Oligopoly theory by Friedman J.W.

By Friedman J.W.

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Only the people who know the minter are likely to accept his coins. All others will insist on being paid in bullion or in coins they trust. This does not mean that in practice every village needs a different set of coins. The geographical radius within which a coin is used can grow very large and it can even become world encompassing if the minter has an excellent reputation. This was for example the case with the Mexican dollar coins that in the early nineteenth 2An early writer who stressed this fact was Nicholas Copernicus.

Money production therefore redistributes real income from later to earlier owners of the new money. As we have pointed out, 48 Money within the Market Process this redistribution cannot be neutralized through expectations. Even the market participants who are aware of it cannot prevent it from happening. They can merely try to improve their own relative position in it, supplying early owners of the new money, preferably the money producer himself. This distribution effect is a key to understanding monetary economies.

It follows that the production of any additional unit of money makes money less valuable for the owner of this additional unit than it would otherwise have been. In particular, it becomes less valuable for him as compared to all other goods and services. As a consequence, he will now tend, as a buyer of goods and services, to pay more money in exchange for these other goods and services; and as a seller of goods and services, he will now tend to ask for higher money payment. In short, money production entails a tendency for money prices to increase.

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