Some Principles of Inflationary Finance

THE AUTHOR ARGUES HERE THAT EXCHANGE CONTROLS, INTEREST-RATE RESTRICTIONS, AND DEBT MANAGEMENT POLICIES ALL AFFECT THE DEMAND FOR MONEY AND THE POSSIBILITIES FOR INFLATIONARY FINANCE. SINCE A WELL-ESTABLISHED MODEL OF INFLATIONARY FINANCE EXISTS IN THE LITERATURE CITED, DISCUSSION IS CONFINED TO AN ANALYSIS OF THE LINKS BETWEEN THE POLICIES IN QUESTION AND THE DEMAND FOR MONEY, AND POINTS OUT THAT BOTH AN INCREASE IN THE DEMAND FOR MONEY AND A REDUCTION IN ITS ELASTICITY WITH RESPECT TO THE NOMINAL INTEREST-RATE WILL INCREASE INFLATIONARY TAX POSSIBILITIES IN THE TRADITIONAL MODEL. THE AUTHOR CONSIDERS ONLY BALANCED GROWTH SITUATIONS. IN MANY INSTANCES, HOWEVER, THE ADJUSTMENT FROM ONE STEADY STATE TO ANOTHER PROVIDES AN OPPORTUNITY FOR ONE-SHOT FINANCING THAT MAY BE OF SUBSTANTIAL SIZE.