Want of Elasticity of Paper Money. - William Stanley Jevons, Money and the Mechanism of Exchange [1875]
Edition used:
Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).
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Want of Elasticity of Paper Money.
A further objection to a paper money inconvertible into coin, is that it cannot be varied in quantity by the natural action of trade. No one can export it or import it like coin, and no one but the government or banks authorized by government can issue or cancel it. Hence, if trade becomes brisk, nothing but a decree of the government can supply the requisite increase of circulating medium, and if this be put afloat and trade relapse into dullness, the currency becomes redundant, and falls in value. Now, even the best-informed government department cannot be trusted to judge wisely and impartially when more money is wanted. Currency must be supplied, like all other commodities, according to the free action of the laws of supply and demand.
Some persons have argued that it is well to have a paper money to form a home currency, which cannot be drained away, and will be free from the disturbing influences of foreign trade. But we cannot disconnect home and foreign trade, except by doing away with the latter altogether. If two nations are to trade, the precious metals must form the international medium of exchange by which a balance of indebtedness is paid. Hence each merchant in ordering, consigning, or selling goods must pay regard not to the paper price of such goods, but to the gold or silver price with which he really pays for them. Gold and silver, in short, continue to be the real measure of value, and the variable paper currency is only an additional term of comparison which adds confusion.
Chapter XIX
Credit Documents
Much mystery has been created on the subject of money by those who assert vaguely that credit can replace coins, and that we have only to print sufficient bills and other promissory documents in order to have an abundant circulating medium. Credit has been said to multiply property and to perform all hinds of prodigies. When we analyze its nature, however, credit is found to be nothing but the deferring of a payment. I take credit when I induce my creditor to consent to my paying a month hence what might be demanded to-day; and I give credit when I allow my debtor in the same manner to put off the liquidation of his debt. Thus credit involves, as Locke very accurately said, "the expectation of money within some limited time." The debts, indeed, may consist of a definite quantity of any commodity. I may have to pay corn, pig iron, palm oil, cotton, or any other staple article, but, generally speaking, debts are debts of legal tender money.
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