The market economy is modeled as a decentralized joint production
system. Markets in such an economy require the use of money or credit
instruments to facilitate exchange. As a result, market economies are
at risk for monetary instability induced by real-side production
coordination failure. In particular, economies decentralized via
centralized wholesaling markets are subject to precipitous collapses.
The most stable monetary system is trade in specie. However, there
very likely is a scarcity of specie, which generates inefficiency and
discourages production. There is, then, a need for an elastic
currency. Bank-issued bills of exchange are a perfectly elastic
medium and eliminate the scarcity of specie and its attendant
inefficiency, but are a less stable monetary system than is trade in
specie. In the trade-off between elasticity and stability, fiduciary
currency (or fiduciary deposits) lies between specie and bank-issued
bills of exchange.