  Beyond its obvious macro-economic relevance, fiat money has important
micro-economic implications. They matter for addressing No. 8 in Smale's
"Mathematical Problems for the Next Century": extend the mathematical model of
general equilibrium theory to include price adjustments. In the canonical
Arrow-Debreu framework, equilibrium prices are set by a fictitious auctioneer.
Removing that fiction raises the question of how prices are set and adjusted by
decentralised actors with incomplete information. We investigate this question
through a very basic model where a unique factor of production, labour,
produces a single consumption good, called jelly for brevity. The point of the
model is to study a price dynamics based on the firm's expectations about jelly
demand and labour supply. The system tends towards economic equilibrium,
however, depending on the initial conditions it might not get there. In
different model versions, different kinds of money are introduced. Compared to
the case of no money, the introduction of money as a store of value facilitates
the system reaching economic equilibrium. If money is introduced as a third
commodity, i.e. there is also a demand for money, the system dynamics in
general becomes more complex.
