Under QE, the central bank buys financial assets in the markets (usually government bonds) with money that it issues itself, thereby increasing both sides of its balance sheet. In practice, hardly any extra notes are printed. Rather, the extra money is created electronically. But since deposits at the central bank are interchangeable with notes, to describe this as “printing money” is acceptable shorthand.

This policy sounds extraordinary, and perhaps even foolhardy. But it has featured in standard economics textbooks for generations (under the name Open Market Operations). Moreover, it was advocated not only by John Maynard Keynes, but also by Milton Friedman.

Mind you, there are limits to what it can achieve, and it is not for all seasons. But every so often the monetary system breaks down in a spectacular fashion. When that happens, the real sources of prosperity – hard work, investment and technological progress – are as nothing against the tsunami of monetary collapse. That’s when printing money comes in.

In the Great Depression in the US in the 1930s, output fell by 30pc and unemployment soared to 25pc. The money supply contracted by 25pc.  Although different schools of thought argue about the precise causation, all agree that the monetary contraction played a huge role. At the time, the US Federal Reserve did little to stop this process. Indeed, it probably exacerbated it.

By contrast, after 2008-09, what could have been a re-run of the Great Depression was stopped in its tracks by much lower interest rates and QE. The Great Recession’s fall in output was minor compared to the 1930s: only 4pc to 5pc.

Some critics accept that without the intervention of the central banks there would have been an economic collapse, but they argue this would have been a good thing. A system purged of bad practices and bad institutions would have been healthier when the economy recovered. 

Yet it wasn’t obvious that the collapse of the 1930s provided a beneficial purge. In Germany, it led to the rise of Hitler. And in the US, the misery of the soup kitchens was only overcome towards the end of the decade once war production raised aggregate demand.

David Fuller's view

Here is a PDF of Roger Bootle's Column.

It has been fashionable in some independent circles to be critical of QE, which I would argue was never offered as a panacea.  Instead, it was more of a safety net – perhaps bungee cord would be a more accurate description – to prevent a hard landing following the worst global economic slump since the 1930s.   

My own view remains that QE has been a more humane policy than benign neglect.  However, a considerable number of people have argued that ‘a short, sharp crash would have led to a more rapid recovery.’ Possibly, but there is no certainty of that. Nor is there much historical evidence to support that view, at least not that I am aware of. 

As a child, I grew up hearing about how devastating the Great Depression had been from my parents, their acquaintances and other people I met over the years who experienced the Depression as adults.  Some never got over the Depression.  There were also plenty of books, including novels, based on the hardship of the Great Depression era. Among those which I read as an adolescent were The Grapes of Wrath and also Of Mice and Men, by John Steinbeck, and To Kill a Mockingbird by Harper Lee.  

Few of us have experienced anything like that in developed countries over the last nine years, although we have yet to successfully emerge from this long economic slowdown.  I think QE deserves some credit for this softer landing and global slumps are seldom quickly reversed, as we see from the last paragraph quoted above, from the middle of Roger Bootle’s excellent column.