A theory of money and banking in a general equilibrium system

Shubik, Martin (October 1970) A theory of money and banking in a general equilibrium system. Former Series > Forschungsberichte / Research Memoranda 48

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Abstract

The implications of the use of money are many. There are highly different properties of "moneyness" and some of them can be studied seperately. A money can be modeled exhibiting only the property of transaction convenience. the work of foley and hahn has centered on this. stress can be laid on the trust aspects of money. the analysis in the first seven sections of this paper stresses this feature of money. when certainty is considered one can avoid the use of money in the manner adopted by radner. if, however, lack of trust and uncertainty are both present then money or some other form of forward contract is needed. a disposition towards risk aversion causes increasing returns to scale as number increases in an economy with noncorrelated (or imperfectly correlated) risks. this implies that for efficiency, the fewer the insuring agents the better. if a semblance of a competitive market is to be attained in an economy involving lack of trust and uncertainty the rules for forward contracts, bankruptcy laws and the processing of information must be specified. the definition of optimality will depend upon the information state, thus any model of an economy which ignores the trading in information misses a key aspect of economic life. the man on the street is in general a saver and not an investor (or is a foolish investor) because in contrast with banks, insurance companies, industrial corporations, factors, investment trusts, etc., if they are good, they know considerably more then he does. the above remarks do not include the role of money as an instrument of government policy. nor do they cover the important game theoretic properties of money which would call for the study of cooperative and noncooperative solutions to markets with uncertainty. fiat money is: (1) a measure of value (when one price is fixed), (2) a means of exchange (by law, by custom and because it avoids added transaction costs caused by barter) and (3) a symbol of trust (by law and custom). together with other instruments and bankruptcy laws money is: (4) a foreward contract, (5) a means for providing an extra degree of freedom in transacting business (i.e. accounts need not balance instantaneously). together with taxation laws, public finance and international trade it is: (6) a means of paying taxes, (7) an instrument of government internal policy and (8) an instrument of foreign policy.;

Item Type: IHS Series
Date Deposited: 26 Sep 2014 10:34
Last Modified: 19 Sep 2024 08:43
URI: https://irihs.ihs.ac.at/id/eprint/48

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