therefore, be conveniently substituted for it in the ordinary circulating medium, the chief use of this metal tends to a greater and greater extent to become that of paying balances between different countries and between different localities in the same country. For this purpose properly assayed and stamped bars of bullion can be used quite as well as coins. The nature of the question has also changed somewhat on account of the increasing importance of the freedom and ease of movement of gold which is involved in its more extended use in the payment of balances. For these reasons the importance of the seigniorage question has somewhat diminished, and the power of governments greatly to enhance the value of coins by such a charge is also much less than formerly.

6. Inconvertible government notes.-By these are meant government notes not directly or indirectly convertible on demand into standard coins. The most noted historical examples of this form of currency have been issued by governments in times of fiscal exigency, and have constituted a forced loan. They have been issued in fixed denominations, made legal tender, and otherwise fitted for circulation as money in order to increase their serviceability as a fiscal agency rather than for the purpose of providing commerce with an ideal monetary instrument. Few people nowadays would recommend their use as a medium of exchange except as a kind of last resort when other fiscal means have failed and a government is forced to adopt not such measures as it would, but such as it must. Nevertheless it is important and instructive to note the disadvantages of this form of currency, this being the price the people must pay for its use.

Why such notes depreciate, take the place of metallic currency, and become a secondary standard of value, has been explained in Chapter IV. The disadvantage of this

procedure is the rise and unsteadiness of prices which result. One more source of price fluctuation, namely, variations in the depreciation of the notes, is added to the two which may be regarded as normal, namely changes in the value of commodities and in that of gold. This cause of price movements is much more capricious than the other two, since subjective influences are more potent in this than in the other cases. The result is uncertainty in all commercial calculations. No one knows what the value of money may be from day to day or week to week. The only certainty is that prices will be unstable and subject to changes from purely subjective influences. Every business man must either suspend operations or become a speculator. Shrewd guessing and chance take the place of sound calculation and enterprise. The effect of this sort of thing upon industry is always injurious and sometimes deadly. Even the best habits are not always proof against the insidious influences of speculation in ordinary times, but, when sound business methods are rendered impossible by a fluctuating currency and men are compelled to speculate in order to live, commercial virtues are rendered inoperative and gambling is given a clear field. Even moral sensibilities become blunted under such circumstances, and business men and public servants practise and countenance actions which in normal times would not be tolerated. Witness the gradual smothering of the sentiment of financial honor and integrity and the appearance of a number of theories in support of public dishonesty in the French legislative bodies during the regime of the assignats and the mandats, and the rapid decay of legitimate industry under the blighting influence of the fever of speculation which reigned during that period. Witness also the greenback heresy in the

* See Andrew D. White's pamphlet on "Paper Money Inflation in France."

United States and the wild monetary theories which clouded the vision of many of our public men and of a considerable portion of our population for more than a generation, the evil effects of which have not yet ceased to trouble us. These are the legitimate fruits of inconvertible government notes, and they render the infliction of that kind of currency upon a people one of the greatest of national calamities.

7. Convertible government notes.-This class of notes is characterized by the fact that they are redeemable on demand in coin, and are thus exempt from the defect of depreciation. Two varieties should be distinguished and separately considered :

:

A. Silver and gold certificates.-These may be described as notes issued to take the place of certain coins, and completely covered by the deposit of said coins in the public treasury. As typical of these may be taken our silver and gold certificates. The former were issued to take the place of silver dollars, which were not readily accepted by the people, but which the Bland Act practically compelled the Secretary of the Treasury to force into circulation. This act ordered the coinage into silver dollars of not less than two nor more than four million dollars' worth of silver monthly. Partly on account of their inconvenient size and weight, these coins were speedily transferred to the treasury in the payment of public dues and tended to remain there in lieu of gold or other forms of currency. The expedient was therefore tried of issuing certificates of convenient denominations and making them redeemable on demand in silver dollars, a number of which, exactly equal to the face value of the certificate issued, being stored away in the vaults for that purpose. The expedient succeeded, and these notes have constituted a part of our circulation from that time until the present day. Our gold certificates

are similar in character, except that they are issued in large denominations and are redeemable in gold.

The utility of this class of notes cannot be questioned. They are more convenient than the coin they represent, and they obviate the loss which is necessarily occasioned by the wear and abrasion of coins in circulation. In these respects, however, they are no better than other forms of paper currency of the same denominations and like them redeemable in standard money. The real problem, therefore, concerns the desirability of the manufacture of the classes of coins which they represent. Regarding gold coins there can be and there is no question in the United States. So long as this metal continues to be our standard of value we shall need to put it up in the form of coins, and since, in such cities as New York, Chicago, Philadelphia, and Boston, large sums must daily be transferred between banks in the payment of balances, gold certificates in large denominations must be regarded as a useful and economical device. Regarding silver dollars a just decision is not so easy to reach, and opinions are divided. Gold monometallists, as a rule, believe that, if they are to be retained as a permanent part of our currency, they should be reduced to the grade of a subsidiary coin, and assimilated in weight to our half- and quarter-dollars and dimes.

B. Treasury notes.-The second variety of convertible government notes referred to above is characterized by the fact that, while the government guarantees their redemption in standard coin, it does not keep on deposit for that purpose the face value of the notes and does not retire them when once redeemed, but treats them as cash and pays them out again for ordinary expenses or in exchange for standard coin. A good illustration is furnished by our so-called greenbacks and Sherman notes. The former is an inheritance from our inconvertible currency period. When

specie payments were resumed in 1879, something over $346,000,000 of the old notes were left in circulation. The Secretary of the Treasury was ordered to redeem them on demand in gold, but was denied the power to retire them. The Sherman notes were issued under authority of an act in 1890 directing the Secretary of the Treasury to purchase every month at its market value 4,500,000 ounces of silver, and to issue in payment therefor treasury notes redeemable either in gold coin or silver dollars at his option. Since the act also made it the duty of the Secretary to maintain all forms of our currency at a parity with gold, and since the metallic value of silver dollars was at the time but little more than half their face value, the redemption of these notes on demand in gold was a practical necessity. As in the case of the greenbacks, the Secretary was also forbidden to retire these notes. Before the repeal in 1893 of the clause of this act authorizing the monthly purchase of silver bullion about $150,000,000 worth of notes were issued. The act of 1900 provided for the gradual retirement of these notes. Consequently only a small quantity are at the present time in circulation and these will be gradually withdrawn. Treasury notes similar to these in essentials have been circulated from time to time in other countries, but ours is the most notable attempt permanently to maintain a circulating medium of this sort.

In considering the merits and defects of this variety of notes, it should be observed that the only rational purpose of their employment as a permanent part of the currency is to supplement coin. Unlike the silver and gold certificates considered in the preceding section, they are not intended to circulate in the place of certain classes of coins. On the contrary, they are only partially covered by a coin reserve, and they are issued for the purpose of expanding the currency.