Barley, Gold, or Fiat: Toward a Pure Theory of Money by Thomas Quint, Martin Shubik

By Thomas Quint, Martin Shubik

Using easy yet conscientiously outlined mathematical types, Thomas Quint and Martin Shubik discover financial keep an eye on in an easy trade economic system. reading how cash enters, circulates, and exits an financial system, they think about the character of buying and selling platforms and the position of presidency authority within the trade of client items for storable funds; exchanges made with sturdy foreign money, corresponding to gold; fiat foreign money, that is versatile yet has no intake worth; stipulations less than which debtors can claim financial ruin; and the differences among people who lend their very own cash, and financiers, who lend others’.

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1 shows the price level as M is varied and the value of λ as M is varied. We note that because the money is a commodity with a fixed marginal utility of consumption, this places an upper bound on the competitive equilibrium prices of the consumable goods. We further note that λ (the shadow price of the cash-flow constraint) becomes infinite as m approaches zero. 2 shows the volume of trade (= pq + p¯ q¯ ) as M is varied. Because of our model’s simplicity, the volume of trade has a (piecewise) linear relationship to the amount of money.

A sensitivity analysis We consider model results as m ranges from ∞ down to 0. Case 1: m ≥ 2a . , each type of trader consumes 2a of each good). , balances the budget in the goods bought or sold in the markets). Thus the consumption of the (linearly separable utility) commodity money equals its initial endowment for each individual. a . When there is a moderate amount of Case 2: 0 < m < 2a . 8 Efficient trade is not achieved. The price level is decreasing monotonically as m decreases from 2a to 0.

4 The coordination problem is related to but not quite the same as the liquidity trap in macroeconomic writings, where coordination and control may be lost even at a small positive rate of interest. 5 “Fully secured lending” here implies that at equilibrium the borrower will have enough income to repay the lender without the lender needing to impose a lending constraint on him. 1. 2. 3. 3424 If in addition (to m2 = 0) we assume end of the Appendix shows that ρ √ a 2m1 − 1. 3) Trade with a Money Market In Chapter 7 we discuss the problem of the Hahn paradox, whereby in some models (with worthless fiat money) a backward induction argument implies that there will be no trade.

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