Journal Article A Simple Rational Expectations Keynes-type Model Get access John Bryant John Bryant Rice University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 98, Issue 3, August 1983, Pages 525–528, https://doi.org/10.2307/1886025 Published: 01 August 1983

This paper treats an idealized monetary framework in which merchant banks finance trade; trade which is induced by decentralized production. Indeed, merchant bank credit instruments, coupled with local bank deposits, facilitate decentralization of both production and trade. At the same time, decentralized production, exhibiting technological complementarity, induces systemic monetary fragility. However, with the decentralization of trade, the indemnification of either merchant bank credit instruments or of local bank deposits eliminates fragility. In particular, deposit insurance also stabilizes credit. The result is a stable cashless economy, a replacement of trade in specie.

Herein it is demonstrated that the competitive provision of fiat money is generically either inefficient or infeasible.