Monetary Exchange Theory Summary

THE ANATOMY OF MONETARY THEORY
BY ROBERT W. CLOWER
According to the contributions of certain economists like John R. Hicks( 1967), F. H. Hahn(1973), Karl Brunner and others, the set up cost of the trade plays an essential role in the monetary exchange theory. On the other hand the contributions by Robert Clower, Joel Fried, Joseph Ostroi, Peter Howitt and R.M Starr have shown that the stock of inventories held by each individual must also be considered.
The main purpose of this article is to determine the role that transaction costs and other supposed complications play in the monetary exchange theory within a simple spot exchange economy that initially lacked the basic empirical features as any standard Arrow Debreu model.
A set of requirements

To assume that both the assumptions are not considered to be true i.e. if the trader takes the future preferences to be apparent rather than assured and if the traders can bind to a contract only if they engage in bargaining and widespread search. Then, the monetary exchange model will satisfy the first requirement i.e. Trade is a continuous process.
Assumptions to ensure that on an average each individual holds positive stock of goods that are traded on regular basis
Normally, if all the above mentioned assumptions hold good then an individual will trade at discrete points rather than trading continuously over time. Therefore, each individual will hold some positive stock of goods at one moment or the other. But in this case, the emphasis is laid on average stock of goods rather than normal sock

If the potential profits from trade were huge and distributed widely across commodities and individuals then trading activities would continue without the existence of organized markets as well. But if bargaining and search costs are taken to be significant then there will not be large amount of potential gain. According to George Stigler, in the latter case only some of the traders have the opportunity to earn large