In this paper we present a series of models, all within the context of a simple two-good economy, which bring out the distinctions among the different types of money and financial institutions. The models emphasize the physical properties of the economic goods, moneys, and trading systems. Part 1 covers models in which the money is a consumable storable; the economies in Part 2 use durable money, fiat money, or credit. Under this framework we are able to successfully contrast the role of private money lenders, banks, bilateral credit systems, and credit clearinghouses. We are also able to model the importance of the bankruptcy or default penalty in supporting the use of fiat.
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Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages K12 - Law and Economics - - Basic Areas of Law - - - Contract Law L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative P10 - Economic Systems - - Capitalist Systems - - - General
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