How Money Can Help Labour and Hurt Capital.

In a simple overlapping generations set-up, faster nominal money growth is found to squeeze labour and divert savings towards physical capital. Its net effect on both output and welfare is ambiguous. The main variable that can resolve these ambiguities is the profit share in income: the lower this is, the likelier it becomes that steady-state utility and output are lowered by faster inflation. Optimum inflation is shown to be positive and finite, under simplifying conditions, when this variable is set at plausible values.