W. G. Langworthy Taylor 



Government 

 paper money is 

 a great perver- 

 ter of public 

 opinion but 

 stimulates the 

 progressive 

 elements of 

 the community 

 to " campaigns 

 of education." 



A bank cir- 

 culation, even 

 if the bank be 

 controlled by 

 the state, is 

 preferable to 

 direct issues 

 by government 

 of irredeem- 

 able or partly 

 redeemable 

 paper money. 



It was said by Professor Newcomb* that the national banks, 

 as a means of borrowing by the issue of paper money, did not 

 ofTer an improvement upon direct fiscal loans, since their credit 

 would depend upon that of the government, so long as their 

 reserves contained the official paper rather than specie. In time 

 of war, however, if the exigency of the moment is very great, 

 finance secretaries resort to diverse expedients and, in the United 

 States, a great many dififerent forms of money have been invented 

 in order to avoid the appearance of an over-issue of any one 

 kind. This has been as truly a means of cajoling the public as 

 many resorted to by promoters of private schemes. 



§ 3. One of the greatest disadvantages of government money 

 issues is that, in the present state of public knowledge on such 

 matters, they cater to a popular misconception as to the nature 

 of the circulating medium, namely, that if anything can be made 

 to work as a circulating inedium it must also be an efficient and 

 trustworthy standard of value. The public is quite willing to be 

 deceived as to the circumstances in which the function of a 

 circulating medium may be separated from that of a store of 

 value. However, that weakness may be gradually remedied by 

 education. 



Another disadvantage, perhaps greater, is inelasticity. Even 

 where banks are compelled to deposit bonds as a guaranty for 

 their circulation, there is usually some provision for expanding 

 or contracting the currency, though adaptation may take place 

 tardily. Where the government establishes a state bank and 

 interferes in its operation merely through appointment of officers, 

 as in France and Germany, the circulation may be highly elastic ; 

 but where the treasury directly issues paper money to pay for 

 supplies and services, taking it back again only in payment of 

 taxes or of certain kinds of taxes, there is no possibility of ex- 

 panding and contracting it according to the needs of business. It 

 has been, indeed, proposed that the currency should be system- 

 atically pulsated according to the price of gold,^ but it will be 



*0p. cit., ch. VIII. 



° Chapters II and III infra are devoted to the discussion of this and 

 similar propositions. 



118 



