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Was there a time when people used barter, and economic exchange evolved? Radford's account of life in a world war II prisoner of war camp (published in Economica in around 1945 or 46) is a fascinating description of just such an evolution - how cigarettes emerged as a medium of exchange, what institutional factors made the markets work, and why the system eventually broke down. Economic anthropology is a big field now.

But I think you're trying to make a more general point that there's some things about how the macro economy works that we're fundamentally, intrinsically, unable to observe?


Frances: Yes, the cigarette money is a good example. And because the observer was right there on the ground at the time, he may actually have been able to observe the disequilibrium process (the transition from one equilibrium to another) in action. It all depends on how long it takes between conditions XYZ appearing and S appearing. Equilibrium theories, by their very nature, are silent on that question. And I ignored it too, in my post.

But yes, if we are always on an equilibrium time-path (and we *must* always be on the equilibrium time-path if the model is completely true), then we should never in fact observe those stability experiments in real time. This is not just about macro, or theories of social institutions, but about all theories.

The Onion thing is great! It is *precisely* the Hahn(?) Problem, that monetary theorists talk about. There's always a second equilibrium, in which fiat/fiduciary money has no value. But Menger was talking about a commodity money, so can escape that problem. His money had value apart from its being used as a medium of exchange.

History is an equilibrium time path NIck? Are you sure? History of what? Civilizations? I prefer Fernand Braudel on the way to think about time what he called "longue durée".I don't think you would get many historians to agree with you. On the other hand if someone thinks general equilibrium economics represents faithfully how the real world operates, they might want to adopt your view of history. I'm skeptical on GE economics.
On the origin of money, I thought it was generally agreed that goldsmiths emitted receipts for gold on deposit, and people started exchanging them. Presto.

the creation myth precisely claims what it shouldn't nick
but it none the less must be seen as a state of the system PRE xyz conditions
it kis about origins not existence or stablity
qualitative discontinuity not equilibrium paths
kant's antinomy and all that

hobbes and rouseau had their creation of society myths
that imagine no civic society without a "state "
but drwa a picture of natural society
one pacific as orang society the other bloody of tooth and claw like baboons

the meta social bs is never to do more then justify or condemn
by laws of necessity
the outcome of history ie your "now"

Aimless comments

1) Short does not equal zero.

2) History and mythology are full of stories of the Leviathan riding in and saving the day, negotiating compromises between bickering factions or simply installing order through more authoritarian means.

3) Which one of war or peace constitutes a "stability" condition? Which one of the pair [civil order, chaos] constitutes a stability condition?

Duncan: *Everything* that happens is the equilibrium time-path of the *true* model. (Pity we don't know what the true model is!)

But, given the way economists now generally think of "equilibrium", my statement above is more or less a tautology. The "equilibrium" of a model is simply what the model predicts will happen.

The Goldsmith story can explain how an economy with an intrinsically valuable money can become an economy with a fiduciary money. It's part of the story. But Menger starts closer to the beginning. How does a good that is already intrinsically valuable become used as a medium of exchange? Goldsmiths are the next stage in the evolution.

Nick, how about the direction of causality? Gold becomes money because it is intrinsically valuable; that works does it not. Along with convenience over barter of course, rarity, and attractiveness do the rest. The more interesting story is fiat money. Can you have price adjustment without a currency convertible into gold? Mundell thought not. Perhaps a fiat money and a "free" market are incompatible.
There is no such thing as a true to life model in my world. The study of the economy starts with economic history. We develop ideas about relationships based on empirical study, and conceptual refinement. Neo-classical economics does not check back in with the economy often enough in my view. Its models do not represent what actually goes on, they become a world unto to themselves. Not real in fact. I prefer economic stats to mathematical representations.I like Stephens graphs for instance.

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