Publication Date: September 2008
Revision Date: April 2010
Why people accept intrinsically worthless ﬁat money in exchange for real goods and services has been a longstanding question. There are many competing suﬀicient explanations that may confound each other in practice but can be individually tested in isolation experimentally. In this paper we examine a suﬀicient explanation of the value of ﬁat money through the existence of a debt instrument which allows consumption to be moved earlier in time. We present experimental evidence that the theoretical predictions about the behavior of such economies work reasonably well in a laboratory setting. The import of this ﬁnding for the theory of money is to show that the presence of a societal bank and default laws provide suﬀicient structure to support the use of ﬁat money, although many other institutions such as taxation provide alternatives.
Experimental gaming, Bank, Fiat money
JEL Classification Codes: C73, C91