2 IV. G. Langworthy Taylor 



might be distant. Such a thing as fiat money has never existed 

 as a proposition embodied in legislation. Nevertheless, the issues 

 of government 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 attached to 

 them. We shall give a very brief statement of the arguments 

 for and against the issue of government money, and follow it by 

 some discussion of the regulation of banking by government. 



Among the advantages of government paper money has been 

 mentioned the saving of interest for the government, since by 

 that means it is able to make 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 1 incurred in 

 depreciated currency, that is to say, really at high rate of dis- 

 count. It is also stated that government money is uniform and 

 avoids multiplicity of issues by different banks ; but in answer to 

 this it may be said that it has been found easy to cause private 

 banks to reduce their issues to uniform appearance and denom- 

 ination, and that government guaranty of private bank notes gives 

 them a uniform exchange value, if the government is a sound one. 



It is true that, in times of war, finance ministers have frequently 

 resorted to issues of government paper. The argument has been 

 made that it was necessary. That argument was made with espe- 

 cial 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 

 voice in protest. 2 It was claimed that the credit of the govern- 

 ment in the form of paper money was no better than in the form 

 of bonds, while the paper money, by virtue of its legal tender 

 quality, caused the circulation and prices of the country to fluc- 

 tuate in value with great violence and brought an unnecessary 

 uncertainty into business. This, indeed, is the strongest indict- 

 ment against government paper money. It is worthy of note that 



1 Professor W. C. Mitchell estimates the loss of the United States Treas- 

 ury from this source, on account of the civil war, at over one-fifth of the 

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



2 A Critical Examination of Oar Financial Policy during the Southern 

 Rebellion. Appleton, 1865. 



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