It’s not the stock, it’s the net flow, dummies

Alice has $1,000, bob has $100, and rachel has $10. Let’s say each of them spend all their money, but earn it all back by the end of the day. Is there inflation?

Well, there’s no reason for inflation to happen, because they are all exchanging equal value. The net flow of money is zero. You could still have inflation, but it wouldn’t be because of the quantity or velocity of money. Without a net flow of money, there is no reason to increase prices. No matter the price level, the velocity and stock of money is irrelevant if net flow is zero.



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