IDEAS home Printed from https://ideas.repec.org/p/fri/fribow/fribow00457.html
   My bibliography  Save this paper

The origin of inflation in a domestic bank-based payment system

Author

Listed:
  • Pesenti, Amos

Abstract

This paper shows how a disorderly-working bank-based payment system negatively affects monetary stability. This occurs when firms invest their profits in production with the aim of forming and accumulating (fixed) capital, while at the same time banks carry out the payment of workers’ wages and enter the corresponding payment order in the architecture for domestic payments. In fact, if the payment of wages is financed with profits, this payment operation corresponds to an emission of (empty) money without it being endowed with value, to wit, purchasing power. It follows that the existing value of money is “diluted” in a greater amount of money units, so much so that the current purchasing power of each unit of money is reduced. This monetary phenomenon can be defined as inflation, which, in turn, exerts an upward pressure on the general price level. A structural reform of the bank-based payment system, as suggested in this paper, may consequently improve the defective architecture for domestic payments and thereby promote long-run monetary stability.

Suggested Citation

  • Pesenti, Amos, 2015. "The origin of inflation in a domestic bank-based payment system," FSES Working Papers 457, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    • Handle: RePEc:fri:fribow:fribow00457
    as

    Download full text from publisher

    File URL: http://doc.rero.ch/record/256397/files/WP_SES_457.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Louis-Philippe Rochon & Matias Vernengo & Louis-Philippe Rochon & Matias Vernengo, 2003. "State money and the real world: or chartalism and its discontents," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 26(1), pages 57-67.
    2. Giancarlo Bertocco, 2013. "On Keynes's Criticism of the Loanable Funds Theory," Review of Political Economy, Taylor & Francis Journals, vol. 25(2), pages 309-326, April.
    3. Claude Gnos & Sergio Rossi, 2012. "Modern Monetary Macroeconomics. A New Paradigm for Economic Policy," Post-Print halshs-01231783, HAL.
    4. Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115.
    5. Parguez, A. & Seccareccia, M., 1999. "A Credit Theory of Money: The Monetary Circuit Approach," Working Papers 9902e, University of Ottawa, Department of Economics.
    6. Claude Gnos, 2012. "The unemployment issue," Chapters, in: Claude Gnos & Sergio Rossi (ed.), Modern Monetary Macroeconomics, chapter 6, pages 166-192, Edward Elgar Publishing.
    7. Bortis,Heinrich, 2006. "Institutions, Behaviour and Economic Theory," Cambridge Books, Cambridge University Press, number 9780521028998.
    8. Sergio Rossi, 2001. "Money and Inflation," Books, Edward Elgar Publishing, number 2571.
    9. Knapp, Georg Friedrich, 1924. "The State Theory of Money," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number knapp1924.
    10. Baranzini,Mauro L. & Rotondi,Claudia & Scazzieri,Roberto (ed.), 2015. "Resources, Production and Structural Dynamics," Cambridge Books, Cambridge University Press, number 9781107079090.
    11. Alvaro Cencini & Sergio Rossi, 2015. "Economic and Financial Crises," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-46190-2.
    12. McLeay, Michael & Radia, Amar & Thomas, Ryland, 2014. "Money creation in the modern economy," Bank of England Quarterly Bulletin, Bank of England, vol. 54(1), pages 14-27.
    13. Fabian Lindner, 2015. "Does Saving Increase the Supply of Credit? A Critique of Loanable Funds Theory," World Economic Review, World Economics Association, vol. 2015(4), pages 1-1, February.
    14. Claude Gnos & Sergio Rossi (ed.), 2012. "Modern Monetary Macroeconomics," Books, Edward Elgar Publishing, number 12557.
    15. Louis-Philippe Rochon & Sergio Rossi, 2013. "Endogenous money: the evolutionary versus revolutionary views," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(2), pages 210-229, January.
    16. Heinrich Bortis, 2010. "Political Economy and Economic Science: The Work of Phyllis Deane," Journal of Economic Analysis, National Technical University of Athens, vol. 1(1), pages 49-77.
    17. Jean-François Ponsot & Sergio Rossi, 2009. "The political economy of monetary circuits : tradition and change in post-keynesian economics," Post-Print halshs-00482625, HAL.
    18. Jakab, Zoltan & Kumhof, Michael, 2015. "Banks are not intermediaries of loanable funds – and why this matters," Bank of England working papers 529, Bank of England.
    19. A. Leijonhufvud, 1979. "The Wicksell Connection: Variations on a Theme," UCLA Economics Working Papers 165, UCLA Department of Economics.
    20. Fumagalli, Andrea & Lucarelli, Stefano, 2008. "Money and Technological Change: The Role of Financing in the Process of Evolution: Introduction," European Journal of Economic and Social Systems, Lavoisier, vol. 21(2), pages 151-163.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pesenti, Amos, 2016. "The meaning of monetary stability," FSES Working Papers 475, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    2. Richters, Oliver & Siemoneit, Andreas, 2017. "Consistency and stability analysis of models of a monetary growth imperative," Ecological Economics, Elsevier, vol. 136(C), pages 114-125.
    3. Josh Ryan-Collins, 2015. "Is Monetary Financing Inflationary? A Case Study of the Canadian Economy, 1935-75," Economics Working Paper Archive wp_848, Levy Economics Institute.
    4. Phil Armstrong, 2020. "Can Heterodox Economics Make a Difference?," Books, Edward Elgar Publishing, number 19964.
    5. Alberto ZAZZARO, 2002. "How Heterodox is the Heterodoxy of the Monetary Circuit Theory? The Nature of Money and the Microeconomy of the Circuit," Working Papers 163, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    6. Claude Gnos, 2012. "The unemployment issue," Chapters, in: Claude Gnos & Sergio Rossi (ed.), Modern Monetary Macroeconomics, chapter 6, pages 166-192, Edward Elgar Publishing.
    7. Li, Boyao, 2022. "The macroeconomic effects of Basel III regulations with endogenous credit and money creation," MPRA Paper 113873, University Library of Munich, Germany.
    8. Georgina M. Gómez & Paolo Dini, 2016. "Making sense of a crank case: monetary diversity in Argentina (1999–2003)," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(5), pages 1421-1437.
    9. Duccio Cavalieri, 2004. "On Some Equilibrium and Disequilibrium Theories of Endogenous Money: A Structuralist View," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 12(3), pages 51-83.
    10. Cahen-Fourot, Louison & Lavoie, Marc, 2016. "Ecological monetary economics: A post-Keynesian critique," Ecological Economics, Elsevier, vol. 126(C), pages 163-168.
    11. Jussi Ahokas, 2012. "Geographies of Monetary Economy and the European economic crisis," ERSA conference papers ersa12p437, European Regional Science Association.
    12. Jonathan MASSONNET, 2015. "Alvaro Cencini & Sergio Rossi, Economic and Financial Crises: A New Macroeconomic Analysis," Journal of Economics and Political Economy, KSP Journals, vol. 2(4), pages 507-514, December.
    13. Reynold F. Nesiba, 2013. "Do Institutionalists and post-Keynesians share a common approach to Modern Monetary Theory (MMT)?," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 10(1), pages 44-60.
    14. Sergio Cesaratto, 2016. "La financiación inicial y final en el circuito monetario y la teoría de la demanda efectiva," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 18(35), pages 47-78, July-Dece.
    15. Giuliano Toshiro Yajima, 2021. "The Employer of Last Resort Scheme and the Energy Transition: A Stock-Flow Consistent Analysis," Economics Working Paper Archive wp_995, Levy Economics Institute.
    16. Svartzman, Romain & Dron, Dominique & Espagne, Etienne, 2019. "From ecological macroeconomics to a theory of endogenous money for a finite planet," Ecological Economics, Elsevier, vol. 162(C), pages 108-120.
    17. Brett Fiebiger & Marc Lavoie, 2020. "Helicopter Ben, Monetarism, The New Keynesian Credit View and Loanable Funds," Journal of Economic Issues, Taylor & Francis Journals, vol. 54(1), pages 77-96, January.
    18. Richters, Oliver & Siemoneit, Andreas, 2019. "Marktwirtschaft reparieren: Entwurf einer freiheitlichen, gerechten und nachhaltigen Utopie," EconStor Books, ZBW - Leibniz Information Centre for Economics, number 213814, July.
    19. Sieroń, Arkadiusz, 2019. "Endogenous versus exogenous money: Does the debate really matter?," Research in Economics, Elsevier, vol. 73(4), pages 329-338.
    20. Rohwer, Götz & Behr*, Andreas, 2020. "Revenues from Financial Capital. A Formal Framework," MPRA Paper 99306, University Library of Munich, Germany.

    More about this item

    Keywords

    banks; deflation; inflation; money; payment systems; profits; wages;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fri:fribow:fribow00457. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mustapha Obbad (email available below). General contact details of provider: https://edirc.repec.org/data/wsffrch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.