Inflation - like war, to which it is often closely associated - destroys the fruit of honest labour, it devalues savings and investment, it erodes the social fabric of society and ultimately puts the very foundations of democracy and freedom at risk. This is one of the lessons of the bitter history of the 20th century, which was a century of hyperinflation in the wake of wars and wars in the wake of hyperinflation. No one has described the deleterious effects of inflation more vividly than Stefan Zweig has done in his book “Die Welt von Gestern” on Germany in the 1920s. He depicts the sense of distrust, despondency, desolation and despair that hyperinflation brought to Germany in 1923 (in the wake of the first world war) from which the fragile democratic and economic institutions of the young Republic were never really to recover (thus preparing the ground for the Second World War). Zweig contrasts this with the pre-war “golden age of security”, when “it paid to put money year for year in safe investments”, when “the saver was not yet robbed”, the “honest deceived” but when the “most patient, not the speculators had the greatest profit”. He concludes “that nothing has rendered the German people so embittered, so full of hatred, so ready for Hitler as this inflation” (own translation). From this one could establish not just an economic case but an ethical obligation to maintain price stability.
My first answer to this question was a clear “no” if faith means “belief in unquestioned authority”. Central bankers should not ask just for faith, they cannot expect such faith and they cannot take faith for granted. Instead they must work hard every day to earn the trust that the public places in them. Central bankers are not super-humans, they cannot be guaranteed to be benevolent or omniscient. They will perform best within an institution that is given a clear objective and that is held accountable by the public. Conversely, the public would be ill-advised to put “blind trust” in central bankers. Price stability, preserving the value of money is the precondition for a well-functioning market economy, for economic and social stability, a free and prosperous society. Price stability is too important for society to be left “on trust” to the vagaries of the political process or to the whims of individual central bankers. It requires to build solid and strong independent institutions which are dedicated to serve and defend the common good of price stability. It is both economically sensible as well as democratically legitimate for society to delegate such a limited and well-defined task to an independent central bank. Such an act of delegation confers an obligation on the central bank to fulfil this trust and to be held accountable. Faith may be all right, but control by an attentive public will also be needed.