A suggestion for oversimplifying the theory of money

This paper, originally published in 1988, argues that there is nothing special about government-issued money, that without restrictions of some kind, privately issued money would be a perfect substitute for it. The paper describes the type of intermediation this argument implies for a laissez-faire economy. One important implication is that there would be only one risk-adjusted rate of return; either all assets would pay a low return to match that on money, or money would pay interest. Another important implication is that open market operations would be irrelevant. The paper argues that the reason we don't frequently observe economies with such characteristics is that governments generally impose restrictions which prevent the private issue of money. However, the paper does examine some historical periods when restrictions seemingly were not imposed. And it concludes with some reservations about the oversimplifying suggestion. The paper is reprinted, with permission, from the Economic Journal.