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The Dynamics of Money

  • Per Bak
  • Simon F. Norrelykke
  • Martin Shubik

General equilibrium theory in economics defines the relative prices for goods and services, but does not fix the absolute values of prices. We present a theory of money in which the value of money is a time dependent "strategic variable," to be chosen by the individual agents. The idea is illustrated by a simple network model of monopolistic vendors and buyers. The indeterminacy of the value of money in equilibrium theory implies a soft "Goldstone mode," leading to large fluctuations in prices in the presence of noise. Submitted to Physical Review Letters.

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Paper provided by Santa Fe Institute in its series Research in Economics with number 98-11-102e.

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Date of creation: Nov 1998
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Handle: RePEc:wop:safire:98-11-102e
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