In 1998 I presented a paper which argued that no theory of money was possible—in the sense of there being a stable relationship between a few explanatory variables. The argument was based on the assumption that we were dealing with an economy of informed maximizers. The good that individuals choose to use as money depends on the solution of an optimization problem—of all available goods, which has the lowest transaction costs. Mises felicitously called the process “indirect exchange ” and so it is of course governed by the same optimization as direct exchange. The choice of a money good is the solution of a maximizing query and the solution depends upon the resources available, the nature of substitutes, current technology and the flexibility of institutions. It follows that there can be no determinate solution to the question, what is money? The usual proofs of theories like the quantity theory, based on the existence of a stable demand curve for money, are no proof, since all they show is that money has a downward sloping demand curve. This is equally true for an
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