8. Real Property Reserve. - William Stanley Jevons, Money and the Mechanism of Exchange [1875]
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Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).
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8. Real Property Reserve.
Many currency theorists have held, that in securing the repayment of notes we need not restrict ourselves to a single commodity gold, but may mortgage for the purpose, land, houses, or any kind of fixed real property. The celebrated scheme of John Law was of this nature. In his remarkable tract on "Money and Trade Considered, with a Proposal for Supplying the Nation with Money," published in 1705, he suggests that commissioners should be appointed to "coin" notes "to be received in payment where offered," that is, I presume, as legal tender. He sets forth three alternative modes of issuing these notes on land security, the first and simplest being to lend them to landowners at the ordinary interest, to the extent of one-half or two-thirds of the value. He endeavours to provide against depreciation of the notes by taking care that the prices are always estimated in silver money.
The assignats of the French Revolutionary Government represented land assigned, namely, portions of the confiscated estates of the Church. They were to be received back and cancelled as the lands were bought by the public; but, as the price of the land was not fixed, no proportion was established between land and paper, and no amount of land could prevent the assignats from falling as they did to one two-hundredth part of their original value. In the subsequent issue of Mandats, an attempt was made to fix the price of land in mandats, but this scheme also failed. The inconvertible land mortgage notes, issued by Frederick the Great to recruit his treasury exhausted by wars, were of somewhat the same nature, but bore interest.
Land is doubtless one of the best kinds of security for the ultimate repayment of a debt, and is therefore very suitable when money is lent for a long time. But representative bank-notes purport to be equivalent to gold payable on demand, and nothing is less readily convertible into gold on an emergency than land. In this respect a reserve of real property is worse than a reserve of exchequer bills or consols.
This method of providing paper money has generally been advocated on the ground that the quantity of money in circulation might thus be greatly increased, and the wealth of the nation augmented. It could readily be shown, however, that an increase of the money in circulation will lead to a reduction in its value. In any given state of industry only a certain quantity of circulating medium is needed, and were the notes really convertible into definite quantities of land or any other substantial commodity, the excess of notes would ultimately be presented for payment. To suppose that the currency could be made equal in aggregate value to any large part of the lands of the country is evidently absurd.
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