CFDP 330

A Theory of Money and Financial Institutions. Part IV. Fiat Money and Noncooperative Equilibrium in a Closed Economy


Publication Date: February 1972

Pages: 50


Fiat money is a type of paper or symbol with which any individual may buy most things by law. It has virtually no intrinsic value but immediately assumes a trading value when its shortage can prevent trades that would have been deemed profitable in a nonmonetary competitive equilibrium system.

This paper sketches an approach to a theory of fiat money by investigating the properties of a noncooperative dynamic trading games embedded within a closed economic system.

Among the conclusions are that inflation and deflation are not symmetric, and that it is not possible to define a noncooperative game involving borrowing without specifying “rules of borrowing” or a bankruptcy law.


Published in International Journal of Game Theory (1971/2), 1(1): 243-268 [DOI]