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Money is memory

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  • Narayana R. Kocherlakota

Abstract

This paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible (the standard definition of feasibility is adapted to take account of the lack of commitment). The environments feature either memory or money. Memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past. Money is defined as an object that does not enter preferences or production and is available in fixed supply. The main proposition proves that any allocation that is feasible in an environment with money is also feasible in the same environment with memory. Depending on the environment, the converse may or may not be true. Hence, from a technological point of view, money is equivalent to a primitive form of memory.

Suggested Citation

  • Narayana R. Kocherlakota, . "Money is memory," Staff Report, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:218
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    References listed on IDEAS

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    Cited by:

    1. S. Rao Aiyagari & Stephen D. Williamson, 1999. "Credit in a Random Matching Model with Private Information," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 36-64, January.
    2. Stephen D. Williamson, 1998. "Payment systems with random matching and private information," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 551-572.
    3. Leland Yeager, 2007. "Unit of account or medium of exchange?," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 60(241), pages 195-205.
    4. Aiyagari, S. Rao & Williamson, Stephen D., 2000. "Money and Dynamic Credit Arrangements with Private Information," Journal of Economic Theory, Elsevier, vol. 91(2), pages 248-279, April.
    5. Bullard, James & Smith, Bruce D., 2003. "The value of inside and outside money," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 389-417, March.
    6. Leland Yeager, 2007. "Unit of account or medium of exchange?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 60(241), pages 195-205.
    7. Leland Yeager, 2010. "Bank reserves: A dispute over words and classification," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 23(2), pages 183-191, June.
    8. Neil Wallace, 1997. "Absence-of-double-coincidence models of money: a progress report," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 21(Win), pages 2-20.
    9. Narayana R. Kocherlakota & Neil Wallace, 1997. "Optimal allocations with incomplete record-keeping and no commitment," Working Papers 578, Federal Reserve Bank of Minneapolis.

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    Money theory; Money;

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