Inside Money, Business Cycles and Stagflation
Stagflation is a comparatively new (25 - 30 years) feature of the advanced market economy. All famous theories of stagflation - Monetarist, New Classical, Bastard Keynesian and Minskian ones – have one common point. According to all these theories stagflation is generated by exogenous factors: the government policy or (adverse) supply shocks. We shall try to prove in this article that stagflation can be endogenously inherent to the modern advanced market economy.
The modern advanced economy is the "inside money economy" (Dow and Earl, 1982: Ch. 9). A huge part of the money supply is the (private) credit money, that is both asset and liability of the private sector. In other words, in the inside money economy money is simultaneously a debt. This fact complicates many relationships between macroeconomic variables. On the one hand, monetary aggregates are the only means of financing expenditures. The more is the money supply, the more are aggregate expenditures, and aggregate demand will be. On the other hand, money is a debt, and the liquidation of this debt can absorb a lot of financial resources. In other words, the more is stock of the outstanding debts (inside money) and the closer is maturity date, the less financial resources available for the expenditures will be. It turned out, that the relation between macroeconomic situation and the (inside) money stock is ambiguous.