new charter should of course include responsibility for maintaining the stability of the financial system. It could also list, as subsidiary objectives of monetary policy, the maintenance of full employment and the achievement of economic prosperity.
Yet financial stability, full employment and general prosperity would all be enhanced in the medium term by price stability. So there is no basic conflict between the various objectives, or indeed between the existing charter and one that makes the achievement of price stability the primary objective of monetary policy. The subsidiary clauses would remind the Bank, if such a reminder was necessary, that care needs to be exercised in pursuit of the basic objective.
Such a charter would concentrate the efforts of the Bank in doing what it is best suited to do . It would also concentrate the minds of those responsible for other policies in a more effective way. If price stability were not achieved in the time specified, some sanction should be applied. Fairness dictates that there be room for discussion before the sanction is applied. But if the objective were not achieved and if explanations were not acceptable, then the Board of the Bank should presumably be replaced.
The Role of General Policy
The pursuit, or even the achievement, of price stability, should not be seen as an economic panacea. A climate of price stability would encourage saving, underpin competitiveness and contribute in various ways to the promotion of useful investment, not least by reducing uncertainty and allowing much lower interest rates.
However, economic welfare depends on many other forces, some of which depend on the general policies of government. One of the reasons for taking monetary policy out of the hands of politicians is to enable them to concentrate on matters for which they are better suited. At present Australia awaits many decisions in the areas of taxation, microeconomics, infrastructure and the environment. There are more than enough tasks for politicians and bureaucrats to focus on.
As well as taking a set of difficult decisions out of the political arena, an independent and relatively unyielding central bank would provide for a further concentration of minds. If monetary policy had credibility in terms of achieving price stability, then when economic problems arose politicians might be quicker to respond by changing other policies.
More Radical Proposals
Some believe that the existing system is simply incapable of producing price stability, and have put forward two more radical proposals. One proposal is to return to some sort of commodity standard, modelled on the old gold standard. Gold itself can be ruled out since its production is both highly elastic and subject to the fits and starts resulting from major discoveries. But a bundle of valuable commodities could in principle underpin the monetary systems of major countries.
In effect, this proposal is designed to replace legislated self-restraint in the creation of paper money. As such, it is at one level unnecessary and at another would be undermined by clever politicians if they were not bound by law to monetary rules that produce price stability or a central bank committed to the same aim.
The other, even more radical, proposal concerns so-called 'competitive moneys'. The theory is attractive. If the law were changed so that anyone could provide a form of 'money', the provider who limited his output in a way that maintained value over time would gain market share. Ultimately, his sound money would dominate the market.
To my mind there are many practical objections to this approach. Most basically, a stable currency is one of the ultimate public goods. Provision of currency by a central agency is likely to be the most efficient system, by a large margin. In any case, current law allows private agencies to issue forms of money'. There are in fact examples, but none have so far passed the market test.
A further point is that there are already many'competitive moneys’. In the current world of free capital flows, it is legal for Australian citizens, for example, to hold deposits in any of the major currencies. In the long run, currencies that provide a stable store of value should gain market share in the way envisaged by proponents of competitive moneys. We in fact see occasional proposals for the American dollar to replace the local currency in countries where hyperinflation is rife. While this has not so far achieved legal status in any country, there is often a de facto dollar standard among the well-to-do.
Whatever the merits of these radical proposals, it must be admitted that existing arrangements have been consistent with virtual price stability (and prosperity) in countries such as Wes t Germany and Switzerland. In my view, we should try the German and Swiss commitment to price stability and to a more independent central bank within our existing system before we consider more radical possibilities.
Australian society and economic policy are in a ferment of change. Recent years have seen extensive financial deregulation, an incomes policy that has succeeded in its main aim of restraining labour costs, and gradual reform in the areas of taxation and industrial policy. In business, profits and the propensity to invest have increased. Economic growth has been strong and many jobs have been created.
But, despite these gains, the crucial weakness of inflation remains deeply embedded. Our inflationary culture, with all of its attendant costs, threatens to push us into the danger zone entered twice before, in the late 1880s and in the late 1920s. A nation-wide consensus that inflation is much too costly to tolerate would contribute greatly to the task of restoring Australia to the path of sustainable growth and prosperity. Indeed, eliminating inflation seems likely to be the single most important reform that Australia could undertake at this time.
References and bibliography
The costs of inflation are discussed in: Angell, W. (1990), 'The Case for Price Stability, remarks before Forex USA Inc, New York, 15 February. Fisher, S. & A. Modigliani (1978), Towards an Understanding of the Real Effects and Costs of Inflation', Weltwirtshaftliches Archive, No. 114. Gerald Corrigan, E. (1990), Statement before United States House of Representatives Subcommittee on Domestic Monetary Policy, 6 February. Morgan, H. (1990), 'Sick Money the Key to Our Ill Health', The Australian, 27 February. Pagan, A. & P. Trivedi (1983), The Effects of Inflation, Centre for Economic Policy Research, Australian National University.
Comments on the recent and present situation in Australia can be found in:Cole, Sir William (1990), 'A More Independent Reserve Bank?', Australian Institute for Public Policy, Economic Witness, no. 45, March. Fraser, B. W. (1989), 'Reserve Bank Independence and All That', Reserve Bank Bulletin, December. Fraser, B. W. (1989), 'Inflation', Talk to Canberra Branch of the Economic Society, 19 April. Johnston, R. A. (1989), 'Doing It My Way', Reserve Bank Bulletin, August.T Jonson, P. D. (1988), 'Reflections on Central Banking', Quadrant, December. Phillips, M. J. (1990), 'What Price Money?', Reserve Bank Bulletin, March.
General Philosophical and Theoretical issues are discussed in: Barry, N..(1981), 'Austrian Economists on Money and Society', National Westminster Bank Quarterly Review, May. Dowd, K. (1989), 7be State and The Monetary System, Phillip Allan, Hemel Hempstead. Holmes, S. (1988), 'Precommitment and the Paradox of Democracy, in J. Elster & R. Slagstad (eds), Constitutionalism and Democracy,Cambridge University Press, Cambridge.
This article first published in Policy, Journal of the Centre for Independent Studies, Winter 1990.