Walrasian General Equilibrium Foundations of Monetary Theory
Chapter 14: Conclusion and a Research Agenda
The examples of Chapters 3 through 8 present answers to the four puzzles set at the outset of this volume. But they are examples, not general results. A remaining research agenda includes general results emphasizing scale economy in transaction cost and network externality; elaboration of the sequence economy model; insertion of fiscal and transaction cost structure in the overlapping generations and random matching model; generalizing sufficient conditions for convergence to monetary equilibrium; and macroeconomics of the trading post model. 1 THE CHALLENGE AND RESULTS The challenge of monetary economics to microeconomic theory was posed in Chapter 1. Can the pure theory of markets account for money: (i) trade is monetary; (ii) money is locally unique; (iii) it is a government-issued inherently useless fiat instrument; and (iv) it is used even when direct barter trade could be successfully applied. Hahn (1982) agreed that it was a great challenge; Tobin (1980) said it was not possible. Nevertheless, a full general equilibrium trading post model (Chapter 11) generates a well-defined role for media of exchange 2 perhaps too many and too diverse. More convincingly, the class of examples developed in Chapters 3 to 8 generates equilibria with precisely the characteristics (i)2(iv). How does the trading post model do this? The first step is to break up the array of transactions into many separate trades each requiring payment for goods delivered. That generates the demand for a medium (or media) of exchange. How then can we account for the universality and uniqueness...
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