Money,nonconvex preferences,and the existence of equilibrium: A note

Nonconvexities play a major role in several theories of money. This note suggests an additional such role. In particular, an economy is presented which fails to have a competitive equilibrium in the absence of fiat money. When fiat money is present, a steady-state competitive, equilibrium does exist and has the feature that money necessarily has value. This is because in any steady state, monetary equilibrium relative prices are bounded in such a way that the discontinuous portions of excess demand functions may become irrelevant.