The legal foundation of the monetary system is the law of legal tender. The “legal tender” concept is used in models to describe almost anything except for what it really means in actual laws. Such errors prevent an accurate evaluation of the importance of this legal status. This note...

A government can promote the use of an object as the general medium of exchange by accepting it in tax payments. I prove this old claim in a dynamic model and compare the mechanism to convertibility. The government can often keep its favourite money in circulation even while increasing its...

Paper money, when discretionally issued by a government, can be a very powerful political and economic tool. Who invented it and who caused its global diffusion? Scholars are quick to claim the precedence of their home countries without justifying their claims or contesting competing claims. I...

In 1686 the leadership of Massachusetts was involved in the first operational bank scheme in America. In 1688 this note-issuing bank was mysteriously aborted at an advanced stage. It was a unique opportunity for financial development that did not arise again for decades. I suggest a new, simple...

The Massachusetts currency of 1690 was the first inconvertible paper money to be supported solely by a legal tender law. The circumstances that led to its creation exceed the typical story of wartime specie shortage. Due to temporary political constraints of that turbulent period, the currency...

The theory of money typically ignores the fact that the mode of market interaction arises endogenously, and simply assumes a decentralized, bilateral exchange process. However, endogenizing the organization of trade is critical for understanding the conditions that lend themselves to the...