Essays on Agent Based Models and the Emergence of Money

Santiago J. Gangotena

Advisor: Richard E Wagner, PhD, Department of Economics

Committee Members: Lawrence H. White, Robert Axtell

Buchanan Hall, D180
November 16, 2016, 10:00 AM to 07:00 AM


Neo-Walrasian conceptualizations and DSGE models are incompatible with the emergence of coordination and discoordination in economic activity. While many conceptualizations stemming from the Austrian tradition are generally consistent with these fundamental problems, their process driven approach is hampered by the use of equilibrium constructs. The first chapter argues for the adoption of formal models that avoid this problem by addressing the following questions. Why should Austrian macroeconomists model? Where do models fit in with respect to pure and applied theory? How to model without equilibrium? To answer this final question I present a framework called Dynamic Coordinating Non-Equilibrium (DCNE) that aids in the construction and communication of macroeconomic agent based models.

The second chapter presents of a toy model of the emergence of money from barter in an endowment economy that illustrates how the DCNE framework can be used to construct and communicate macroeconomic agent based models. The model is a generalization of search theoretic and agent based models of the emergence of money. 

Explanation of the spontaneous emergence of commodity money must show how beginning in a state of barter a commonly accepted medium of exchange emerges through the self-interest of interacting individuals. Following Carl Menger’s account of this spontaneous origin, a number of mathematical and computational agent based models have been developed to demonstrate the convergence to a commonly accepted medium of exchange. However all the models of the emergence of money assume specialization in production. Because of the difficulties of direct and indirect exchange, without money, specialized production would be prohibitively costly. Thus it must be the case that money and specialization emerge together, not from barter, but from subsistence. The third chapter uses the DCNE framework to develop an agent based model where specialization and money emerge from an underlying state of subsistence.