Equilibrium and Media of Exchange in a Convex Trading Post Economy with Transaction Costs

”[An] important and difficult question...[is] not answered by the approach taken here: the integration of money in the theory of value...” — — Gerard Debreu, Theory of Value (1959) General equilibrium is investigated with N commodities traded at N(N − 1)/2 commodity-pairwise trading posts. Bid and ask prices are quoted as commodity rates of exchange. Trade is a resource-using activity undertaken by firms recovering transaction costs through the spread between bid (wholesale) and ask (retail) prices. Budget constraints are enforced at each trading post sepa-rately; there is demand for a carrier of value between trading posts, commodity money. Existence of general equilibrium follows from convexity and continuity conditions and technical assumptions as-suring boundedness of price ratios. Trade in media of exchange (commodity money) is the difference between gross and net trades