Financial Legislation in Principle and in History 3 



the most enlightened governments have been able to restore or 

 preserve a good medium of exchange even when the credit of the 

 country was heavily strained. For instance, the Russian and 

 Austrian governments, without any notable reduction of the pub- 

 lic debt, have in recent years restored their money system to a 

 fairly sound condition. 



Nevertheless, at the moment of catastrophe, when means of 

 somehow coming to a temporary understanding with a vast body 

 of creditors that have suddenly sprung up, as if from the dragon's 

 teeth sown by Cadmus, seem to be imperatively needed, it has 

 been found impossible to avoid a temporary issue of paper money. 

 This was true of the French government at the time of the 

 Franco-Prussian war. It is to be remarked, however, that the 

 French paper money was issued, not directly by the government, 

 but as notes of the official state bank. One can see that it is sim- 

 pler for the government, under such circumstances, to give vis- 

 ible receipts for the services performed by contractors and soldiers 

 than it would be to keep a book account of such vast debts. 

 Under such circumstances, it is incumbent upon the government 

 to fund such receipts or warrants as quickly as possible, in order 

 that the evil effect of their use as a circulating medium may be 

 speedily terminated. Accordingly, the French government began 

 its payments to the bank as early as the year 1874, in order to 

 enable the latter to contract its issues, and resumption of specie 

 payments was effected early 1 — January 1, 1878 — whereas, not 

 until a year later did the United States resume payment of debts 

 that had been put into the form of government money ten years 

 before the Franco-Prussian war. 



It was said by Professor Newcomb 2 that the national banks 

 were not an improvement upon direct loans by the government, 

 as a means of borrowing by the issue of paper money, since their 

 credit would depend upon the credit of the government, so long 

 as their reserves contained government paper money rather than 

 specie. In time of war, however, if the exigency of the moment 

 is very great, finance ministers resort to all sorts of expedients, 



Dunbar. History of Banking, p. 143. 

 2 Op.cit, ch. VIIT. 



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