Martin Shubik

Document Type

Discussion Paper

Publication Date

6-1-1985

CFDP Number

753

CFDP Pages

21

Abstract

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.

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