On the Necessity of Money
WORKING PAPER
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This paper argues that both Smith and Marx find money to be necessary for the specialization of individual producers and the regulation of social production by market exchange.
Specialization under conditions of barter constitutes a highly unstable equilibrium since the specialized producers fail regularly to provide their needs by exchange. It tends to either collapse back into a diversified equilibrium or to give rise to a socially accepted general equivalent, i.e. money. Money greatly increases the strategic complementarity of specialization by providing sufficient exchange certainty and a relatively stable specialized equilibrium can emerge.