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Fiat Money, Individual Rationality and Production
Author(s) -
Weir Diarmid
Publication year - 2013
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12019
Subject(s) - rationality , economics , production (economics) , purchasing power , construct (python library) , object (grammar) , monetary system , government (linguistics) , monetary policy , monetary economics , microeconomics , macroeconomics , computer science , programming language , linguistics , philosophy , artificial intelligence , political science , law
W allace's ‘ M onetary D ictum’ insists that monetary models must specify why the monetary object is so used. Another important specification is that the use of this object as money should always be individually rational. We construct a model of ‘team production’ under uncertainty with a contract where a ‘hostage’ in the form of future purchasing power is handed over. The model is extended to show the rational development of banks as hierarchical enforcement mechanisms and government backing of the monetary system. The link thus established between money issue and production may be useful for the analysis of monetary policy.