The monetary character of trade, the existence of a common medium of exchange, is derived as an outcome of the economic general equilibrium in a class of examples. Two constructs are added to an Arrow-Debreu general equilibrium model: market segmentation with multiple budget constraints (one at each transaction) and transaction costs. The multiplicity of budget constraints creates a demand for a carrier of value between transactions. A common medium of exchange, money, arises endogenously as the most liquid (lowest transaction cost) asset. Government-issued fiat money has a positive equilibrium value due to its acceptability in payment of taxes. Scale economies in transaction cost account for uniqueness of the (fiat or commodity) money in equilibrium. The monetary structure of trade and the uniqueness of money in equilibrium can thus be derived from elementary price theory.

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This paper presents a class of examples where a barter economy develops through agents' optimizing decisions into a monetary economy. A barter economy with m commodities is characterized by m(m-1)/2 commodity pair trading posts for active trade of each good for every other. Monetary equilibrium is characterized by active trade concentrated on m-1 posts, those trading in 'money' versus the m-1 other nonmonetary commodities. Specialization, the concentration of the trading function in a few trading posts in the monetary trade arrangement, reflects the workings of scale economies in transaction costs. As households discover that some pairwise markets (those with high trading volumes) have lower transaction costs, they restructure their trades to take advantage of the low cost. When a trading post's transaction cost is sufficiently low, households find it advantageous to use the low transaction cost goods as intermediary goods in their transactions, rather than trade directly (at high transaction cost trading posts) for the goods they want. The process converges to an equilibrium where only the high volume trade through a single intermediary good ('money') takes place. Monetization of trade results from dynamic adjustment to scale economies in the transaction technology.

Commodity money arises endogenously in a general equilibrium model with convex transaction cost technology and with separate budget constraints for each transaction. Transaction costs imply differing bid and ask (selling and buying) prices. The most liquid good --- with the smallest proportionate bid/ask spread --- becomes commodity money. General equilibrium may not be Pareto efficient, but if zero-transaction-cost money is available then the equilibrium allocation is Pareto efficient. Fiat money is an intrinsically worthless instrument. Its positive price comes from acceptability in paying taxes, and its use as a medium of exchange is based on low transaction cost.

This paper posits an example of Walrasian general competitive equilibrium in an exchange economy with commodity-pairwise trading posts and transaction costs. Budget balance is enforced for each transaction at each trading post separately. Commodity-denominated bid and ask prices at each post allow the post to cover transaction costs through the bid/ask spread. In the absence of double coincidence of wants, the lower transaction-cost commodity (with the narrowest bid/ask spread) becomes the common medium of exchange, commidty money. Selection of the monetary commodity and adoption of a monetary pattern of trad results from price-guided equilibrium without central direction, fiat, or government

This study derives the monetary structure of transactions, the use of commodity or fiat money, endogenously from transaction costs in a segmented market general equilibrium model. Market segmentation means there are separate budget constraints for each transaction: budgets balance in each transaction separately. Transaction costs imply differing bid and ask (selling and buying) prices. The most liquid instruments are those with the lowest proportionate bid/ask spread in equilibrium. Existence of general equilibrium is demonstrated under conventional assumptions, including convexity of the transaction technology. The structure of payment for purchases in equilibrium results from market segmentation and transaction costs. If a lowest-transaction-cost commodity is available, it becomes the common medium of exchange, commodity money. General equilibrium may not be Pareto efficient, but if a zer-transaction-cost instrument is available as the common medium of exchange then the equilibrium allocation is Pareto efficient. Fiat money is characterized as an otherwise worthless government-issued instrument of low transaction cost acceptable in payment of required taxes. Fiat money equilibrium with positively vlaued fiat money can then be shown to exist.

In an economy with commodity-pairwise trading posts and transaction costs, commodity money is endogenously determined in general equilibrium. Absent double coincidence of wants, the low-transaction cost commodity (with the narrowest proportional bid/ask price spread) becomes the common medium of exchange.

The monetary character of trade, the existence of a common medium of exchange, is derived as an outcome of the economic general equilibrium in a class of examples. Two constructs are added to an Arrow-Debreu general equilibrium model: market segmentation with multiple budget constraints (one at each transaction) and transaction costs. The multiplicity of budget constraints creates a demand for a carrier of value between transactions. A common medium of exchange, money, arises endogenously as the most liquid (lowest transaction cost) asset. Government-issued fiat money has a positive equilibrium value due to its acceptability in payment of taxes. Scale economies in transaction cost account for uniqueness of the (fiat or commodity) money in equilibrium. The monetary structure of trade and the uniqueness of money in equilibrium can thus be derived from elementary price theory.