Front Page Titles (by Subject) Possibility of Over-issue. - Money and the Mechanism of Exchange
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Possibility of Over-issue. - William Stanley Jevons, Money and the Mechanism of Exchange 
Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).
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Possibility of Over-issue.
When prices are at a certain level, and trade in a quiescent state, a single banker is, no doubt, unable to put into circulation more than a certain quantity of bank-notes. He cannot produce a greater effect upon the whole currency than a single purchaser can by his sales or purchases produce upon the market for corn or cotton. But a number of bankers, all trying to issue additional notes, resemble a number of merchants offering to sell corn for future delivery, and the value of gold will be affected as the price of corn certainly is. We are too much accustomed to look upon the value of gold as a fixed datum line in commerce; but, in reality, it is a very variable thing. The tables of prices analysed by me in the Statistical Journal for June, 1865, show that between 1822 and 1825 there was an average rise of prices to the amount of 17 per cent.; and between 1844 and 1847, and 1852 and 1857, the average rises were respectively 13 and 31 per cent. Such variations of prices mean that the value of gold is itself altered in the inverse ratio; and these variations are produced mainly by extensions of credit. Every one who promises to pay gold on a future day, thereby increases the anticipated supply of gold, and there is no limit to the amount of gold which can thus be thrown upon the market. Every one who draws a bill or issues a note, unconsciously acts as a "bear" upon the gold market. Everything goes well, and apparent prosperity falls upon the whole community, so long as these promises to pay gold can be redeemed or replaced by new promises. But the rise of prices thus produced turns the foreign exchanges against the country, and creates a balance of indebtedness which must be paid in gold. The basis of the whole fabric of credit slips away, and produces that sudden collapse known as a commercial crisis.
Now, what is true of credit generally, is still more true of the special form of credit involved in bank promissory notes. These purport to be payable in gold coin on demand, so that they are taken by every one as equivalent to the coin. Even bills of exchange can be paid in notes, and as regards internal trade, no difficulty would be felt in maintaining credit so long as promises to pay gold circulate instead of gold. But foreigners will not hold such promises on the same footing; and, if the exchanges are against us, the metallic, not the paper, part of the currency will go abroad. It is at this moment that bankers will find no difficulty in expanding their issues, because many persons have claims to meet in gold, and the notes are regarded as gold. The notes will thus conveniently fill up the void occasioned by the exportation of specie; prices will be kept up, prosperity will continue, the balance of foreign trade will be still against us, and the game of replacing gold by promises will go on to an unlimited extent, until it becomes actually impossible to find more gold to make necessary payments abroad.
Professor Cliffe Leslie, writing in Macmillan's Magazine for August, 1864, correctly pointed out, as I think, that speculative credit often raises prices for a time above their natural range. Representative credit, on the other hand, by which I suppose he means notes issued against the actual deposit of metal, obviously forms no augmentation of the currency, and can have no effect in raising prices above the level which would exist under a purely metallic system.
The actual exhaustion of the bullion of a country is no mere ideal event, for it is what occurred in this country in 1839, under the free system of note issue. The Bank of England had parted with almost the whole of its bullion and was only saved from bankruptcy by the ignominious expedient of a large loan from the Bank of France. The narrow limits of this book evidently restrict me from entering into historical and statistical illustrations, but it may be said, that the collapse which followed the crisis of 1839 induced severer distress and depression of trade than has ever since been known in this country. We now carry on industry and commerce many times greater than in 1839, and there is nothing to indicate that either the bank directors or the commercial classes are more cautious or farseeing than they then were. On the contrary, competition, speculation, and the bold erection of the widest affairs upon the narrowest basis of real capital is more common than ever. Knowing as we do the very narrow margin of real metal upon which our many great banks conduct their business, it is impossible to entertain for a moment the notion of allowing the paper currency of the country to rest upon the discretionary reserves of such competing bankers.