A Keynesian theory of monetary inflation without government

Abstract

This paper presents a model of inflation that is generated by an excess supply of credit-money without any money base impulse from government. Instead, inflation turns out to depend on just three variables: the marginal debt-capital ratio of firms, the money-wealth ratio of households and the economy’s supply-side growth rate. The model is a standard equilibrium model of the money market presented within a process analysis framework based on the Keynesian investment saving identity and Keynes’s concept of the revolving fund of investment finance. The paper concludes with a discussion of the model’s implications for further research and policy development.