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Hardcover | $12.75 Short | £10.95 | 680 pp. | 6 x 9 in | 22 figures, 64 tables | January 2011 | ISBN: 9780262013208
Paperback | $6.75 Short | £5.95 | 680 pp. | 6 x 9 in | 22 figures, 64 tables | August 2012 | ISBN: 9780262518031
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The Theory of Money and Financial Institutions, Volume 3


This is the third and last volume of Martin Shubik’s exposition of his vision of “mathematical institutional economics”--a term he coined in 1959 to describe the theoretical underpinnings needed for the construction of an economic dynamics. The goal is to develop a process-oriented theory of money and financial institutions that reconciles micro- and macroeconomics, using strategic market games and other game-theoretic methods.

There is as yet no general dynamic counterpart to the elegant and mathematically well-developed static theory of general equilibrium. Shubik’s paradigm serves as an intermediate step between general equilibrium and full dynamics. General equilibrium provides valuable insights on relationships in a closed, friction-free economic structure. Shubik aims to open up this limited structure to the rich environment of sociopolitical economy without dispensing with conceptual continuity.

Volume 3 considers the specific roles of financial institutions and government, aiming to provide the link between the abstract study of invariant economic and financial functions and the ever-changing institutions that provide these functions. The concept of minimal financial institutions is stressed as a means to connect function with form in a parsimonious manner.

About the Author

Martin Shubik is Seymour Knox Professor of Mathematical Institutional Economics (Emeritus) at Yale University’s Cowles Foundation and School of Management. He is the author of the three-volume work The Theory of Money and Financial Institutions (MIT Press) and other books. He is External Faculty of the Santa Fe Institute.

Table of Contents

  • The Theory of Money and Financial Institutions
  • The Theory of Money and Financial Institutions
  • Volume 3
  • Martin Shubik
  • The MIT Press
  • Cambridge, Massachusetts
  • London, England
  • © 2010
  • Massachusetts Institute of Technology
  • All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher.
  • For information about special quantity discounts, please email .edu
  • This book was set in Times Roman by Toppan Best-set Premedia Limited.
  • Printed and bound in the United States of America.
  • Library of Congress Cataloging-in-Publication Data
  • Shubik, Martin.
  •  The theory of money and financial institutions / Martin Shubik.
  •   p. cm.
  •  Includes bibliographical references and index.
  •  ISBN 978-0-262-19427-3 (v. 1 : hc. : alk. paper)
  •  ISBN 978-0-262-19428-0 (v. 2 : hc. : alk. paper)
  •  ISBN 978-0-262-01320-8 (v. 3 : hc. : alk. paper)
  •  1. Money. 2. Financial institutions. 3. Game theory. I. Title.
  • HG220.A2S55 1999
  • 332.4—dc21
  • 98-55768
  • 10 9 8 7 6 5 4 3 2 1
  • To my wife Julie and daughter Claire
  • and to my many friends who suffered through hearing more about a
  • theory of money than they cared to know.
  • Contents
  • Preface ix
  • I Production, Exchange, Money, and Interest
  • 1 Exchange and Control 3
  • 2 Production, Exchange, and Markets 33
  • 3 Multiperiod Production and Exchange 69
  • 4 Growth and Investment, the Real and Money Rates of Interest 97
  • II Financial Institutions
  • 5 A Prelude to Institutions 135
  • 6 Markets, Clearing Arrangements, and Intermediation 169
  • 7 Corporations, Partnerships, and Proprietorship 193
  • 8 Commercial Banking and Credit 211
  • 9 Central Banking and the Money Supply 255
  • 10 Stock Markets and Exchanges 293
  • 11 Insurance and Other Financial Institutions 331
  • 12 Corporate Control and Fiduciaries 353
  • III Society and Political Economy
  • 13 Population and Labor 385
  • 14 Multigenerational Economics 407
  • 15 Public Goods and Public Policy 423
  • 16 Taxes, War, History, and National Debt 447
  • 17 Government and Central Banking: Monetary and Fiscal Policy 471
  • 18 A Critique of Macroeconomics: Policy and/or Theory 499
  • IV Mathematical Institutional Economics
  • 19 Solutions to Games in Extensive Form, Rationality, and Experimental Gaming 531
  • 20 Money: A Cooperative Market Game Approach 567
  • 21 Money and Financial Institutions: Invariant Function and Changing Form: A Reprise 595
  • References 627
  • Name Index 655
  • Subject Index 663


““As Martin Shubik has often noted, modern economics exists in an institutional vacuum. In this fascinating and elegant book, Shubik provides a bridge between the institutionally barren theory of general equilibrium and a richer strategic approach combining a game-theoretic view rich in institutional details. The book is a tour de force in political economy and recommended for anyone who is searching for a micro-based theory of macro and monetary phenomena.” Andrew Schotter, Professor of Economics and Director of the Center for Experimental Social Science, New York University”
““Martin Shubik is co-inventor of the ‘market game’: the best general equilibrium model of imperfect competition, the obvious link between GE theory and game theory, and a useful platform for evaluating the roles of money, credit, and banking. This is the third in an ambitious series of books on a very timely subject. Like the others, this one is marked by Shubik’s deep insights derived from market games, combined with his broad understanding of economic theory and institutions.” Karl Shell, Thorne Professor of Economics, Cornell University”