Chapter 3 Money in general equilibrium theory This chapter describes conditions for the existence of general monetary equilibrium in a simple setting and discusses the role of money in general equilibrium theory. The principal contribution of general equilibrium theory has been its axiomatic validation of the benchmark model of price taking individual rationality and market clearing. The basic role of money as a medium of exchange is lost unless it also fills its role as a numeraire. If the value of money in relation to goods is zero it cannot serve its purpose at all. Because terminal money lays no apparent claim to goods or services the terminal value of money is zero. This implies by the same reasoning that the value of money is zero in the penultimate period. In Bewleys infinite horizon model uncertainty generates a precautionary demand for money. Because there are no other stores of value agents hold money as insurance against shortfalls in endowment value. If monetary markets are operated by an authority set up for the common good it is natural to suppose that the authority would be willing to collect money left at the market after terminal trading to dispose it.