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How Inside Money Makes Inflation Costly For Most (but Gainful For Some)


  • William Coleman



It is argued that inflation creates private incentives for (socially costly) inside money to supplant (socially costless) outside money. Consequently, the familiar 'shoe leather cost' of inflation, that operates through a reduced demand for money under inflation, is supplemented by a separate social cost of inflation that operates through an increased supply of (inside) money under inflation. It is further argued that allowance of the costliness of an inflation-induced expansion of inside money changes the character of the distribution of the costs of inflation. Certain suppliers of inside money may experience a net gain from an inflation. The upshot is that inflation is no longer necessarily a 'common enemy', but may be welcomed by some economic interests.

Suggested Citation

  • William Coleman, 2007. "How Inside Money Makes Inflation Costly For Most (but Gainful For Some)," ANU Working Papers in Economics and Econometrics 2007-486, Australian National University, College of Business and Economics, School of Economics.
  • Handle: RePEc:acb:cbeeco:2007-486

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    References listed on IDEAS

    1. Hicks, John, 2017. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198796237, June.
    2. William Oliver Coleman, 2007. "The Causes, Costs and Compensations of Inflation," Books, Edward Elgar Publishing, number 3906.
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    More about this item

    JEL classification:

    • 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

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