174 MONEY AND CREDIT 



community, and no more; and these notes will remain at par only 

 if there is a recognized system, not of ultimate, but of immediate 

 redemption. No matter what quantity of notes may be put out, 

 if there is no system of immediate redemption, the notes will de- 

 preciate. But if there is an effective system of immediate redemp- 

 tion in operation, then no matter what the amount issued, none 

 of it can depreciate, and only that quantity which is needed by the 

 convenience of the business public will remain outstanding. In this 

 way it may be realized that the element of quantity is incidental 

 to the more dominant factor of redemption. 



The connection of the value of the standard money with the paper 

 promises to pay in that standard coin is the one important con- 

 sideration in determining the value of paper money. Redemption 

 is the only sure means of ascertaining automatically what quantity 

 of paper is needed by the public. Redemption determines both the 

 quantity and the value of the paper. 



In the case of irredeemable paper, however, it is often assumed 

 that, in the absence of redemption, the value of the paper is deter- 

 mined directly by the amount outstanding as compared with the 

 uses to which such money can be put. There is believed to be an 

 imperative demand for money, as a medium of exchange, which 

 must be satisfied in some way; and in default of anything better, 

 irredeemable paper will be required, and a value will be given to it 

 by this imperative demand. Then, only if issued in excess of this 

 demand, will even irredeemable paper depreciate. This is the usual 

 explanation of the fact that irredeemable paper, worthless in itself, 

 bears any value at all. 



But men of affairs are the last persons to exchange valuable goods 

 for valueless paper. They will use any medium only from a business 

 point of view. This paper is a promise to pay; the whole question 

 centers in the probability of keeping that promise sooner or later. 



A guess is made on that point, and it is recorded in the value given 

 to the paper, just as in the case of quotations of stocks, not now 

 paying dividends, but believed to have some chance of paying in 

 the future. If the chances of redemption, consciously or uncon- 

 sciously, become brighter, the value of the yet irredeemable paper 

 rises, without any change whatever in the amount outstanding; or 

 an event which postpones redemption will correspondingly depreciate 

 its value. The history of our United States notes (greenbacks) from 

 1862 to 1879 furnishes abundant evidence on this point. 



There certainly is an imperative demand for a medium of exchange 

 where goods are bought and sold; but there is no monopoly of any 

 one medium by which a monopoly value can be secured for it. As 

 regards metallic money this could appear only in the absence of 

 free coinage; and even with token-coinage it is a question if a value 



