Trade Using One Commodity as a Means of Payment

A general model of noncooperative trading equilibrium is described, in which prices depend in a natural way on the buying and selling decisions of the traders, and which therefore avoids the classical equilibrium assumption that individuals must regard prices as fixed. The key to our approach is the use of a single, specified commodity as money or "cash." We include the possibility that this commodity is valueless, in and of itself, and serves only as a fiat money. The model is treated as a noncooperative game, in the spirit of Nash and Cournot. But the rules of the game, including the forming of prices, are independent of any equilibrium assumptions, which enter only in connection with possible solutions of the game. A number of variant formulations are considered briefly. The exposition is largely diagrammatic, with mathematical proofs to appear in another report.