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M. M. Starr There is a single essential revision of the Arrow-Debreu model that creates a role for money: require that budget balance be fulfilled at each trading date rather than only in the lifetime budget constraint. In the sequence economy, budget constraints apply at each date. At each date, the value of goods and contracts for future delivery that an agent sells to the market must be at least as large as the value of goods and contracts he accepts from the market. The rationale for this constraint is strategic: this is how the lifetime budget constraint is reliably enforced in an intertemporal setting.

The assumption of zero money transaction cost is of course extreme but it captures the essential point: a major cost reduction relative to commodity trade. Money as a store of value with nil transaction costs spot and futures (a perfect capital market) allows undistorted intertemporal reallocation despite the sequential budget constraint. 3. 3. This problem is suggested by the idea that money eliminates the oft-quoted "disadvantages of barter"; and the efforts here are devoted to modelling the disadvantages of barter as a way of confirming and perhaps enlarging our intuition about the transactions role of money.

M. Starr 30 formal treatment of the Smithian view of the interaction of money and specialization is still absent from the literature. 2. e. without production). The principal issues on the structure of bilateral trade can be posed in this model. Let there be a fixed finite number of households H, with preferences represented by utility functions U h ( c h), h = 1 , . . , H . Let b h = household h's endowment vector, b h E R u , c h = household h's planned consumption vector, c h E R N + x h = planned vector of net purchases by household h, x h ~ R N+ , (6) yh = planned vector of net sales by household h, yh ~ R u , p = vector of market prices, p ¢ R u .