Evil is the Root of All Money

John Moore, Nobuhiro Kiyotaki

Research output: Contribution to journalArticlepeer-review


A traditional view of money is that it lubricates trade when there is no double coincidence of wants. The classic example. due to Knut Wicksell (1934), has three types of agents, and three physically distinct commodities. Type I wants a commodity supplied by type II, type II wants a commodity supplied by type III, and type III wants a commodity supplied by type I. Thus, no pair of agents wants each other's commodity. n the absence of a well-functioning market, money allows the agents to trade bilaterally: an agent accepts money not for its own sake, but because he can exchange it for what he wants. One of the three commodities could serve as money; or an outside object, such as flat money, might be used.
To justify why the agents cannot simply trade their commodities through a market, there must be some physical trading friction. Search or matching frictions are often invoked, but unfortunately noncompetitive models of this kind, though ingenious and elegant are difficult to incorporate into a standard macroeconomic framework. Moreover, to us, it is not clear that physical trading frictions are indispensable to monetary theory.
Original languageEnglish
Pages (from-to)62-66
Number of pages5
Journal American Economic Review
Issue number2
Publication statusPublished - May 2002


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