Barley, Gold, or Fiat: Toward a Pure Theory of Money - download pdf or read online

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Additional info for Barley, Gold, or Fiat: Toward a Pure Theory of Money

Sample text

Giving it the same resources as the monopolistic moneylender yields some extra modeling issues when there is just enough or more than enough money. t. t. m + 1+ρ − b¯ ≥ 0 (λ¯ ) (cash-flow constraint) d¯ − b¯ + p¯ q¯ − d¯ ≥ 0 (μ) ¯ (budget constraint) m+ 1+ρ ¯ d¯ ≥ 0, 0 ≤ q¯ ≤ a. b, max ϕ Also, the endogenous rate of interest is formed as before: 1+ρ = d + d¯ . 2 is that here the bank is willing to lend all of its money at an interest rate of ρ = 0. In Appendix C we show that if M ≥ a, the bank can lend enough to the traders to finance efficient consumption.

2. Case 2: If m is very small, the traders’ cash-flow and budget constraints will both be tight. An optimal strategy for the monopolist will be to lend all of his money. His profits will be exactly the amount of money the traders start with, that is, 2m. In particular, if the traders start with no money then the monopolist earns zero profits. Case 3: If m is intermediate-valued, there is a third case where the traders’ cash-flow constraint is tight but their budget constraint is not tight. The monopolist will lend some amount g as is calculated in Appendix B.

The notation here emphasizes that b1∗ is the bid of an atomic player and is not an integral, while b¯ is the integral sum of bids over a continuum. √ For a full solution to this model, in the case where ϕ(x, y) = 2 xy, see Appendix A. The results allow us to see the monopoly power of a single individual whose influence is derived from control over transactions. For example, a a ), (0, a, 12 ), (0, 0, 3a ), so the total money if the initial endowments were (a, 0, 12 supply is M = 2a , our calculations show q = q¯ = 3a and λ = ρ = 3, with final a a a 2a a a a a endowments of ( 2a 3 , 6 , 6 ), ( 6 , 3 , 6 ), ( 6 , 6 , 6 ).

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