Legal Tender and the Value of Money in Finite Economies

Vries, C.G. de (1983). Legal Tender and the Value of Money in Finite Economies. IIASA Collaborative Paper. IIASA, Laxenburg, Austria: CP-83-062

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Abstract

The model of a monetary economy with legal tender which we develop here enables us to provide a different argument for money being valuable in finitely lived economies. The argument is cast strictly within the structure the Overlapping Generations Models (OGM) employ. Moreover, we allow for the possibility that agents are aware of the final date of life with absolute certainty. The argument relies on the transaction-facilitating properties of money. In monetary OGM, money functions only explicitly in the exchange between generations. It seems to be more natural if money is used also in exchanges between members of the same generation. The model set forth in the third section gives money a function both in inter-generational trade and in intragenerational trade. The frictions in the two sorts of transactions derive from the structure of the OGM.

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