Paper money

“ By the mere expansion of paper money the amount of your savings in dollars is not increased one cent. But by the depreciation of the paper money following that expansion, the purchasing power of your savings is decreased to the amount of that depreciation. It is as plain as daylight. And do not your greenbackers and fiat-money doctors tell you that irredeemable paper money must be made plenty, to raise prices and to make business lively? ”

“ I apprehend these general reasonings will be found true with respect to paper money: That experience has shown that, in every state where it has been practised since the revolution, it always carries the gold and silver out of the country, and impoverishes it—that, while it remains, all the foreign merchants, trading in America, must suffer and lose by it; therefore, that it must ever be a discouragement to commerce—that every medium of trade should have an intrinsic value, which paper money has not ”

“ Paper money must be distinguished from other value-paper or money-paper,899 which may also run to the possessor or holder, and not unfrequently serve as a medium of payment. In the case of these bonds or obligations,900 their circulating capacity is a secondary matter, and the principal thing the authentication of an economic legal relation; whereas paper money is intended principally, if not exclusively, to act as money.901 Money-paper appears in a great many different forms, but it nearly always bears interest. ”

“ The economical or saving advantages of paper money are appropriated by the issuers to themselves, in the form of a non-interest bearing loan, which they make to those owners of money or to those who are entitled to a money-claim and to whom the paper money is acceptable instead of cash money.913 A diminution for instance of the number of bank notes or of state paper [pg 445] money does not diminish the available capital of the people. ”

“ But the notes of banks of competent capitals, limited in amount to a due proportion to such capitals, made payable on demand in gold and silver, and always so paid on demand, are paper money in no sense but one; that is to say, they are made of paper, and they circulate as money. And it may be proper enough for those who maintain that nothing should so circulate but gold and silver, to denominate such bank notes 'paper money,' since they regard them but as paper intruders into channels which should flow only with gold and silver. ”

“ But the proportion of sound notes became at length so great that the new plan was adopted as an evident measure of economy, and now no piece of paper money is withdrawn from circulation until worn out, unless at the desire of the bank. Many financial institutions within easy reach of the capital make a custom of forwarding for redemption all their receipts of currency for the day, getting in return new notes just from the printers. ”

“ Great evils, in the midst of many advantages, have arisen out of the use of paper money, from the neglect of measures of security, or from the adoption of such as have proved false. Issues of inconvertible paper money have been allowed to a large extent, unguarded by any restriction as to the quantity issued.issued.
As the issuing of paper money is a profitable business, the issue naturally became excessive when the check of convertibility was removed, while banking credit was not backed by sufficient security. ”

“ To them the fact that paper money may circulate for a time at par appears a reason why it always should. They do not admit that there is a saturation point in the use of money, and that its use is still further limited by the fear of larger issues. They do not see that the ultimate basis of the value of paper money is economic,—is in its money use, not in the fiat of the government. ”

“ It is under such circumstances that the paper-money agitators approach us with their plans. What are those plans? The resumption of specie payments is to be prevented at any cost. The greenback dollar is not to be redeemable in coin. The issues of government paper money are to be increased by a variety of contrivances. The national bank currency is to be withdrawn and a paper money to be put in its stead, for which government is directly responsible. ”

“ But the issue of unrepresented paper money is, in its nature, essentially distinct from the ordinary operations of banking. The banker, in common with the merchant or manufacturer, derives his profits from the reproductive employment of his own capital, together with as much of the capital of his customers, as he can induce them to entrust to his care. ”

“ But even now we realize very imperfectly what a power in the world paper-money is; for we are apt to think of it only as a circulating medium in the form of bank-notes, or treasury-notes, or of somebody's currency which has the merit of making no pretensions to the theoretical idea of a currency which represents gold, the representative of everything else. Bills of exchange and promissory notes are instruments quite as indispensable to modern commerce and civilization ”

“ Why create a paper-money specially in favour of the Caisse d’Escompte, and leave other parties to suffer whose claims upon the nation are at least as sacred?”
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“The claims of the Caisse d’Escompte are not less sacred than those of others, I grant, but neither are they more so. I will not, therefore, recommend you to create paper-money for the other creditors, as well as for the Caisse, but I would conjure you not to create it at all. The inevitable effect of all paper-money is, as you know, the rapid disappearance of cash. The fictitious currency drives away the real ”

“ If the principle of convertibility is not maintained, bank money becomes paper money pure and simple. It has usually been by the failure of banks or of governments to maintain the promise of redemption that such money has arisen. When this takes place paper money falls in value, or, as it is usually expressed, coin is at a premium. This would not of itself cause a disappearance of coin, but it usually happens that paper money is so multiplied in volume that coin disappears and paper becomes the sole standard. ”

“ Thus, whatever expedient you may resort to, gold will be and remain the standard of value as to the fiat dollar. Your fiat dollar will be brought up before that tribunal to have judgment pronounced as to its worth, and the idea that by introducing here a paper-money system of your own you can withdraw from the rules that govern the commerce of the world, and change the real standard of value in your business transactions, will appear as one of the most absurd and childish conceptions the human brain has ever been guilty of. ”

“ I therefore dismiss such wild theories, and speak only to those who are willing to assume, as an axiom, that gold and silver, or coined money, have been proven by all human experience to be the best possible standards of value, and that paper money is simply a promise to pay such coined money, and should be made and kept equal to coined money, by being convertible on demand. ”

“ According to programme, larger quantities of irredeemable paper money are issued, for the professed purpose of making money plenty, as they call it, and of stimulating business by raising prices. Then, of course, the paper dollar will no longer be the equal in purchasing power of the gold dollar. As more and more paper money is issued, the premium on gold will rise higher and higher, and the paper dollar will grow less and less in purchasing power. ”

“ There will be a lively chorus of groaning and railing among them, for the miraculous paper money, which was to relieve them of their burdens, will, instead, relieve them of their property, and not in all cases at the same time of their debts. The paper money apostles promise to make business lively. Aye, my friends, if you are in debt, they will indeed make it lively for you. ”

“ Where it is at all possible to give paper money the same purchasing power as metallic money possesses, it is unquestionable that the former must have many advantages over the latter. True, paper money is very inconvenient for small amounts;909 but all the more convenient for large amounts, as well for purposes of counting as for purposes of the storing up of values and for transmission from place to place ”

“ It is well known that for over twenty years, from 1797 to 1820, the most stringent paper money system that ever existed prevailed in England, and lay at the foundation of all her elasticity and endurance. ”

“ It is always noticeable that the more issues of paper money there are made, the more there is a cry of scarcity, much like the thirst of a hard drinker after the first exhilaration has passed off. On the new issues five per cent interest was paid, and even excises and imposts were set aside as security for their payment. ”

“ He said that the issue of assignats would relieve the distress of the people and he presented very neatly the new theory of paper money and its basis in the following words: "The earth is the source of value; you cannot distribute the earth in a circulating value, but this paper becomes representative of that value and it is evident that the creditors of the nation will not be injured by taking it." ”

“ Statistics show that in commercial countries a very large proportion of all transfers is by book accounts and notes, and more than nine-tenths of all the residue of payments is by checks, drafts, and such paper tools of exchange.
"Of the vast business done in New York and London not five per cent. is done with either paper money or gold or silver, but by the mere balancing of accounts or the exchange of credits. And this will be so whether your paper money is worth forty per cent. or one hundred per cent. ”

“ Such interest-bearing paper money, therefore, would be a serious element to aggravate the fluctuations of the money-market between good and bad times. When interest-bearing paper money pays interest at the rate usual in the country, it is hoarded by misers, (v. Struensee. Abhandlungen, III, 387.) Compare Forbonnais, Principes économiques, p. ”

“ Nothing so strengthens the central authority as the paper-prerogative with an unlimited power over the prices of all commodities; and, on the other hand, whenever paper money is to have a wide field for action, there is supposed949 a far-reaching and intimate interwearing of the different members of the nation's economy with one another. And in what concerns the various economic stages, paper money is far removed from all medieval times ”

“ We may each one of us counsel our active and enterprising countrymen to be constantly on their guard, to liquidate debts contracted in a paper currency, and by conducting business as nearly as possible on a system of cash payments or short credits to hold themselves prepared to return to the standard of gold and silver. To aid our fellow-citizens in the prudent management of their monetary affairs, the duty devolves on us to diminish by law the amount of paper money now in circulation. ”

“ My impression upon the subject (simple, as I have no doubt you would expect to find the result of any mental process of mine) is that paper money is a financial expedient, the substitution of an appearance or makeshift for a real thing, and likely, like all other such substitutes of whatever kind, to become a source of shame, trouble, and ruin whenever, after the appointed time of circulation, which every expedient has, there should be a demand for the real article; more especially if the shadow has imposed upon the world by being twice as big as the substance. ”

“ The unrestrained issue of paper-money, with its attendant contractions, keeps the value of property unsettled, creates pressures and bankruptcies, and otherwise produces the instability that so peculiarly marks the condition of American trade.
Specie should be the basis of all currency. There should also be enough of the precious metals floating in the community, to meet its minor daily wants, the proper office of credit being to represent money in large sums, and not to represent money in small sums. ”

“ Paper money has some advantages in convenience and cheapness. Why do we have paper money? Chiefly because it is, in many respects, more convenient for use than metallic money. In large amounts it is not so bulky as silver or gold would be. There is also the advantage that when paper money wears out it can be cheaply replaced. If gold coins were continually in circulation from hand to hand, they would gradually wear down and the monetary loss would be considerable. Hence it is better to keep the gold in the bank vaults and circulate the paper, which represents gold, in its stead. ”

“ Government paper money may be defined as money for which a seigniorage of one hundred per cent. is charged. The order in the study of the money question is from seigniorage to paper money, because paper money embodies the principle of seigniorage in its extremest form. The issue of paper money grew out of the practice of debasing metal. The gain of seigniorage from paper money is greater and is just as easily secured. ”

“ I said, "are the bases of the world's currency. If they are abundant, all forms of paper money are abundant. If they are scarce, the paper money must shrink in proportion to the shrinkage of its foundation ”

“ No one has ever explained how any paper money machine could act otherwise unless there should be constant new issues, depreciating more and more until they reached zero. On its paper issue of notes nominally for $3 millions it had won $600,000 worth of property in five years. ”

“ Bills of exchange and paper money, which have become known and general only in modern Europe, might have gone far to mitigate these disastrous consequences in particular states, or even, if conducted with prudence and regulated by wisdom, might in some places have altogether prevented them. But as paper currency is a new element of surpassing power and efficacy, but recently introduced into common use among men, the principles on which it should be regulated are far from being generally understood. ”