Coordination, Credit, And An Elastic Currency
AbstractThe market economy is modeled as a decentralized joint productionsystem. Markets in such an economy require the use of money or creditinstruments to facilitate exchange. As a result, market economies areat risk for monetary instability induced by real-side productioncoordination failure. In particular, economies decentralized viacentralized wholesaling markets are subject to precipitous collapses.The most stable monetary system is trade in specie. However, therevery likely is a scarcity of specie, which generates inefficiency anddiscourages production. There is, then, a need for an elasticcurrency. Bank-issued bills of exchange are a perfectly elasticmedium and eliminate the scarcity of specie and its attendantinefficiency, but are a less stable monetary system than is trade inspecie. In the trade-off between elasticity and stability, fiduciarycurrency (or fiduciary deposits) lies between specie and bank-issuedbills of exchange.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Macroeconomic Dynamics.
Volume (Year): 1 (1997)
Issue (Month): 04 (December)
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