Many discussions of the ongoing decline in fertility end up treading on the grounds of “family policy” when discussing remedies (or, if one believes there are too many people on Earth, incentives) to fertility decline. Commonly debated items include subsidized childcare, income tax credits, housing reform, divorce laws, welfare policy, and the possible trade-offs of “quantity” and “quality” when investing in children. What is rarely, if ever, included is the role of monetary policy.

Fertility decisions are primarily based on lifelong considerations. Because monetary policy mostly affects the short-run, even large unexpected monetary expansions or contractions are unlikely to matter much for such long-run fertility decisions. In extreme cases, an unexpected monetary expansion can cause a real wealth reduction that affects timing. If extreme enough, the delay may push older possible parents out of their prime years for having children. In other extreme cases (think hyperinflation) we can expect some effects. But both examples are extreme cases.

Available estimates of the role of monetary policy on fertility in non-extreme cases show something, but it is a small something (although not negligible). Thus, the role of monetary policy seems properly sidelined in countries like the United States.

A recent book by Jeffrey Degner* argues that these results understate the true damage. In Inflation and the Family, Degner argues that monetary institutions (which could include state-issued monies as well as competitively issued ones under a free banking regime) end up shaping people’s time preferences. Our habits (greater indebtedness, increased inequality, and greater moral hazard) are influenced by the economic environment. “Time preferences” refers to how people value present consumption relative to future consumption or, more broadly, how willing they are to defer gratification. Related habits include the age at first marriage, the number of children, and the spacing between children, among other factors. Ultimately, he argues that political control of the money supply gives politicians incentives to overissue money, fueling an “inflation culture” which depresses fertility.

There is much to say about such an argument. Economists, in general, are reluctant to argue in terms of “preference changes.” One of the fathers of family economics, Nobel laureate Gary Becker, famously argued that we should take preferences as given and never invoke preference changes to explain social or economic change. Not because such changes never occur, but because it is a facile argument. “Preference change” can be used to explain too much, and it’s difficult to falsify. 

Being somewhat of a Becker devotee, I tend to admonish my students the same Becker did. At the same time, there is always a little voice in my head that makes me somewhat reluctant to say that preference changes should never be used. After all, dictatorial regimes invest significant resources in propaganda precisely to reshape people’s preferences so that they acquiesce. So it cannot be fundamentally wrong to argue about preference changes, but we should set the standard required to make a convincing case extremely high.

Degner’s case has parts that respect Becker’s admonition but also parts that violate it in order to take the more difficult road. In the parts where the admonition is respected, the case is fully convincing. In the parts where it is not, Degner does not quite make that case, but he does make a convincing case that the issue deserves more attention.

For example, with respect to instances of following Becker’s admonition, Degner points out that we measure inflation for the poor very poorly, which likely explains why we understate the damages of inflation. The consumer price index (CPI), when one looks at how it is constructed, tends to resemble the inflation experience of households in the top income quartile of the population. Attempts to create “group-specific” inflation measures generally find higher rates of inflation at the bottom than at the top of the distribution. Degner argues that this is due in part to how money enters the economy — loose monetary policy actually fuels inequality. Since inequality has been shown to have some connection to fertility, monetary policy may affect fertility through its contributions to inequality. This well-anchored claim indicates the “usual” assessments understate the role and importance of monetary policy.

Straying from Becker’s advice about positing shifting preferences, Degner invokes the idea of an “inflation culture.” In this framework, monetary policy does not merely influence prices; it also shapes the incentives and behavioral responses (like indebtedness, low savings rates) that arise under an inflationary monetary regime and ultimately influence household decisions, including family formation. The intriguing link merits further investigation, and in Degner’s treatment it largely serves as an invitation for future research rather than as a fully developed empirical demonstration.

Indeed, Degner highlights earlier efforts at making the “inflation culture” argument – including one by Joseph Schumpeter in Capitalism, Socialism, and Democracy — as well as potential avenues to connect economics with biology, psychology and sociology to explain preference formation. But in this, Degner only hints at future research, and in fact omits some obvious empirical arguments in his favor.  

Take, for example, the habits of people in former Soviet bloc countries, notably in East Germany. Despite now having lived under a liberal democracy with relatively stable monetary policy and open markets — and for many having grown up in that environment — East Germans still exhibit a much stronger aversion to inflation than people in West Germany. This is despite a literature showing that, before Soviet division, there were few socio-economic discontinuities at the border between what later became East and West Germany.

That last criticism notwithstanding, Inflation and the Family makes for a worthy addition to one’s library. What it does well is genuinely valuable, and even where it is less fully developed, the book provides a useful starting point for future inquiry. All in all, it is a valuable contribution.

*This review was commissioned and completed before Jeffery Degner joined the AIER staff.