66 Colorado College Studies. 



elastic iiote-circiilatiou. That a progressive increase of 

 notes is, on the whole, an evil, most economists will agree. 

 It is true that there is a gain by use of cheap money when 

 it is good money; that is, by the less sacrifice of goods 

 involved in obtaining it, the relative diminution of the 

 earned part and increase of the note-part. But that seems 

 to be more than offset by the risks that attend a steady 

 increase of bank note money — sometimes a distant risk 

 of an amount great enough to be depreciated, always 

 a risk of corruption of popular judgment about money 

 through suggestion of government j^aper as a resource 

 at the first pinch, and usually an enhancement (through 

 enlarging the number of issuing banks and spreading the 

 habit of extra note-issues) of the greater risk of encourag- 

 ing riotous speculation that attends all schemes for elas- 

 ticity by bank notes. 



As a special device to keep an elastic note-circulation 

 from increasing progressively, the ingenious suggestion of 

 the late John Jay Knox* may be considered first: that the 

 notes added at times of increase should be of a different 

 color from the others, and should bear interest after a cer- 

 tain date. This proposal takes advantage of the well known 

 fact that notes bearing interest will not circulate as money 

 except when money is very scarce; the holders naturally 

 treat them as a sort of bond instead. Mr. Knox's species 

 of notes would, accordingly, almost all drop out of circula- 

 tion as money soon after the date when interest was to 

 begin. If the notes bore a low rate of interest, they would 

 find their way to the issuing bank before long; if a high 

 rate, part of them would be kept by the holders as an in- 

 vestment. In the case of a high rate, indeed, the disappear- 

 ance from circulation would begin before the date arrived, 

 and perhaps so soon as to imjjair the intended elasticity of 

 the note-circulation. 



While trusting to the behavior of the note-holders is 

 reasonably safe, it seems simpler and more certainly effect- 

 ual in every case to provide a legal limit acting directly 



* See the Forum, February, 1892. 



