Title

A Theory of Money and Financial Institutions. Part IV. Fiat Money and Noncooperative Equilibrium in a Closed Economy

Authors

Martin Shubik

Document Type

Discussion Paper

Publication Date

2-1-1972

CFDP Number

330

CFDP Pages

50

Abstract

Fiat money is a type of paper or symbol with which any individual may buy most things by law. It has virtually no intrinsic value but immediately assumes a trading value when its shortage can prevent trades that would have been deemed profitable in a nonmonetary competitive equilibrium system. This paper sketches an approach to a theory of fiat money by investigating the properties of a noncooperative dynamic trading games embedded within a closed economic system. Among the conclusions are that inflation and deflation are not symmetric, and that it is not possible to define a noncooperative game involving borrowing without specifying “rules of borrowing” or a bankruptcy law.

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