"Our suggestion consists of three postulates: assets are valued only in terms of their payoffs, perfect foresight, and complete and costless markets under laissez-faire. Together these postulates imply that the crucial anomaly, rate-of-return dominance of "money", "is to be explained by legal...

In "The Inefficiency of Interest-Bearing National Debt," (JPE, April 1979) we argued that private sector transaction costs are needed in order to explain interest on government debt. It follows that if the government's transaction costs do not depend on its portfolio, then, barring special...