The Core Argument

TL;DR: Base money is the anchor; everything else (deposits, tokens, etc.) are derivatives that only work if redeemable for base money.

This paper presents a market-oriented framework for understanding money that distinguishes between base money (actual money) and money substitutes (derivatives of money). Rather than treating all "money-like" instruments as equivalent, the framework recognizes base money as the anchor of the monetary system, with substitutes—bank deposits, digital tokens, gift cards, cryptocurrencies—deriving their value through credible ties to this anchor.

Key Insight: Money as Concurrent Trading

TL;DR: Money enables trading across time and space; market forces—not just central banks—limit how many substitutes can exist.

The foundation is the Market of Concurrent Trading (MCT) model. This model posits that money facilitates concurrent trading—the ability to exchange goods and services across time and space without direct barter. Base money serves as the coordinating mechanism, while substitutes extend this functionality through competitive markets and arbitrage.

Critically, the value and supply of money substitutes are disciplined by competitive forces, not solely by central bank fiat. This challenges conventional views that place unlimited power in the hands of monetary authorities.

What Makes This Framework Different

TL;DR: Market competition constrains money creation, deposits are like casino chips, and decentralized money systems are possible.

1. Market Discipline Over Centralized Control

Money substitutes only thrive when they maintain credible convertibility to base money. Arbitrage opportunities and competitive pressures prevent unlimited creation of substitutes, providing a market-based check on monetary expansion.

2. The "House Money" Concept

Banks create money substitutes (deposits) much like a casino creates chips—valuable only insofar as they can be redeemed for the underlying asset. This analogy clarifies why bank deposits, while useful for transactions, are fundamentally different from base money.

3. Implications for Decentralization

By recognizing that monetary systems can be coordinated through competitive markets rather than centralized authority, the framework supports the possibility of sound, market-oriented money that reduces reliance on Federal Reserve control.

Why This Matters

TL;DR: Reveals limits of central bank power, helps evaluate crypto/stablecoins, and explains money through market coordination.

• For monetary policy: Understanding the limits of central bank power when market forces constrain money substitute creation.
• For financial innovation: Evaluating new payment systems (digital currencies, stablecoins) through the lens of their relationship to base money.
• For economic theory: Rethinking how money emerges, evolves, and maintains value in modern economies through market coordination rather than state mandate alone.

The Mathematical Foundation

The paper provides formal mathematical models demonstrating:

• How concurrent trading reduces transaction costs compared to barter
• The arbitrage conditions that constrain money substitute creation
• Market coordination mechanisms that emerge without central planning

Explore the full mathematical foundations →

Next Steps

Ready to dive deeper? The full paper provides detailed mathematical proofs, historical context, and policy analysis. You can also explore specific concepts using our AI assistant.