Gold, Fiat and Credit. An Elementary Discussion of Commodity Money, Fiat Money and Credit
48 Pages Posted: 20 May 2004
Date Written: April 2004
In this paper we present a series of models, all within the context of a simple two-good economy, which bring out the distinctions between the different types of money and financial institutions. The models emphasize the physical properties of the economic goods, moneys, and trading systems. In Part 1 of the paper, we covered models in which the money is a consumable storable; here in Part 2 we consider economies using durable money, fiat money, or credit. Under this framework we are able to successfully contrast the role of private money lenders, banks, bilateral credit systems, and credit clearinghouses. We are also able to model the importance of the bankruptcy or default penalty in supporting the use of fiat.
Note: A previous version of this abstract can be found at: http://ssrn.com/abstract=530783
Keywords: Barley, gold, fiat and credit: evolution of money
JEL Classification: C72, E41, E43, E51, E58, K12, P10
Suggested Citation: Suggested Citation