The fiscal theory of the price level and the backing theory of money

Michael Sproul

MPRA Paper from University Library of Munich, Germany

Abstract: A numerical example of privately issued money is used to illustrate the fiscal theory of the price level, and to show that the fiscal theory is best understood as a subset of the backing theory of money. Government issuance of money or debt is shown to be potentially inflationary only when the government’s net worth is negative, and when the government’s assets do not rise in step with its liabilities. The backing theory is used to examine whether inflation can be avoided by a sufficiently tough central bank, and to criticize the view that fiscal policies affect inflation through their wealth effects.

Keywords: Money; price level; fiscal; real bills; backing theory (search for similar items in EconPapers)
JEL-codes: E50 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-cba, nep-hpe, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:32502

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