The theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange. However, endogenizing the exchange process is critical for understanding the conditions that support the use of money. We develop a “travelling game” to study the spontaneous...

The legal foundation of the monetary system is the law of legal tender. The "legal tender" concept is used in economics textbooks and journals to describe almost anything except for what it really means in actual laws. Such errors mislead students and prevent an accurate evaluation of the...

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...

Monetary search models are difficult to analyze unless the distribution of money holdings is made degenerate. Popular techniques include using an infinitely large household (Shi 1997) and adding a centralized market with quasi-linear utility (Lagos and Wright 2005). Wallace (2002) suggests as an...

The paper re-evaluates the conventional wisdom regarding the existence of moneys that supposedly circulated without any legal status or intrinsic value. Economists call these objects "fiat money." I re-examine the most famous examples of such objects from primitive societies, such as the stone...

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...

In 1686 the leadership of Massachusetts became involved in the first operational bank scheme in America. In 1688 this note-issuing bank was mysteriously aborted at an advanced stage. I suggest a new, simple explanation for the bank's demise. The bank's notes were supposed to be backed mostly by...