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

Ross M. Starr

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: This paper posits an example of Walrasian general competitive equilibrium in an exchange economy with commodity-pairwise trading posts and transaction costs. Budget balance is enforced for each transaction 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 lower transaction-cost commodity (with the narrowest bid/ask spread) becomes the common medium of exchange, commidty money. Selection of the monetary commodity and adoption of a monetary pattern of trad results from price-guided equilibrium without central direction, fiat, or government

Keywords: Transaction cost; bid/ask spread; money; Arrow-Debreu general equilibrium (search for similar items in EconPapers)
Date: 2006-06-01
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