Money and the Scale of Cooperation∗

We show that the institution of money promotes a transition from small to largescale economic interactions, from low to high-value exchange. In an experiment, subjects chose to play an “intertemporal cooperation game” either in low-value partnerships or in high-value groups of strangers. Theoretically, a monetary system was unnecessary to attain the efficient, large-scale cooperation outcome. Empirically, without a working monetary system, participants were reluctant to interact on a large scale; and when they did, efficiency plummeted compared to partnerships, because cooperation collapsed in large groups. This failure was reversed only when a stable monetary system endogenously emerged.