IDEAS home Printed from https://ideas.repec.org/p/hhs/lunewp/2005_029.html
   My bibliography  Save this paper

Transaction Costs, Money and Units of Account

Author

Listed:

Abstract

In 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.

Suggested Citation

  • Bengtsson, Ingemar, 2005. "Transaction Costs, Money and Units of Account," Working Papers 2005:29, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2005_029
    as

    Download full text from publisher

    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP05_29.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Townsend, Robert M, 1989. "Currency and Credit in a Private Information Economy," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1323-1344, December.
    2. M. Pohl, 1994. "Handbook On The History Of European Banks," Books, Edward Elgar Publishing, number 204, April.
    3. Kiyotaki, Nobuhiro & Wright, Randall, 1991. "A contribution to the pure theory of money," Journal of Economic Theory, Elsevier, vol. 53(2), pages 215-235, April.
    4. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    5. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
    6. Clower, Robert W, 1995. "On the Origin of Monetary Exchange," Economic Inquiry, Western Economic Association International, vol. 33(4), pages 525-536, October.
    7. Langlois, Richard N., 1983. "Internal Organization In a Dynamic Context: Some Theoretical Considerations," Working Papers 83-04, C.V. Starr Center for Applied Economics, New York University.
    8. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
    9. Alchian, Armen A, 1977. "Why Money?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 133-140, February.
    10. Bengtsson, Ingemar, 2005. "Central bank power is a matter of faith," Working Papers 2005:21, Lund University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Medium of Exchange; Money; Payment Techniques; Quantity Theory; Transaction Costs; Unit of Account;

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:lunewp:2005_029. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Edgerton). General contact details of provider: http://edirc.repec.org/data/delunse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.