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Commodity Money Equilibrium in a Walrasian Trading Post Model: An Elementary Example

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  • STARR, ROSS M

Abstract

Walrasian general competitive equilibrium is considered in a simple example of an exchange economy with commodity-pairwise trading posts and transaction costs. Budget balance is enforced at each trading post separately. Commodity-denominated bid and ask prices at each post allow the post to cover transaction costs through the bid/ask spread. In the absence of double coincidence of wants, the lowest transaction-cost commodity (with the narrowest bid/ask spread) becomes the common medium of exchange, commodity money. Selection of the monetary commodity and adoption of a monetary pattern of trade results from price-guided equilibrium without central direction, fiat, or government.

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  • Starr, Ross M, 2005. "Commodity Money Equilibrium in a Walrasian Trading Post Model: An Elementary Example," University of California at San Diego, Economics Working Paper Series qt1200q2z3, Department of Economics, UC San Diego.
    • Handle: RePEc:cdl:ucsdec:qt1200q2z3
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    References listed on IDEAS

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