(3) Regulation and limitation of the amount of silver money in circulation, so that a fixed parity between it and gold may be maintained, (a) by issuing coins in limited num ber and only on governmental account; (b) by the sale, at a fixed rate, of foreign exchange bills payable abroad in the standard unit, the money paid for the bills being withheld in a special reserve, thus reducing the total volume of money in circulation ; (c) by the purchase of foreign bills of ex change at a fixed rate, thus paying out and putting again into circulation some of the fiduciary money in the special re serve.
These monetary changes furnish numerous illustrations and demonstrations of the quantity theory of money as applied to the entire circulating medium of the country' The silver 5 See "Modern Currency Reforms" (1916), by E. W. Kemmerer, pro fessor of Economics and Finance in Princeton University, for a detailed coins which alone are in actual circulation become fiduciary by reason of the artificial limitation of their number, and their monetary value is made to conform to the value of as used in international trade.
The issue of paper money in some cases grew out of the practice of debasing metal. However this may have been, governmental paper money may be looked upon as money for which a seigniorage of 100 per cent is charged. The gain of seigniorage from paper money is greater and is just as easily secured as that from coinage of metals. Governmental paper money is called "political money," in contrast to commodity money. However, all coins that contain an element of seign iorage, or monopoly value, are to that degree "political money." The typical paper money is irredeemable ; that is, it cannot be turned into bullion money on demand. It is simply put into circulation, usually with the "legal-tender" quality. Money has the legal tender quality (as the term is used in the United States) when, according to law, it must be accepted by citizens as a legal discharge for debts due them, unless otherwise provided in the contract. The prime pur pose of making money legal tender is to reduce the danger of dispute as to payments; but another purpose often has been to force people to use a depreciated money whether they would or not. The purpose of the issue of political money is usually
to gain the profit of seigniorage for the public treasury, and often it has been the desperate expedient of nearly bank treatment of this remarkable series of monetary changes, probably un equaled in instructiveness to the student of monetary theory.
6 That is, it is made to conform as closely as do the values of gold in two different countries, fluctuating within the upper and lower limits of the gold-shipping points, as explained more fully under inter national trade in ch. 15. ˘ 10.
rupt governments. Governmental paper money differs from bank-notes in that its value does not necessarily depend on the promise of redemption by the issuer. It differs from prom issory notes and bonds in that its value is not based on the in terest it yields, but mainly on its monetary uses. The issue of paper money may save the government the payment of in terest on an equal amount of bonds. The promise to receive paper in payment for taxes or for public lands may help to maintain its value by reducing its quantity, but nothing short of its prompt redemption in standard coins makes it truly re deemable.
§ 11. Irredeemable paper money in America. The most notable examples of paper money in the eighteenth century were the American colonial currencies, the continental notes, and the French assignats. In all the American colonies be fore the Revolution, notes or bills of credit were issued which were in most cases legal tender. Parliament forbade the issues, but to no effect. Without exception they were issued in large amounts, and without exception they depreciated. The continental notes were issued by the Continental Congress in the first year of the war (1775), and for the next five years. The object at first was to anticipate taxes, and it was expected that the states would redeem and destroy the notes; but this was not done. The notes passed at par for a time, but depreciated rapidly as their number increased. It has been estimated that the country had less than $10,000,000 of coin before the war, and when, in 1780, more than $200,000,000 of notes were in circulation they were completely discredited : hence the phrase "not worth a continental." Specie then quickly came back into use.