Metal and Paper Fiduciary Money

The almost universally accepted opinion among economists rejects both of these views, while recognizing in each a cer tain limited aspect of the truth. The cost-of-production view overlooks the features in which paper money differs from or dinary credit paper. The value of a man's promises to pay depends on his reputation and his resources ; the resources con stitute the basis of value. Bonds have value because they yield interest and are payable at a definite time in standard money. But paper money, lacking this basis for its value, has another basis in its money use, in its power to buy goods.

§ 14.

Political money; theory and practice. The theory of paper money here outlined explains the value of paper money as a special case of political monopoly. As the power of any private monopoly over price is relative, not absolute, so is that of the government over the value of political money. The money use is the source of value of the paper notes. It is this that gives the economic condition for value in paper money and strictly limits the power of the govern ment—a fact overlooked by the fiat theorists. Business con ditions remaining unchanged, the limit of possible issue with out depreciation is the number of units in circulation before the paper money was issued, the saturation point of full weight and full-value coins. Under wise and honest con trol and regulation, political paper money might serve the monetary function very effectively. Since the end of the

World War, from various quarters has been advanced the plan of an international paper money, to be issued by some organization like a world federal reserve bank. The amount and value of the notes would be regulated in conformity with the gold standard. To monetary students this plan is not new and is theoretically sound except for the political difficul ties likely to arise.

Resorted to in desperate extremities, political money has usually proved to be a costly experiment. Once the issue of political money begins to be excessive, its further limitation proves to be most difficult. A result usually unintended is the derangement of business and of the existing distribution of incomes. The rapid and unpredictable changes in prices give opportunity for speculative profits, but injure legitimate business. This incidental effect on debts and industry offers the main motive to some citizens for advocating the issue of paper money. It is peculiarly liable to be the subject of political intrigue and of popular misunderstanding. It is this danger, more than anything else, that makes political money in general a poor kind of money.

RErmaucze.

Jevons, W. H., Money and the mechanism of exchange. N. Y. Ap pleton. 1875. Chs. VIII, XVII, XVIII.

John:on, J. P.,

Money and currency. Bost. Ginn. 1905. Chs.