RIVALROUS MONEY SUPPLY AMONG OVERLAPPING GENERATIONS

This note explores endogenous rivalrous money supply by different generations of an overlapping generations economy. Money (gold) is intrinsically useless, but is costly to create. We show how a government representing the young has an incentive to tax its constituency to mine gold to redistribute among the young in order to inflate the aggregate money stock and thereby reduce the value of the money holdings of the old. This additional money also reduces the inflationary impact of the money creation by the succeeding generation. Equilibrium dynamics of prices and consumption are explored.