Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
(?-1899)
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First Pub. Date
1881
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New York: Maynard, Merrill, and Co.
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1899
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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PAPER MONEY.

III.25.1

PAPER MONEY. If there be an experiment which has been seriously made and as to the results of which there can be no doubt, it is the experiment which demonstrates the chimerical advantages and grave dangers of paper money, employed as an instrument of production. Nevertheless, numberless deceptions, the injury done to public credit and national good faith, and the ruins of the past, do not seem to have entirely dissipated a dangerous illusion; recent facts, as well as the persistence of false doctrines, prove this but too well; the human mind frees itself with difficulty from the fatal influence exerted over it by the mirage of wealth acquired without labor, of a pretended increase of capital called into existence by the magic wand of credit, and of a new species of alchemy which transmutes paper into gold.

III.25.2

—Nothing, however, can be simpler than the examination of this problem, and nothing easier of solution. It suffices to know what is the part played by money, to measure how little such an arbitrary creation as paper money can do, and to understand its dangers.

III.25.3

—Ours is not the age in which the wealth of states was confounded with the possession of coin; money, the great wheel of circulation, as Adam Smith calls it, preserves nevertheless, however, an important place in the economy of nations; it constitutes the mechanism of exchange in the clearest and surest conditions; it enables us to set a value on all products and services; it gives activity to the creation and facilitates the distribution of wealth. It is in fact owing to money that all are impelled to the common work of the nation, and that the result obtained is divided among those who have contributed to it. It introduces a common language into the operations of social commerce.

III.25.4

—But it is not a language of the imagination; money is the sign and measure of values, because it is their guarantee, because it represents a value that is known, acknowledged and accepted everywhere. It is a universal commodity, while it at the same time affords each country its local instrument of purchase and sale, and of remuneration for both public and private services.

III.25.5

—In our day the fetters which cramp the international movement of exchanges are gradually disappearing, and a regular equilibrium may be established to adapt to the wants of each market the quantity of money necessary for the transaction of its business, when this business preserves its character of purity, and does not degenerate into fiction. Let us suppose, for a moment, that gold and silver alone, without any mixture of fiduciary signs, are the only instruments of exchange. As nothing prevents the transportation of the precious metals, they will always resume their level by going where a certain scarcity of them assures them greater advantage, and abandoning those places in which an over-abundance causes their depreciation. An admirable law of attraction governs them and proportions them to the useful services which they are called upon to render, by opposing equally a sterile abundance and a scarcity of specie. The very force of things establishes a weir for metallic wealth, which always falls into equilibrium with the wants of circulation.

III.25.6

—There is a risk of the situation being modified from the very moment that, in order to economize upon the mechanism of exchange, an effort is made to substitute for gold and silver artificial means more or less ingenious, and more or less sure, by calling to its aid what is called the magic of credit, whose power people are inclined to exaggerate. Two ways are open to reach this end. By following one of these ways the movement of exchanges is simplified and the number of actual payments reduced; recourse is had to those ingenious creations which render the actual intervention of specie superfluous, or limited in a number of cases, by means of bills of exchange, of open accounts in the banks, of set-offs and transfers; or else circulation is accelerated in such a manner as to increase the services rendered by each piece of money. In this way we obtain an advantage similar to that which two iron rails placed parallel upon the ground afford by the saving in friction, which increases the traction. The same result is obtained with less expenditure of force and capital, thanks to the economy and energy of the springs set at work. Here all is gain and no danger; such is the largest function of credit and an inexhaustible source of fecundity.

III.25.7

—But, by the side of these useful combinations, whose influence is too often ignored, we have the creation of a sign easy to manufacture, which costs next to nothing, and which is substituted in a greater or less proportion for metallic money: we refer to the bank note, which is called upon to act the part of money, because it is or ought to be accepted in business transactions to liquidate debts.

III.25.8

—If this fiduciary sign rests on the guaranty of a metallic value, against which it may be exchanged at will, and if we may accept or refuse it at pleasure, it constitutes money paper, which must be carefully distinguished from paper money. If it be imposed by authority, whether it emanates from the public treasury or from a private institution, and we are not at liberty to demand its equivalent in gold or silver, but are obliged to accept it, it degenerates into paper money. In the first case it aims to supply in part the metallic money, of which the country should reserve a sufficient amount to assure the exchange of bills for specie, and to serve in those transactions in which bank notes can not enter. In the second case it has for effect to replace metallic money even to the point of the issue of paper money with compulsory circulation or of so-called legal tender character.

III.25.9

—The aggregate of business transactions requires but a certain determinate amount of specie in each country at a given time. If bank bills are substituted for a part of the instruments of exchange, the surplus disappears under the form of merchandise, in order to restore the level, unless the coin be reserved in the treasury as a pledge of the paper money in circulation: thus it is that paper money drives out coin.

III.25.10

—We may in a certain limited measure, as we shall see, economize upon the portion of the national capital employed in the making of the instrument of exchange. An institution of credit, solidly established, may maintain in circulation a mass of bills which will be in as much favor as specie, provided the metallic reserve guarantees their payment at sight, and provided the bill represents a sufficiently important part of the monetary unit to facilitate transportation and shorten accounts. However, we can supply in this way only a portion of the money needed; but the amount of the latter relatively to the amount of business transactions diminishes in proportion as civilization advances, as society improves, and as credit is extended. In 1873 the wealth of England was estimated at two hundred milliards of francs, and its production at about twenty-four milliards; the total amount of money in the country, metallic and fiduciary, scarcely exceeded three milliards; the wealth of France in the same year was estimated at one hundred and sixty milliards of francs; its production was scarcely inferior to that of England; it had twice the amount (about six milliards) in specie and bank notes. It would be an exaggeration to reckon the wealth of Russia at 50,000,000,000 francs, and its products at 12,000,000,000; it employs about 4,000,000,000 francs in specie and paper money. The possible economy on the amount of capital employed in the medium of circulation, is therefore in an inverse ratio to the sum total of national wealth. The richer a country is, the less it gains by abandoning the solid ground of gold and silver.

III.25.11

—The saving of capital effected by the regular use of bank notes would be reckoned high if placed at from one-fourth to one-third of the sum required for the purpose of the exchange of wealth; if we take into consideration the necessary reserves, it does not amount to half a milliard of francs in England, and if it rises to two milliards in France, it is because of an abnormal condition, the result of the Franco-Prussian war, which can not last. It amounts, according to this showing, to the one four-hundredth part of the wealth of the United Kingdom, and to about one-hundredth part of the wealth of France. Regarding this comparison from another point of view, we may say that the interest of the metallic capital thus replaced frees England and France from an annual burden of twenty and eighteen millions of francs respectively, calculating the interest at 4 per cent. This is equivalent to about the one-thousandth part of the production of England, and to about the one three-hundredth part of the production of France. As a matter of course bank notes render much more important service in France by the facility and convenience which they afford, and by the saving which they render possible, even without taking any account of the inconveniences of compulsory circulation, to which France was subjected after 1870.

III.25.12

—These gains are not without their accompanying dangers, which grow more serious the more the volume of notes increases. In proportion as this volume increases, the metallic supply decreases, and as confidence is the stuff of which credit is made, if a period of calm and prosperity be succeeded by one of uneasiness, or if imperative needs require a great exportation of specie, every effort must be made to recall the absent metal, even at the cost of great sacrifices and by paying dear for it; this it is that makes the emission of bank notes so perilous; this it is that forbids us to go beyond a certain restrictive limit, unless we would resign ourselves to the dangers of compulsory circulation. If this limit, which is variable it is true, be passed, it necessarily leads to commercial crises when the fiduciary paper has been issued only as the representative sign of private engagements, and to a political crisis when paper money has been issued to meet the wants of the state.

III.25.13

—Adam Smith recognized the utility of the "wagonway through the air" of credit, which enables the "country to convert, as it were, a great part of its highways into good pastures and corn fields," highways represented by metallic money. "Nevertheless," he adds, "the commerce and the industry of the country, it must be acknowledged, though they may be somewhat augmented, can not be altogether so secure when they are thus, as it were, suspended upon the Dædalian wings of paper money, as when they travel upon the solid ground of gold and silver." After having pointed out the danger he endeavors to destroy the attraction of an imaginary benefit: "the whole paper money of every kind which can circulate in any country can never exceed the value of the gold and silver of which it supplies the place."

III.25.14

—Let us, by an extreme hypothesis, suppose ourselves in a society from which the use of the precious metals has entirely disappeared. If we should go beyond this, as paper money does not unite in itself the characters both of sign and of pledge, and as it does not become a commodity when it ceases to be a means of discharge from debt, it can not flow into foreign countries, and its excess produces depreciation. But who will flatter himself that he can measure exactly the amount of the media of circulation necessary in a country? This amount depends not only upon the mass but also upon the rapidity of exchanges. When the precious metals alone are employed, or when they effect the major part of business transactions, their level is maintained naturally, thanks to the weir which opens on foreign markets: this level can not but be violently disturbed when the bounds of prudence are overstepped by the issue of money paper, and especially when the nation abandons itself to the dangerous seductions of paper money.

III.25.15

—The danger exists even when a private institution is granted the dangerous privilege which excuses it from payment at sight; it assumes a much graver aspect when the state itself assumes this perilous function. History furnishes most sad and striking examples of the chastisement everywhere visited upon these same mistakes. France, England, Austria, Russia, and the United States, not to swell the list by citing the instances of secondary states, have paid the penalty of the system of Law and of the assignats, of the forced circulation of bank notes, of the Bankzettel, of paper roubles, and of continental money. It is a curious fact that Poland alone, a country which it is sought to blot out entirely from the map of Europe, preserved itself from this plague down to the very time of its subjugation by Russia. This latter country has, on the contrary, always had, upon a large scale, a fictitious system of circulation, which it inherited from Chinese, Tartar and Mongolian traditions. We do not wish to make any vain display of erudition, nor to enter into investigations which could be of interest only to the curious, and we shall therefore confine ourselves to recalling the fact that Genghis Khan made use of paper money, and that, toward the end of the thirteenth century, his grandson Koblai employed it in such a manner as to excite the ingenuous admiration of Marco Polo. This admiration proved only too contagious: the system, which from China and Mongolia had invaded Russia, was also admitted into western Europe. But we believe we ought to point out, as a remarkable fact, the scrupulous care with which Napoleon I, always guarded against a like attempt. He never consented to the issue of paper money. While England had resort to the compulsory circulation of paper money to resist him, and while Russia and Austria issued prodigious quantities of assignats, Napoleon ever held aloof from this disorder, and de Montalivet, minister of the interior, said, in a circular addressed to the prefects on the 25th of October, 1810. "The emperor regards paper money as the greatest scourge of nations, and as being, to morals, what the plague is in the physical order."

III.25.16

—By a singular concatenation of truths and errors the wisest operations of the most severely administered banks have in the end degenerated into a monstrous creation of paper money.

III.25.17

—Everywhere in Europe, except in Poland, the right of the crown to coin money, which had pretended to put an end to the fraud and pillage organized by local suzerains, ended by giving rise to successive lowering of the standard, lessening of the weight and debasing of the coin. The great Copernicus wrote, in the beginning of the sixteenth century, upon this important question in a treatise that is almost unknown: "However innumerable the scourges that ordinarily lead to the decline of kingdoms, principalities and republics, the four following are, to my mind, the most formidable: discord, pestilence, barrenness of the land, and the deterioration of the money. As far as the first three are concerned the evidence is such that no one is ignorant of them. But as to the fourth, if we except a few men of superior intelligence, very few concern themselves about it; and why? Because it does not ruin the state at a single blow, but little by little, by a sort of hidden action."

III.25.18

—The diversity and variation of moneys was one of the causes that led to the establishment of banks of deposit, which reduced these uncertain signs to a common denomination, by creating bank money fixed and invariable which took into consideration the metallic value of the specie deposited. The notes issued were fully represented by the specie deposited in the banks; to convenience and accuracy they joined the most complete security, and soon gained universal favor.

III.25.19

—It was noticed that the greater part of these titles continued in circulation, without any demand being made for the restitution of the specie guaranteeing them. Some banks employed the latter, thus leaving a part of their notes unsecured, at least as far as the metallic pledge was concerned. They were likewise led to attempt the inverse operation by issuing more notes than they possessed reserve in money or in bullion, thus increasing the profits of the institution and replacing a portion of their metallic stock by what we may call trust notes. They had obligated themselves to pay at sight: but as the demands for coin were not made simultaneously, these demands were met by diminishing the amount of their reserve corresponding to the titles issued. The declivity was a dangerous one, the enticement of gain urged the banks of issue to extend their operations, and to utilize more and more the marvelous power they possessed of coining in some measure money from sheets of paper rushed through a press. It is true that their obligation to immediately redeem it forced them to incessant precaution, which was constantly opposed by the allurement of gain: they were in constant danger, if they had not sufficient specie to pay at sight. The situation in this respect in our own day has not changed; it seems to us to lead to a clearer and clearer distinction between the issue of notes which perform the functions of money and banking operations properly so called, and to give a separate existence, by its concentration, to the power of creating these notes. The two principles, which always made war upon the liberty of the banks and the oneness of the note payable to bearer and at sight, are thus reconciled.

III.25.20

—At the time when the errors of the mercantile system estimated the wealth of states by the amount of gold and silver they possessed, the supplementary circulation furnished by the bank note could not but be received enthusiastically. As paper was raised to the level of gold and silver, which were considered as the equivalents of wealth, wealth could be increased at will. There remained, it is true, the troublesome condition of redemption; but this condition, it was said, was superfluous, it was an obstacle to the expansion of capital, and the sovereign authority, which was master of all, might readily do away with it. What an admirable discovery! Was not the genius of Law, as the poets of the time sang, to Enrichir à la fois, les sujets et les rois; since he opened an inexhaustible source to the spirit of enterprise, since Mississippi was called by him to become what California has since become! Thus people began by seeking in banks of deposit a remedy for the degradation of the coinage: the bank note circulated because based upon a full specie guarantee; afterward this guarantee was diminished in the banks of issue, and finally disappeared in paper money.

III.25.21

—Colbert denounced the unrestricted license to borrow, as a cause of ruin to the state; what would he have said of this formidable instrument of paper money, which was on the point of handing over abundant resources to the prodigality and rash enterprises of governments, by drawing to itself produced wealth, at the risk of destroying it by foolish expenses and by the squandering of a part of the public fortune, which was destined to disappear in smoke under the deceptive form of notes having a forced circulation and of assignats? Sophisms were not wanting to give a brilliant coloring to these disastrous operations. To procure for paper the value and efficacy of money was to make something out of nothing, and to have a share in divine power; wealth consisted in an abundance of money; thanks to paper, people were no longer tied to the precious metals, which would not increase at will, nor follow the commands of man, while paper money, the fruitful and docile agent of the supreme power, could be increased at will. The abbé Terrasson explains in a curious manner this phenomenon of financial optics. "A merchant's note," he says, "as it may be refused in trade, does not circulate like silver, and consequently soon returns to its source; its utterer finds himself obliged to pay, and deprived of the benefit of credit. This is not the case with the king: as every one is obliged to accept his note, and this note circulates as silver, he pays validly even with his promise." "Gold and silver," he adds, "are merely the signs that represent real wealth, that is, commodities. An écu is a note conceived in the following terms: any seller will give to its bearer, the commodity or merchandise which he may need up to the amount of three livres for as much of another kind of merchandise which has been given me; and the effigy of the prince takes the place of his signature. Now, what difference does it make whether this sign is of silver or of paper? Is it not cheaper to choose a material that costs nothing, and which one is not obliged to withdraw from trade, where it is employed as merchandise, which, in fine, is manufactured in the kingdom, and which does not render us necessarily dependent upon strangers and owners of mines, who eagerly take advantage of the seduction or éclat of gold and silver to cause the ruin of other nations; a material that can be increased according to his needs, without fear of ever exhausting the supply; finally, a material which no one will be tempted to use for any other purpose than for circulation? Paper has all these advantages which render it preferable to silver."

III.25.22

—We see that the pretended discoveries, pompously vaunted by the new social alchemists of our day, are but old rubbish, long since condemned by good sense and experience! Doctrines similar to those of the abbé Terrasson inspired Law's system, and led to an emission of 2,696,400,000 livres of irredeemable notes, absorbed by a disgraceful bankruptcy, at an epoch when the value of each piece of money was, we must bear in mind, much greater, and the needs of circulation much less, than to-day; these doctrines, allied with other errors in her coinage system, gave birth to the 45,000,000,000 of assignats in France. The attempt has been vainly made to palliate such a debauchery of credit, by saying that the assignats saved the revolution, just as it has been said that the reign of terror saved the republic. We protest against this view with all the energy of a conviction based upon a scrupulous study of facts. The able memoir communicated to the academy of moral and political sciences by Levasseur shows how the ruin brought about by the disordinate issue of assignats weakened France, and Michelet has eloquently said: "The reign of terror killed the republic by exciting in men's minds a feeling more powerful than that of fear, the feeling of pity!"

III.25.23

—A young ecclesiastical student, twenty-two years of age, who afterward became illustrious under the name of Turgot, completely annihilated the errors professed by the defenders of paper money in his admirable letter to the abbé de Cicé (Paris, April 7, 1749). It would be difficult to find more cogent logic enlisted in a better cause.

III.25.24

—Save a slight difference, arising from the cost of production, uncoined silver is on a par with coined silver, the money value being only a denomination. "It is as merchandise that silver is, not the sign, but the common measure of other kinds of merchandise, and this not by any arbitrary convention, based upon the splendor of this metal, but because, as it can be employed as merchandise under different forms, and has, by reason of this property, a salable value which is somewhat increased by its use as money, since it can, moreover, be reduced to the same title and divided exactly, its value is always known."

III.25.25

—After having clearly stated the true principle, Turgot points out the danger of the arbitrary multiplication of paper. "But," says the abbé Terrasson, "it is to the king's interest, in order to preserve his credit, to keep paper money within just bounds, and this interest of the prince is sufficient to establish confidence." What are these just bounds? and how shall they be determined? Gold and silver are distributed by their very circulation, according to the proportion of products, of industry, wealth and revenue which they procure, as well as of the expenses incurred. Paper money has no measure but deceptive approximations, which a natural allurement is wont to swell at the wish of power. Instead of proportioning its issue to the unknown wants of the market, the latter made its issue conform to the insatiable requirements of the treasury; and ruin was the consequence. This is the common history of paper money wherever it has functioned as an attribute of public power, when the bank note ceased to be protected by a contract, and was transformed into an act of power.

III.25.26

—We must not confound the disastrous effects of inordinate emissions with the temporary privilege accorded to a bank, authorizing it to suspend the redemption of its notes in specie. When care is taken to limit the amount of notes in circulation, it is possible to ward off the bad effects of such an act, especially when it is easy to foresee the end of them, and when the prudent conduct of the institution has acquired for it great solidity.

III.25.27

—The act of 1797, which made compulsory the circulation of the notes of the bank of England, had but little effect, because they were not increased beyond the actual needs of the home circulation. The entire amount of notes in circulation in 1796 was £10,730,000; in 1797 it was but £9,675,000, and did not exceed £13,000,000 even in 1800. Their depreciation began when the needs of the treasury increased this sum. We must add, also, that the prodigious stir in industry about this time required more numerous instruments of exchange, while it at the same time furnished the sinews of war. Thanks to the inventions of Watt and Arkwright, the English mechanics spun gold, so to speak, and furnished material for the successive loans called for by the treasury, which reached colossal proportions. The bank of England facilitated these loans by discounting the notes of the exchequer, but the circulation of the notes never reached such proportions as to be a source of uneasiness; it never exceeded £20,000,000, except in 1810, and the maximum point reached was £28,000,000, before the resumption of specie payments in 1822. Still, even thus restricted, the prolongation of compulsory circulation was the cause of considerable losses, first by the rise in the price of gold, and then by the painful transition from a depreciated currency to the re-establishment of metallic money. The bank of England, does not, therefore, furnish any argument in favor of the inconsiderate issue of paper money; and it suffices to recall how comparatively moderate it was in its conduct, without, however, escaping the danger of the depreciation of fiduciary paper, to induce us to abandon rash designs of a similar character.

III.25.28

—There is much more reason not to cite the example of the bank of France in 1848, in defense of paper money. Every one knows what good services the good standing of this great establishment, the safety of its operations and the care it had always taken to maintain its specie reserve, enabled it to render to the government and to industry during this direful period, in spite of the terrible shock caused by the revolution of February. The compulsory circulation of its notes was in a measure only nominal: public administrations, the manufacturers and the merchants received the specie they needed. The confidence which the bank enjoyed attracted deposits to it. Although it had absorbed the departmental banks, and realized the grand idea of unity of issue, it was restricted at first to a circulation of 452,000,000 francs in notes; this figure was increased to 525,000,000 on Dec. 22, 1849, when its reserve was firmly re-established; its notes exchanged at par, and even at a small premium; and, in reality, it was the specie that had compulsory circulation, as the demand for notes exceeded the supply. The resumption of specie payments was urgently demanded by the bank itself, and prescribed by the decree of Aug. 6, 1850, without causing any trouble.

III.25.29

—Thus we see what is gained by not being carried away by chimerical facilities, and multiplying notes as Austria and Russia did, when the wants of circulation did not require it; this multiplication must necessarily lead to the instability of the measure of values, and to a variable lowering of the representative sign in all business transactions. We shall soon tell how France, in the face of apparently increasing financial necessities, in great part escaped this danger; for everything here is a question of proportion. The state which goes beyond this delicate measure tolerates or is guilty of an abuse, and is wanting in the performance of the high mission of power; instead of maintaining order, guaranteeing security, and maintaining the public faith, it becomes itself an instrument of sad disturbance, and at the same time aims a blow at moral law and the interests of production. From the moment that money loses its character of a solid pledge of business transactions, or that, instead of avoiding the variations of value, it suffers their effect, confidence disappears, operations extending over a long period are stopped, credit, the mainspring of industry, is destroyed, and circulation ceases. Paper money destroys the type, or, as Lord Liverpool styled it, the sovereign archetype of value, the precious metals. The bank note ceases to be their reflection and representative sign: the danger rapidly increases, if, instead of remaining an instrument of commerce, and of being backed by the discount on merchandise, it is handed over at the arbitrary will of the state, which transforms it into a mere resource of the treasury. It then becomes almost impossible to avoid a fatal declivity; an excessive emission leads to bankruptcy, for the state always issues more notes than the needs of circulation require, and, in proportion as the law of depreciation manifests itself, it hastens the catastrophe by the necessity of employing more notes to meet the same expenses.

III.25.30

—The loss which the country suffers is far from being confined to the diminution in price of the mass of fiduciary signs; it is increased by the unnatural amount of business transactions, rendered so by a fictitious value. The money of a nation never forms but a small portion of its wealth, and the depreciation of paper exercises a direful influence upon all products, which are henceforth distributed in a false proportion. All the relations of the sovereign power with citizens and of citizens with one another, are changed by it; contracts are violated; injustice triumphs, and the public fortune declines as a result of the ruin of individuals.

III.25.31

—How deplorable soever the system of paper money appears to us, we do not wish to exaggerate anything; it is not impossible to escape the dangers which it seems to provoke, but to do so we must renounce the idea of seeing in it too rich a mine, and of demanding of it more help than it can render. By confining it to well-defined limits, by scrupulously preventing it from exceeding a fraction of the receipts and expenses of the state, the government may find in paper money, if accepted by all the public treasuries, the means of effecting a real loan without interest. But this can never be but a limited resource, and as it may lead to dire consequences, it would be better to renounce it from the moment there appears a possibility of these consequences. Many of the small German states have treasury notes, which circulate as money, because there are but very few of them. In 1873, with a budget of 1,000,000,000 francs, Prussia had not 60,000,000 of Tresorscheine; the duchy of Baden reached a larger proportion, 3,000,000 florins of paper money to a budget of 19,000,000 florins. It is only in microscopic and needy states that the relative proportion is still further increased; but the amounts are small. Saxe-Meiningen had, in 1873, a budget of 2,000,000 florins and 356,000 florins of paper money. Saxe-Altenburg had 400,000 thalers of paper money when the treasury receipts reached only 874,192 thalers, and there were 950,000 thalers (more than $600,000) of this irredeemable paper in Anhalt alone. These modest figures seem insignificant by the side of the 3,000,000,000 of paper money of the Russian empire, which would like to appear less majestic in this respect. If France, at the close of a disastrous war, was compelled to carry such an amount of paper, she did it only by maintaining a larger specie reserve in the presence of wealth treble the amount, and of a trade four times that amount. She endeavored, besides, to resume her normal condition by a prompt redemption of the state's indebtedness to the bank of France.

III.25.32

—The two distinctive characteristics of paper money are, that it is not redeemable in coin, and that, instead of having public confidence for its limit, it is imposed by authority, by means of forced circulation and the usurpation of the power of discharging debts. Bad as an instrument of commercial credit, it becomes disastrous as an instrument of public authority, unless it be lessened to such an extent as to render only secondary services. As soon as the attempt is made to use it upon a very large scale, it leads to an abyss.

III.25.33

—Never more than in these later times have we seen numerous states applying the dread remedy of paper money upon a great scale. The United States at the close of the war of secession, Italy after gaining her independence, and France when defeated by Prussia, have put themselves side by side with Russia and Austria in the use of this dangerous expedient. This affords us a great lesson, for all these states were or are merely endeavoring to escape from a false situation, whose inconveniences they all appreciate. The old illusions have disappeared: men no longer extol paper money; they no longer see in it a source of wealth; they appreciate better the elements which constitute productive power; they know how often an apparent economy is transformed into losses of various kinds, whose amount far surpasses the pretended benefit.

III.25.34

—If we sum up the total amount of paper money issued by the five powers mentioned, we will find, after deducting the amount of the specie reserve, that it amounted, in 1873, to $250,000,000,000. This was not one-seventieth part of the accumulated wealth of these states; as a pretended increase of productive power, therefore, paper money is a feeble benefit, entirely counterbalanced by the trouble it causes in circulation. The measure is already full, and can not be increased. The common efforts of all civilized nations are directed toward a reduction of the amount of paper money. But should not this necessary reduction of notes render those more circumspect who, acknowledging only gold as a medium of circulation, would run the risk of destroying the necessary equilibrium between business and money? (See MONEY AND ITS SUBSTITUTES.)

L. WOLOWSKI.

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