If you thought Germany was a model modern economy, forget it. Look east. After two decades of self-imposed austerity, Japan has had enough. Its new leaders are systematically, deliberately, massively inflating their economy. Named after the new prime minister, Shinzo Abe, "Abenomics" is now two months into a thundering great plan B.

Japan's central bank has been ordered to print money at twice the rate that even the US is doing, to go on more spending by government and private firms. It must get inflation up by two percentage points at once. Firms must increase wages. Taxes will come down before rising to ease the deficit. Structural change will impede inflation and short-term debt may rise, but the risk must be taken. The economy must grow, at all costs.

Japan's stock market, property prices and consumer confidence have soared to five-year highs. If the venture fails, capitalism may as well sink back into neo-feudalism. But if it succeeds, Europe's current masters will be seen as reactionary as the inquisitors that defied Galileo.

Now even the IMF, high priest of budget discipline and scourge of profligates, is suggesting that Britain is too austere. Its boss, Christine Lagarde, tells Europe to applaud Japan. The pressure is widening. The EU president, José Manuel Barroso, warns that "austerity is near its political limit". President Obama has pleaded for Europe to ease up. The "Rogoff" link between falling state debt and rising growth has been exploded – at least in recession.

Europe's leaders seem gripped in an economic category error similar to that which seized the continent in the 1920s. They have forgotten that capitalism "took off" with the invention of limited liability and bankruptcy, when laws were passed in order that debts could be written off and credit resumed. Europe's bankers are now refusing to admit bankruptcy, and there is no political accountability to make them. Their objective is solely to maintain the face value of their credit book, and thus protect their balance sheets, derivatives, bonuses and status. It is a disaster.

The victims are all too clear. A fifth of the workforce in southern Europe is now effectively out of work, trapped in an imposed austerity intended to make them "pay back" the big, mostly German banks. Any fool can see that will not happen as long as austerity lasts. A man cannot pay a debt if he is not earning, nor can an entire continent.

All that's happening is that debt and unemployment continue to rise, even in "rescued" countries such as Greece, Spain, Ireland and Portugal. Worse, within the eurozone there is no escape into reflation or devaluation, as there is in Japan. These countries are enslaved to their creditors like indentured workers to robber barons.

As David Graeber put it in the Guardian this week, austerity is no longer an economic policy but a moral one in which someone must be found to pay for past profligacy. It is "a politics of crime and punishment, sin and atonement". It seems almost to appeal to Protestant countries. They regard Greeks and Cypriots as singular sinners, but are all guilty.

Britain has less excuse. It could print money, inflate like Japan and let the exchange rate take the pressure. The government has already printed about £375bn, but has given the money exclusively to banks. The money has vanished on boosting bank reserves, inflating the stock market and buying more government debt. None of it has "pumped", or even leaked, into the productive economy, whatever Bank of England handouts say.

If every pound George Osborne had printed had gone on consumer spending, it defies belief that the British economy would be still be in acute recession. As in Japan, sales would be rising, order books filling, jobs returning, tax revenues expanding and the deficit shrinking. Banks are not stupid. They lend against profits, not against Vince Cable speeches. Their retail customers need real rising demand to restock, instead of relying for turnover on benefit recipients. Austerity in recession is the nadir of economic illiteracy.

Japan is taking a gamble. The gamble is not with inflation but whether state spending and bank lending will actually get money into rapid circulation. The country's past experience with big infrastructure projects (as favoured by Osborne) is that they yield little short-term stimulus. More roads and railways are a glacier when what is needed is a torrent. The torrent comes from consumer wallets, filled by lower taxes and higher wages. It comes from the fastest possible cash infusion. Any resulting inflation is a problem for the day after tomorrow.

The joy of a country with its own currency is that it can handle it as it wishes, not as eurozone leaders wish. It need not increase government debt but just print money to distribute for as long as it thinks necessary. This could be through higher benefits, higher wages, higher tax thresholds or lower VAT. For that matter, the Treasury could add £10,000 to every adult's bank balance – a giant version of the pensioners' Christmas fuel allowance – and still have spent less than it has handed to the banks in the past four years.

The cardinal lesson emerging from recent British economic policy is that the economy starved of demand will not grow. The economy will only reflate if people have more money in their pockets and go out and spend it. This is classic monetarism: tighter money with inflation, looser with recession.

The taboo that afflicts such loosening is similar to the morality of austerity. Economic policy, like most policies, is rooted in the class and tribal interests and ambitions of those conducting it. Chancellors of both parties hand out money (and fees) to bankers, lawyers, consultants and contractors, because these are the people they know and like. They trust them with it.

In contrast, printing money and giving it direct to consumers may benefit the economy, but it appears to be money for nothing, a reward for no extra work, indeed for profligacy. It is vulgar and crude, lacking the sophistication and erudite jargon of dealing with a bank.

All we can hope is that when the next billion rolls off the government's presses, the government might look east and acknowledge that something exciting is happening in the land of the rising sun. After a decade of starvation, Japan is at last giving itself a gargantuan banquet. We must fervently hope that it succeeds – and makes a monkey of our masters.