Enough Gold in a Society without and with Moneylenders,
Abstract
If an exchange is modeled as a strategic market game with one commodity serving as a mony, then if there is no credit available and if all traders are insignificant in size, so that an individual does not influence prices, the noncooperative equilibria (NEs) of the game will coincide with the competitive equilibria of the exchanged economy provided that there is enough money to facilitate trade. The meaning of 'enough money' is that the NEs are interior. In other words the constraint that an individual cannot spend more of the means of payment than he holds is not binding on any individual's plans. The condition on enough money is characterized both by the total amount of money in the system and its disribution. It is possible that an economy may not have enough money no matter how it is distributed; it is also possible that a redisribution will give rise to interior solutions. These statements can be made precise and illisutrated by means of specific examples. If there is enough money but is is maldistributed it can be shown that a loan market '100% backed by gold' will bring efficiency. With the economic model in this paper it is straightforward to check that a zero rate of interest with efficient lending emerges. The commercial needs of trade are financed. If a multistage model with a time discount were introduced then the interest rate in equilibrium would not be zero.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 10, 1985
- Accession Number
- ADA158074
Entities
People
- Martin Shubik
Organizations
- Yale University