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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.

Suggested Citation

  • Per Bak & Simon F. Norrelykke & Martin Shubik, 1998. "The Dynamics of Money," Research in Economics 98-11-102e, Santa Fe Institute.
  • Handle: RePEc:wop:safire:98-11-102e

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    Cited by:

    1. Newby, Michael & Behr, Adam & Feizabadi, Mitra Shojania, 2011. "Investigating the distribution of personal income obtained from the recent U.S. data," Economic Modelling, Elsevier, vol. 28(3), pages 1170-1173, May.
    2. Nagel, Kai & Shubik, Martin & Strauss, Martin, 2004. "The importance of timescales: simple models for economic markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 340(4), pages 668-677.
    3. Juergen Huber & Martin Shubik & Shyam Sunder, 2009. "Default Penalty as a Disciplinary and Selection Mechanism in Presence of Multiple Equilibria," Cowles Foundation Discussion Papers 1730, Cowles Foundation for Research in Economics, Yale University.
    4. Nagel, Kai & Shubik, Martin & Paczuski, Maya & Bak, Per, 2000. "Spatial competition and price formation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 546-562.
    5. McCauley, Joseph l., 2004. "Thermodynamic analogies in economics and finance: instability of markets," MPRA Paper 2159, University Library of Munich, Germany.
    6. McCauley, Joseph L., 2004. "Making dynamic modelling effective in economics," MPRA Paper 2130, University Library of Munich, Germany.
    7. repec:eee:phsmap:v:482:y:2017:i:c:p:118-126 is not listed on IDEAS
    8. McCauley, Joseph L., 2000. "The futility of utility: how market dynamics marginalize Adam Smith," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 285(3), pages 506-538.
    9. Chen-Zhong Qin & Lloyd S. Shapley & Martin Shubik, 2009. "Marshallian Money, Welfare, and Side-Payments," Cowles Foundation Discussion Papers 1729, Cowles Foundation for Research in Economics, Yale University.

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    General equilibrium; money; Goldstone modes;


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