COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 753 "Enough Gold in a Society without and with Money-Lenders" Martin Shubik June 1985 If an exchange economy is modeled as a strategic market game with one commodity serving
as a money, 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 exchange 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 distribution. It is possible that an economy may not have enough money no
matter how it is distributed; it is also possible that a redistribution will give rise to
interior solutions. These statements are made precise and illustrated by means of specific
examples. If there is enough money but it is maldistributed it is shown that a loan market
‘100 per cent backed by gold’ will bring efficiency. |
