International Review of Financial Analysis, Vol. 6, No. 2,1997, pp. 107-131
The simple circular flow model of money presented in this paper aims to show that the relation between money creation, saving, investment and growth becomes more complex, the more the financial sector is involved in economic activities. If an increasing part of financial funds circulates outside the circular flow of money, which describes the money flows connected to the real activities within the economy, the relation between money creation and real investment but also between money creation and the price level is obscured. These money flows may be interpreted as a new kind of “financial hoarding” which plays a major role in modern credit money economies.