Transaction Costs, Money and Units of Account
AbstractIn the paper, an analogy with length measurement is applied in order to explore the nature of the unit for value measurement, i.e. the unit of account. As the meter is defined as the length traveled by light in vacuum during 1/299 792 458 of a second, the unit of account krona is defined as the purchasing power of the medium of exchange krona. However, one should be cautious when drawing conclusions from this analogy. Our unit of account is defined in our medium of exchange, but it is meaningful only because we can observe prices on real goods expressed in it. As it would be pointless to define the meter as the length traveled by light in vacuum during 1/299 792 458 of a second if we could not compare this length with anything else, it would be pointless to define our unit of account in something that is not priced. In the paper it is explained how different payment techniques help to overcome transaction costs in the market. In particular, following Alchian (1977), it is argued that to reap the full benefit from the use of payment techniques, it has to be combined with the use of both a unit of account and specialist middlemen. The use of payment techniques helps to reduce costs due to sequential payment, but to reduce costs due to sequential quality evaluation, you need unit of account as well as reputable middlemen.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2005:29.
Length: 27 pages
Date of creation: 16 May 2005
Date of revision:
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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
Medium of Exchange; Money; Payment Techniques; Quantity Theory; Transaction Costs; Unit of Account;
Find related papers by JEL classification:
- B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Institutional; Evolutionary
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-23 (All new papers)
- NEP-CBA-2005-05-23 (Central Banking)
- NEP-MAC-2005-05-23 (Macroeconomics)
- NEP-MON-2005-05-23 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Michael Woodford, 2000.
"Monetary Policy in a World Without Money,"
NBER Working Papers
7853, National Bureau of Economic Research, Inc.
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