Commodity Money Equilibrium in a Walrasian Trading Post Model: An Elementary Example
AbstractWalrasian general competitive equilibrium is considered in a simple example of an exchange economy with commodity-pairwise trading posts and transaction costs. Budget balance is enforced at each trading post separately. Commodity-denominated bid and ask prices at each post allow the post to cover transaction costs through the bid/ask spread. In the absence of double coincidence of wants, the lowest transaction-cost commodity (with the narrowest bid/ask spread) becomes the common medium of exchange, commodity money. Selection of the monetary commodity and adoption of a monetary pattern of trade results from price-guided equilibrium without central direction, fiat, or government.
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Bibliographic InfoPaper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt1200q2z3.
Date of creation: 01 Aug 2005
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commodity money; trading post; bid price; ask price; transaction cost;
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