W. G. Langzvorthy Taylor 



Government 

 paper money 

 a promise to 

 pay. 



Supposed 

 advantages of 

 government 

 paper money 

 in saving of 

 interest and 

 uniformity 

 of issue. 



Government 

 paper money 

 an ingenious 

 but expensive 

 method of 

 borrowing by 

 needy govern- 

 ments. 



ized governments have learned to use their own credit in a way 

 which is especially open to the abuses which inhere in a period 

 of highest expansion, and thus to inoculate business credit with 

 contagion. Administrations seek to pay their expenses, or rather 

 to obtain credit for their debts, by issues of paper money. Prob- 

 ably no government paper money was ever sent forth which was 

 not expected to be redeemed in full value at some time, although 

 that might be distant. Such a thing as fiat money has probably 

 never existed as a proposition embodied in serious legislation. 

 Nevertheless, the issues of money that have not been paid, or the 

 payment of which has been either formally or tacitly renounced, 

 have been very numerous, and the term fiat money has been at- 

 tached to them. A brief statement of the arguments for and 

 against the issue of government money will be presented, followed 

 by discussion of the regulation of banking. 



Among the advantages of paper money, has been mentioned 

 the saving of interest for the government, since by that means 

 it is able to place a loan free of interest, whereas if it borrowed 

 upon bonds it would have to pay interest. But this advantage is 

 far overbalanced by the swollen debts^ incurred in depreciated 

 currency, which really amount to a high rate of discount. It is 

 also stated that such money is uniform and avoids multiplicity of 

 issues by different banks ; but the answer runs that it has been 

 found easy to cause private banks to reduce their issues to uni- 

 form appearance and denomination, and that government guar- 

 anty of private bank notes lends them a uniform exchange value, 

 if the government be a solvent one. 



§ 2. It is true that, in times of war, finance ministers have 

 frequently resorted to issues of paper. The argument has been 

 made that it was necessary and was advanced with especial 

 cogency at the beginning of the Civil War in the United States. 

 Here and there a rigorous economist of the orthodox school, like 

 Professor Simon Newcomb, the economist-astronomer, raised his 



^ Professor W. C. Mitchell estimates the loss of the United States 

 Treasury from this source, during the Civil War, at over one-fifth of the 

 war debt. History of the Greenbacks, p. 419. 



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