Barter Economies and Centralized Merchants
AbstractThe main goal of this essay is to analyze the emergence of a barter economy, and the rise of centralized merchants and a barter redistribution system out of a primitive barter system. The environment is a spatial general equilibrium model where exchange is costly. Since exchange becomes more complicated as the scope of the economy increases, we prove that, after the economy reaches a critical size, the cost of trade expansion surpasses its benefits. This imposes limitations on the scope of the economy and the production level. To overcome these limitations, rational individuals can develop a more advanced barter system leading to the appearance of centralized merchants. This more sophisticated system is the redistribution system. We also show that under some circumstances, in the presence of transaction costs it may be optimal for individuals to keep using barter instead of adopting a monetary system. This result explains why some primitive economies, like the Incas in Peru and ancient Egypt, did not evolve to a monetary system, and kept barter as their main exchange system.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0012015.
Length: 30 pages
Date of creation: 12 Feb 2001
Date of revision:
Note: Type of Document - Acrobat PDF; pages: 30 ; figures: included
Contact details of provider:
Web page: http://22.214.171.124
Barter; City; Exchange system; Market center; Merchant; Redistribution system; Transaction cost;
Other versions of this item:
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
- R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-02-27 (All new papers)
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.:
- Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633.
- Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198287247.
- Solow, Robert M. & Vickrey, William S., 1971. "Land use in a long narrow city," Journal of Economic Theory, Elsevier, vol. 3(4), pages 430-447, December.
- Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
- Howitt, Peter & Clower, Robert, 2000. "The emergence of economic organization," Journal of Economic Behavior & Organization, Elsevier, vol. 41(1), pages 55-84, January.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977.
"Monopolistic Competition and Optimum Product Diversity,"
American Economic Review,
American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Wang, P., 1990. "Endogenous Market Structure and the Use of Money in a Spatially Heterogeneous Economy," Papers 12-90-6, Pennsylvania State - Department of Economics.
- Anas, Alex, 1992. "On the birth and growth of cities: : Laissez-faire and planning compared," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 243-258, June.
- Berliant, Marcus & Konishi, Hideo, 2000.
"The endogenous formation of a city: population agglomeration and marketplaces in a location-specific production economy,"
Regional Science and Urban Economics,
Elsevier, vol. 30(3), pages 289-324, May.
- Marcus Berliant & Hideo Konishi, 2000. "The Endogenous Formation of a City: Population Agglomeration and Marketplaces in a Location-Specific Production Economy," Boston College Working Papers in Economics 451, Boston College Department of Economics.
- Clower, Robert W, 1995. "On the Origin of Monetary Exchange," Economic Inquiry, Western Economic Association International, vol. 33(4), pages 525-36, October.
- Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476.
- Jose Noguera, 2001.
"The Appearance of Carriers and the Origins of Money,"
CERGE-EI Working Papers
wp169, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
- Jose Noguera S., 2001. "The Appearance of Carriers and the Origins of Money," Macroeconomics 0012014, EconWPA.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.