Keynesian economists have no good explanation for stagflation, rising rates of both inflation and unemployment. However, the Austrian School has long pointed out that sustained inflation has a predictable pattern that leads ultimately to stagflation.
As a result, a greater supply of money enters the economy and each individual now has more money at his disposal.
The boost to the economy from the increase in the money supply growth rate disappears.
In a market economy, a producer exchanges his product for money and then exchanges the received money for the products of other producers.
An exchange of nothing for something diverts real savings and will take place regardless of whether the increase in money supply is expected or unexpected.
Increases in money supply create exchanges of nothing for something, diverting real savings from wealth generators to nonwealth generators.
We then have a situation whereby increases in money supply undermine the process of wealth generation, thus stifling economic growth.
At the same time, we have more money per good which increases their prices.
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