An open source project for building a plausible simulation of how spontaneous money could have come about in pre-historic communities.
"Menger’s theory of money: some experimental evidence" by Peter G.Klein and George Selgin.
- Klein's and Selgin's paper describes a simulation of a simple market made up of agents that start with only one kind of thing ("good") to sell in the market. Here we start off with each agent having possibly more than one thing to offer.
- I believe visualization can make the simulation much more interesting and easier to understand; this can then imbue some pedagogical value to the resulting simulation.
- It would be cool to put such visualization on the front page of the RockStable website, and maybe other websites.
Agents in this simulation are driven by mundane concern for exchanging the items they offer for what each deems of more value to her at the instant trade occurs. Some agents are also profit-driven and therefore accumulative - merchants who establish stores in the market. Merchants end up offering a lot of things in their place in the market. Merchants can accept anything for barter with anything they have in their store - which can be very many.
Products or goods for sale in the market are of many kinds. Some even have a shelf-life or are perishable. Some may seem like of no survival value (trinkets) and therefore of no interest to agents who are at subsistence level of existence. However, a trinket may have the qualities of something that can possibly become a common medium of exchange.
Can the market converge to a common medium of exchange even in this more realistic simulation?
Each merchant has limited space in her store. She cannot accumulate much of anything with size; also, anything that is perishable has to be exchanged with somehing that is either more durable or fresher.
Agents live in different locations around a village center. The village center is where a physical market exists. It could take days to travel from where an agent lives to where the village market is. Smaller markets can form near where agents live. These smaller markets trade with the largest market at the village center.
The simulation does not start from the time in which there were no markets and no "market day". It assumes a time when a market center has formed and a market day (the only day in every month in which the market is open) has become the busiest day when a lot of agents are trading in the same market place.
Agents communicate with each other to trade and also to find out what thing is most marketable among the small groups they belong to. No one has unfair advantage of having perfect data.
Merchant stores in the market allow those who prefer barter (and who would rather not engage in indirect exchange as long as they can avoid it) to continue trading, for the simple reason that the store simply accumulates goods taken in exchange for goods that barter agents need. Merchant stores therefore do not help in forming a medium of exchange, at first glance. However, stores are subject to physical constraints that do help, like the limited physical space to place merchandise in. Some commodities are also perishable and therefore have limited shelf-life, like livestock.
Merchant stores are also willing to accept any medium of exchange that gets adopted by different small groups. However, even though every store has a preference, the village store always prefers that medium of exchange with the most agent users.
Lyn Alden's book "Broken Money" describes how the players of Diablo II spontaneously arrived at a different medium of exchange other than the medium of exchange imposed by the game designers. It is a valid proof of Menger's idea of how an object becomes money even when the elites imposed an unsuitable commodity.