Future Paper Money of This Country [pp. 1-25]

FUTURE PAPER MIONEY OF THIS COUNTRY. 3
more than any unhealthy expansion of mere currency kept re deemable for its face, is to be attributed the inflation which
portends and causes commercial panics. Whether a bank issue
its credit in the form of circulating notes, or deposits to the
credit of its borrowers, against bills discounted, to be drawn
against by check, matters not. Depositors as well as bill-hold ers can demand specie. The real question is, whether it has
loaned its credit to those having means, present or prospective,
to pay these bills at maturity. If so, all is-well. If otherwise,
on any large scale, disaster will come to the bank or banks thus
issuing baseless credits, and to the whole mercantile community,
and others involved with them. This is the true secret of com mercial panics: baseless credit given on a large scale to prop
unproductive enterprises or extravagant living which consumes
without producing. It may, as the last great commercial panic
did, begin with the fall of great banking houses that have loaned
their means imprudently, and in their own downfall have shaken
the banks that have sustained them by loans. The notion that a
plentiful supply of bank notes, constituting less than a twentieth
of the actual medium of exchange, so lofig as they are kept con vertible into coin, can cause any considerable and permanently
dangerous inflation of prices and consequent speculation is
groundless. The moment prices are raised abnormally in this
way, importations will come in from foreign countries to reap
these high prices. Foreigners will require these bank notes to
be converted into coin, and the requisite contraction will quickly
come about, especially in these days of telegraphs and steamships. An inconvertible currency is another thing, and operates on the reverse principle.
Most standard political economists and bullionists from
Adam Smith down have maintained that, if an inconvertible
paper currency made legal tender could be kept down to the
amount of coin that would circulate in its place, were there no
paper money, it would have precisely the same value.> It is seldom that a fallacy so gross has shown such vitality. The idea
that bits of paper without intrinsic value, and inconvertible into
coin, because armed by despotic authority with the power to
wipe out debts, can have the same value or fulfil the same
functions as coin or its representative-coin salable in the mar
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