Mises and the moderns on the inessentiality of money in equilibrium

• Published in: The Review of Austrian economics Vol. 29; no. 1; pp. 1 - 13
• Main Author: Luther, William J.
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.03.2016; Springer Nature B.V
• Subjects: Economic theory; Economics; Economics and Finance; Epistemology; Equilibrium; History of Economic Thought/Methodology; Modern literature; Monetary theory; Money; Political Science; Public Finance; Studies; Austria; B53; E40; E42; E41; E00; Infinite games; E03; Mises; Exchange frictions; Social norms; Matching; Money; Gift exchange; Monetary economics; Search; Austrian economics; Epistemic frictions; Evenly rotating economy
• ISSN: 0889-3047; 1573-7128
• DOI: 10.1007/s11138-015-0321-0

The challenge of rendering monetary exchange intelligible within a Walrasian general equilibrium framework is well known. Perhaps less well known is the difficulty of integrating monetary and exchange economies in decentralized conceptions of equilibrium, of which the evenly rotating economy of Ludwig von Mises (1949) is an early example. After reviewing the prospect for money in the evenly rotating economy, I survey the modern literature on frictions that make money useful for exchange. While exploring techniques commonly used to generate a useful role for money in this environment, I make a distinction between exchange frictions and epistemic frictions. Although theoretical efforts have largely focused on exchange frictions, recent experimental evidence suggests that epistemic frictions warrant further attention. I conclude that Mises should be seen as a pioneer in this literature, though recent advances demonstrate that the set of frictions capable of rendering money useful is much larger than he envisioned.