GOVERNMENT PAPER OR CREDIT MONEY Wide Acceptability of Government Credit From the creditor's point of view, credit represents the trust he has in the debtor; from the debtor's point of view, credit is borrowing power, the power he has to induce the creditor to put economic goods at his disposal for a period of time, on the prom ise of repayment at maturity. The power of the borrower coin cides in all respects with the trust of the creditor, the one being but an opposite aspect of the other.
A government enjoys higher borrowing power than other borrowers. The war loans of 1914-1919, towering into scores of billions, exceeded all previous credit operations. Such credits indeed were quite beyond the estimates of the most sanguine financier before 1914; the way the people of the belligerent coun tries have loaned to their governments is amazing. Nevertheless there are limits to a government's credit, however elastic they may seem under the spur of patriotism, efficient publicity, and appeal, and practically every existing government has at some time experienced a want of unhesitating financial support.
The emphasis here is on the breadth of government credit. People visualize the state only dimly and consequently are prone to feel it is quite omnipotent. Since it draws its powers from the people and is held to be as just as their ideals, it is believed to be not only able but also willing to keep its promises. It takes a catastrophe to shake this confidence. Credit instruments of the state, in small round denominations and payable on demand, are, because of this high confidence in the government, most likely to be freely accepted by any citizen of the country and to pass read ily from person to person at par, rousing scarcely a thought of having them redeemed in metallic money. One man buys goods from another, but instead of paying standard money, or giving his note, or having the debt charged on a book account, may pay with a note issued by the government, which note has come into his hands by some previous business transaction. That is to say, the first man was for a time the creditor of his government and now the second man becomes creditor. This ready shift in the
ownership of a government note and in the personnel of the cred itor constitutes its circulation. So long as the government note circulates freely it performs all the functions of money and is popularly and rightly understood to be money.
Classification of Government Credit Money Government paper money is of three sorts, the classification being based on the proportionate reserve of standard money which the Treasury keeps on hand to redeem credit money, and to instil into the people's mind the government's intent and ability to redeem on demand. The longer the credit money stays in circulation, that is, the fewer the presentations for re demptions, the smaller may this reserve be; but the very size of this reserve may be a deciding factor in delaying such presenta tions.
Certificates. The first class of government paper has full face value in standard money in reserve. The silver dollar by reason of its size and weight is awkward and burdensome for commercial uses; except in limited areas of the country which have become thoroughly habituated to its use, it will not circulate, but drifts at once to bank reserves and the government Treasury. Nor is its circulation desirable, for the losses from erosion are heavy. A simple device used by the government to obviate these difficul ties is to give to any depositor of silver dollars or silver bullion cer tificates of deposit certifying that the government holds on hand face value of silver which is payable upon demand.
As only a few of the certificates will be presented for re demption, it is not necessary that much of the silver be coined.
Certificates are really warehouse receipts and, like any re ceipt of this kind, their value takes into consideration the char acter of the warehouseman and his warehouse. Because the government and the Treasury stand in such high esteem, cur rency certificates are accepted generally and without equivoca tion, but that this form of paper money does not add to the total of existing currency is nevertheless evident.