An Alternative Monetary Model of Inflation and Growth

This paper presents a simple model of a monetary economy in which production takes time and is financed by loans from financial intermediaries such as banks. The model is an example of a pure credit economy, but does not contain the contentious Wicksellian construct of a natural rate of interest. Rather, the main determining factor of economic outcomes is the struggle over income distribution between finance (Keynes's rentiers), industry, and labour. The model yields a number of macroeconomic results, some of which are sharply at variance with those obtained in more orthodox or mainstream, models. In particular, a structural long-term Phillips-curve type relationship emerges in inflation-growth space, for some demand-side and monetary policy changes. In addition, the model is also able to identify other circumstances in which the opposite cases of either stagflation or non-inflationary growth can occur.