A Theory of Money, Prices, and the Rate of Interest, Part II. Fiat Money and Noncooperative Equilibrium in a Closed Economy.

by Martin Shubik

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Outline of an approach to a theory of fiat money that investigates the properties of a noncooperative trading game embedded in a closed economic system. A simple model is constructed to illustrate the use of fiat money in an economy with no uncertainty, no borrowing, and positions of complete information. It is shown that inflation and deflation are not symmetric, and that there do exist noncooperative games which contain among their limit equilibrium points the competitive equilibria of associated nonmonetary markets. It is also shown that a noncooperative game involving borrowing cannot be defined without specifying "rules of borrowing," or a bankruptcy law. (See also P-4686.) 66 pp. Ref.

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