Commodity Money Equilibrium in a Walrasian Trading Post Model: An Example
This paper posits an example of Walrasian general competitive equilibrium in an exchange economy with commodity-pairwise trading posts and transaction costs. Budget balance is enforced for each transaction 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 lower transaction-cost commodity (with the narrowest bid/ask spread) becomes the common medium of exchange, commidty money. Selection of the monetary commodity and adoption of a monetary pattern of trad results from price-guided equilibrium without central direction, fiat, or government
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- David Starrett, 1973. "Inefficiency and the Demand for "Money" in a Sequence Economy," Review of Economic Studies, Oxford University Press, vol. 40(4), pages 437-448.
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