Chapter CLXI: Section VI: Paper Money—A Curse Or A Blessing? (12)

911 When at times in which paper money is looked upon with diffidence,
peasants and others bury their metallic money, this advantage of
course is lost. On the other hand, the exportation of precious metal
money, caused by the emission of paper money, must not be considered
a necessary evil, but rather as the condition precedent which in
most cases makes the above advantages of the paper money possible
for the first time. Compare _Ad. Wagner_, Die russische
Papierwährung (1868), 22, 24, 33. _Ricardo_, Proposals for an
economical and sure Currency, 1816, estimated that England, after
the abolition of the bank restriction, needed twenty million pounds
sterling. The interest on this amount of capital inclusive of wear
and tear etc., should be estimated at at least ten percent.; that is
for the whole kingdom at at least from two and one-half to three
millions a year. On this _Ricardo_ founded his proposal to base the
bank notes on gold bars. In its time, the essay: Guineas an
unnecessary and expensive Incumbrance on Commerce, or the Impolity
of repealing the Bank-Restriction Bill considered (London, 1802),
met with great approval.

_ 912 Adam Smith_ calls attention to the analogous case in which a
manufacturer replaces a costly machine by a cheap one, sells the
former and employs the difference between the old one and the new in
enlarging his business. (W. of N., II, ch. 2.) When, indeed, all
nations have introduced the use of paper money, the greater portion
of the advantages which the one nation was able to obtain by its
means cease, and the only ultimate result is a depreciation of the
value of money and of the precious metals. Formerly the advantage
reaped by the single nation that emitted paper money was greater
than its share in the depreciation. (_Wolowski_, Enquête de 1865,
108.)

913 When E. Seyd calls bank notes more costly than metallic money,
because the former in England require an outlay for administration
of 1-½ per cent. per annum, while the wear and tear of metallic
money amounts to 1 per cent. only in 20 years (Statist. Journal,
1872, 511), he overlooks the loss in interest and the costs of
coinage in the latter case.

914 Related to this is the fact that in France, during the
assignat-crisis, the large bills of 10,000 francs were harder to get
rid of than the small ones. (_A. Schmidt’s_ Pariser Zustände, III,
22.)

915 The numbering of paper money. A state which should neglect this
would not only reserve to itself the possibility of an unlimited
increase, but would surrender all control of its officials charged
with the emission of the paper money. _Law_, Trade and Money, 162,
advises that a large money reward should be paid to any one who
should show the existence of a higher number than allowed by law, or
of a duplicate number. And indeed, as comptroller-in-chief, he
caused the _prévôt des marchands_ to be removed, because charged
with the duty of burning the paper withdrawn from circulation, he
(the _prévôt_) noticed that the same number reappeared several
times.

916 If a traveler wished to pay his inn-keeper in the note of a bank
entirely unknown in the place, the latter would certainly refuse it.
If, on the other hand, the traveler were to offer him a silver coin,
the stamp and inscription of which were not familiar, still it would
be taken at the value of the metal it contained, after deduction
made of the costs of testing it, re-coining it, and compensation for
the trouble caused. Ignored by _Berkeley_, who, indeed, considered
metallic money nothing but “counters” or tickets (Querist, No. 23,
26, 441, 475), and who ascribes important advantages to paper
money,—which by “stamp” and “signature” is made as costly as gold
(440)—over metallic money (226).

917 Any person who has witnessed a tax-execution, or sale of property
for the non-payment of taxes (_Stuerexecution_) will admit that a
tax receipt is at least as real goods as an umbrella or a glass
window that protects one from the storm. _Michælis_ considers the
amount of running payments to the state for duties, taxes etc., as
the only right basis for full-value paper money. (Berliner
Vierteljahrsschrift, 1863, III.) Better yet when _Höfken_ advises
that only as much paper money should be issued as amounted to the
average balance (_Bestand_) in the national treasury. The tax-basis
is defended with great warmth by _L. Stein_. Louis XIV., in 1704
issued paper money bearing 7 per cent. interest, the acceptance of
which by all the royal officers of the treasury was prohibited!
(_Dutot_, Réflexions, 863, Daire.) _Law_, Trade and Money (1705)
ascribes to parcels of land the greatest constancy of value, because
they cannot be replaced, because they can be neither increased nor
decreased, and because they help to produce all other goods (p.
170). While silver cannot but depreciate, they have a prospect but
to rise (188). Hence _Law_ recommended notes based on parcels of
land as the best money. (163, 191, 195.) Similarly, _Benjamin
Franklin_, Modest Inquiry into the Nature and Necessity of a Paper
Currency: and the Paper Money of Pennsylvania, New York and New
Jersey was actually based on parcels of land, and was to be
extinguished by the enfeoffed owners, and the interest paid by them.
(_Ebeling_, Gesch. und Erdbeschreib, von N. Amerika, III, 621, IV,
649.)

_ 918 F. Renonard de Ste Croix_, Voyage aux Indes orientales (1810), I,
32, describes a species of paper money based on parcels of land
which had lost 40 per cent. of its nominal value, although the
holders of them were invested with the fief at only one-half their
value. The French _mandats territoriaux_ of 1796, declined in five
months to 5 per cent. of their nominal value, although they
contained the provision that the holders might, without public sale
(_Auction_), have a certain amount of the national estates allotted
to them in exchange for the _mandats_. The assignats were still more
defective after their redemption (at the _Caisse de
l’extraordinaire_), which was at first intended, and their drawing
of interest were not fulfilled. Leaving the tax-basis out of
consideration, the notes might, at the sale of the national estates,
be brought in as means of payment: a thing which would not have been
inoperative, provided the amount of the paper money had been
strictly limited to the price of the pieces of land estimated in
money. On the 1st of April, 1790, 400,000,000 francs in assignats
were issued, and in September, 800,000,000 more, both together about
equal to the secularized property of the church. (_Ad. Schmidt_,
Pariser Zustände, II, 97.) But as afterwards all proportion between
these two magnitudes ceased, or rather as up to January 1, 1793,
3,626,000,000 assignats were issued; up to September, 1794, over
8,800,000,000; up to September, 1795, 19,700,000,000; and finally up
to September, 1796, 45,578,000,000 francs, of which perhaps
6,500,000 were either burned or demonetized, the price of the
national estates on lands must naturally have risen as vastly as the
assignats declined.

919 The paper money issued by Colbert’s successor, Chamillard, soon lost
on account of its too great amount, 25 per cent. of its value, spite
of the fact that it bore interest, and that ¼ of all payments to
private persons had to be made in it. (_Forbonnais_, Recherches et
Considérations, II, 182.) When the people of the United States, in
1775, issued paper money, it did not decline in value up to the end
of 1776, so long as the amount did not exceed $20,000,000, as it was
considered a matter of honor to take it at par. Afterwards, when the
amount issued continued to increase, not even the law that a refusal
to accept it, or insisting on taking it below par, should be
punished with the loss of the commodity, and that the guilty party
should be declared a national enemy, could keep it from declining in
value; so that in May, 1871, a dollar in specie was worth $200.5 in
paper. Compare _Franklin_, Works, ed. Sparks, II, 421, VIII, 328,
505.

France, during the Reign of Terror, on the 2d day of April 1793,
threatened the claiming of a discount in the taking of assignats
with six years’ confinement in chains, and on the 1st day of August,
on Couthon’s motion, with twenty years’ confinement. In addition to
this, maximum prices for the principal necessities of life were
fixed and the exceeding of them was punished by severe penalties;
and in France, and still more in the neighboring conquered
countries, there were many persons who preferred to take assignats
instead of payment rather than permit themselves to be robbed by
requisitions. And yet on the 4th of June, 1796, one franc in specie
exchanged for 800 francs assignats. Compare _Büsch_, Geldumlauf, III
(§ 58 ff., _d’Ivernois_, Etat. des Finances Française, 1796).

920 The Prussian treasury notes of 1806, by virtue of a decree published
in 1807, were to be taken by all at a rate of exchange to be
officially published from time to time. Between December 1, 1807,
and February 28, 1809, the highest “normal course of exchange” was
71, and the lowest 27 per cent. In January, 1815, a refusal to take
them at par, except in certain cases, was threatened with from 500
to 1,000 thalers of a money-fine or from 6 to 12 months’
imprisonment. But indeed, in December, 1812, of 8,000,000 thalers,
there were only 731,625 still circulating. Compare § 7 of the decree
of the 19th of January, 1813. In April, 1815, it was ordered that
the half of all taxes should be paid in such notes, or that if not,
8-½ per cent, should be added as a penalty. This penalty, reduced in
1827 to 1 silver groschen, was not formally abolished even in 1870,
although it had long fallen into disuetude. There was a run of the
owners of the notes in 1830, for redemption, and again in 1841 and
1848; in 1848 to the extent of at most 40,000 thalers in one day,
and altogether not over 100,000 thalers. (_Bergius_, in the Tübinger
Zeitschr., 1870, 226 ff.) About 1846, it was estimated that scarcely
1/250 a year of Prussian paper money was presented for redemption,
while ⅓ of the state receipts came in in the shape of paper money.
(_Rau_, Archiv., V, 125, 207.) The Saxon treasury notes never lost
over 2 per cent., although the state treasury redeemed them up to
1804 only at an _agio_ of 9 _pfennigs_ per thaler, and afterwards of
1 _pfennig_.

921 Those entitled to make money claims are either compelled to accept
the paper money at its nominal value or only at its current value
for the time being. In the latter instance, the unjust compulsion is
much smaller, but at the same time the whole expedient is much less
productive to the state; and hence the former is the more usual. It
was provided in Austria on the 22d of May and the 2d of June, 1848,
that the former should be the rule, and that the latter should
govern in cases in which gold or foreign silver had been stipulated
for. (_Höfken_, Oesterreichs Finanzprobleme, p. 53.) On the 7th of
February, 1856, it was permitted to contract by express promise for
loans in the metallic currency of the country, both for the interest
and the repayment of the principal. Hence a species of
parallel-currency. If it be made entirely impossible for private
individuals to protect themselves against the compulsory circulation
of paper money, the more prudent are forced to send their capital
into foreign countries, which operates very disadvantageously to
poor countries especially. (_Wagner_, Tübing. Zeitschr., 1863, 441.)

922 Thus, for instance, the Frederick coins, and for a time the French
assignats were helped by the popular enthusiasm, while Gustavus
III., of Sweden, could give little value to his paper. (_v.
Struensee_, Abh., III, 577.) In France, in 1796, 2,400,000,000
_mandats_ were issued instead of all the outstanding assignats; that
is, as many as there were assignats at the close of the year 1792.
And yet the latter were then only 25 per cent. below par; the
former, before one month had elapsed, 80, and in nine months, almost
98 per cent. below par. (_St Chamans_, Nouvelle Essai sur la
Richesse des Nations, p. 150. _A. Schmidt_, Parisier Zustände, III,
121 ff.) In Austria, in 1811, the volume of paper money was
contracted, but in a manner so violent and destructive of credit
that its rate of exchange did not rise in consequence. (Tub.
Zeitschr., 1763, 1874.) After 1848, also, the rate of exchange of
Austrian paper money was much more perceptibly influenced by the
variations in the political state of affairs than by the changes in
its volume. (Tub. Zeitschr., 1856, 129.) In the summer and winter of
1866, about 650,000,000 paper rubles circulated, with scarcely any
increase or decrease; and yet the ratio of exchange was, during a
part of the summer, 66, and in winter, 84 per cent. of the silver
value of the ruble. (_Wagner_, Russ. Papierwährung, 74.) Instances
in which the increase in the price of commodities began to be more
general only after the volume of paper money had decreased; in
Austria, in 1851 and 1866; in Russia, in 1857 (loc. cit).

923 Then precious metal money becomes a commodity of which great stores
may be collected in the country itself, at the banks, but chiefly
for foreign trade. It is said that Austrian business men in 1860 and
the following years invested “hoards” to the amount of several
hundred million florins in exchange on metallic-currency countries.
(Tüb. Zeitschr., 422.) Good paper money will never drive out the
whole supply of cash money out of a country, because a good portion
must always be kept for purposes of redemption; depreciated paper
money operates much farther in this direction. Even the exportation
of small change may become a profitable speculation as soon as the
amount of depreciation of paper money exceeds the seigniorage. Then
usually small change of a worse kind is stamped, as, for instance,
in Austria, copper instead of silver; and in 1860, 12 millions
florins of paper small change. Here the exportation of the better
money is not a consequence, but the motive to the manufacturing of
the worse.

924 During the assignat-period it could happen that a land owner, after
the term for which he had farmed out his land, might be compelled to
surrender it to the farmers, for the reason that the taxes,
requisitions, etc., paid by the farmers, amounted to more than the
farm rent. In the case of the former, the calculation was based on
the recent depreciated value of the assignats; in the case of the
latter, on the higher value the assignats had at the moment that the
contract was concluded. (_Büsch_, Geldumlauf, III, 62.) A writer in
the Revue des deux Mondes, April 15, 1865, thinks that one reason
why the American civil war was so popular in the northwest was
because the paper money issued during the rebellion made it easy for
that part of the country to pay off the mortgage-debts which had
burthened it since 1848. Even of the two law catastrophes, _Duclos_,
in his memoirs, remarks that they produced a great admixture of
those who had been formerly separated by differences of class and
wiped out the previous ideas of decorum, fitness, etc.

925 During the time that the clipping of the coin was practiced, it is
scarcely possible to show that money was debased below 11 per cent.
of what its value should have been. See, on the other hand, § 3. In
Austria, in 1810, a person had to give 1,200 florins in paper money
for 100 florins in silver. (Tüb. Zeitschr., 1861, 593.) In North
America, in 1781, it took $280 in paper to purchase $1 in silver.
(_Ebeling_, Gesch. und Erdbeschreib., von N.A., 1856, III, 580; IV,
440; V, 437.) During the American civil war, the paper money of the
Southern States declined to ½ (December, 1863) and even to 1/35
(October, 1864) of its nominal value. Compare _Hock_, Finanzen der
V. Staaten, 514 ff. Observed even by _Storch_, Handbuch, _Rau’s_
translation, III, 141 ff. (See, on the other hand, _C. King_,
Thoughts, p. 113.) In Paris in July, 1795, the greater number of
commodities estimated in assignats were worth as much as if the rate
of exchange of the latter was 6-14 per cent. of their nominal value,
while it actually amounted to only 3-½ per cent.

926 Where an _agio_ of exchange of metallic money as compared with paper
is prohibited, the decline of the latter will manifest itself not
only in foreign rates of exchange, but also in the price of bars of
the precious metals.

927 The changes of the agio or premium depend mainly on the supply and
demand of the precious metals, that is, on the extent and intensity
of the business transactions which have to be made in these metals
themselves. (_Wagner,_ Russ. Papierw., 87.) Hence, for short periods
of time, it may be said in a paper currency country, that business
transactions based on cash money have a great element of variation
in them. (_Wagner_ in _Bluntschli’s_ Staats-wörterbuch, III, 971.)
The purchase and lease-hold prices of fixed capital, of houses, for
instance, rise much less because most people look upon the distress
as transitory, and of short duration. (_A. Walker_, Sc. of W., 133.)
In Austria in 1859, the rise of the agio of exchange of silver from
par to 40 per cent., and its subsequent fall within 7 months to 20
per cent., left the price of coin almost entirely unaffected. (_A.
Wagner_, Gött. Anz., 1860, 114.) That country people in general
suffer more from a bad paper currency than the towns people and
inhabitants of cities, see _Bonamy Price_, Currency and Banking,
175, seq. In the northern states of the American union, in 1864, 12
home kinds of commodities had risen 148 per cent., 7 foreign kinds
of commodities, 164 per cent., and 7 which could be obtained only
from the southern states, 353 per cent. (_v. Hock_, 186 seq.) As too
great issues of paper money are so frequently made on account of
war, it is comparatively easy to understand why it is that articles
for which war creates a demand should rise in price very soon and
very high; while the very opposite happens in times of
taxation-distress, in the case of a great many articles of luxury,
which can readily be dispensed with. _Büsch_ remarks (Werke, VII,
91), that retail dealers frequently raise their prices in order not
to be obliged to pay out so many small coins as change for the paper
dollar.

928 Compare _Hufeland_, N. Grundlegung, II, 241. Self-seeking
undertakers (_Unternehmer_ = men of enterprise) have, on this
account, both in Austria and Russia (_Wagner_, Russ. P.W., 105), but
more so in North America (_v. Hock_, 556 ff.), opposed measures
intended to restore values (_Valuta_), on the ground that they were
anti-national. Even _Sperausky_ experienced this in 1809, when he
published very correct ideas on paper money, while in the “fairy”
times of Catherine II., no one even thought that state paper money
is a state debt. (_Bernhardi_, Russ. Geschichte, II, 2, 636.) One of
the principal representatives of this course is _H. C. Carey_, Our
Resources (1866), and in the New York Herald, 1865. On the other
hand, _Faucher_ rightly calls the more active exportation of
countries, with a bad paper currency, an exportation of barbarous
nations, the commerce of misery, to which any price paid in metal or
in any higher-standing product of civilization is acceptable.
(Vierteljahrsschrift, 1868, IV, 167.) The nation in the aggregate
loses in international trade for the simple reason that its foreign
creditors will accept its paper money at most at its current rate of
exchange against specie, while foreign debtors force it upon the
nation at its nominal value.

929 The different provinces also of a large empire may have very
different degrees of depreciation of the same paper money. Thus, in
the interior of Russia its rate of exchange against specie had for a
long time not declined beyond 50 per cent. of its nominal value;
while the foreign rate of exchange supposed a decline to 33-⅓ per
cent. (_Cancrin_, Weltreichthum, 68.)

930 An enhancement of duties, taxes (_Abgaben_) etc., will seldom be
able to progress in the same measure as the paper money sinks; in
any case, a law would be necessary to effect this, which, however,
comes always later than the decline. (_Sismondi_, Du Papier Monnaie,
27.)

_ 931 Wagner_, Russische Papierwährung, 142, estimates that the Crimean
war depreciated the average current rate of exchange of Russian
paper money by 11.1 per cent., the Italian war of 1859 by 14.5 per
cent., the German war of 1866 by 19.4 per cent., spite of the fact
that Russia did not participate directly in the last two wars.

932 The more than forty-five milliards French assignats, estimated at
their rates current, really produced to the state only about six
milliards. (_Gentz_, Histor. Journ., 1800, II, 317, after
_Lecoulteux_.)

933 Very well explained by _H. Thornton_, Paper Credit of Great Britain,
ch. 10. As to how, in Austria, the paper-money crisis contributed to
bring the rigid national resources into a molten state, and to shake
off the national inertia by the feeling of insecurity, see _Buquoy_,
Theorie d. Wirthschaft, 1816, 347 ff. _Schäffle_, System, 3 aufl.,
254 seq., thinks that if Austria should first adjust its values, and
then, in case of another war, have recourse to a second
depreciation, the disastrous disturbances of its national economy
consequent herein would be produced twice instead of once, and not
without reason.

934 The Prussian treasury-bills stood, in June, 1809, at 36 per cent. of
their nominal value; June, 1810, 84-½ per cent.; January, 1812,
13-½; December, 1812, 44-½; June, 1813, 26-½; July, 1813, 24-½;
December 31, 1813, 49-½; January, 1815, 88; January 5, 1816, 99 per
cent. Austrian paper money expressed in terms of metallic money,
amounted, on an average, between 1849 and 1855, to 292,000,000
florins: but at certain moments, it fluctuated from 231,000,000 to
337,000,000. (Tübing. Zeitschr., 1856, 124.) The agio of silver
fluctuated during the _Bancozettel_ (bank-billets, a species of
Austrian paper money) period from one day to another on Change 40
and even 100 per cent.: thus, on the news of Napoleon’s entry into
Paris, between the 25th of March and the 4th of April, from 330 to
440; on the receipt of the news of the result of the battle of
Waterloo, in three days, from 458 to 412; after Napoleon’s
abdication, from 412 to 320. (_Gentz_, Werke, V, 62.) _Huskisson_
rightly calls a depreciated paper currency a much worse thing than
clipped coin: the clipping of the coin is, so to speak, one great
blow after which people can again calculate with certainty; but bad
paper money is one continual fluctuation.

935 “The only difference here is that it is not left to individuals to
say whether they will join in the game or not.” (_Helferich._)

936 During the later assignat-period every house was full of
commodities, every pocket of samples; every “exquisite” and every
lady was a merchant, because no one had any further confidence in
the money. People had retrograded to the barbarous condition of
trade by barter. (_Goncourt_, Histoire de la Société française
pendant le Directoire, 1854.) The French constitution of 1795 fixed
the salaries of members of the Directory at the value of 50,000
_myriogrammes_ of wheat (art. 173, 68). In Delaware, while the
depreciation of paper money lasted, farm rent was usually required
to be paid in produce. (_Ebeling_, V, 37.)

937 “Of all contrivances for cheating mankind, none has been more
effectual than that which deludes them with paper money.” (_D.
Webster._) The American Secretary of the Treasury, _McCulloch_,
says, in the report of December 7, 1868, of the legal tender notes:
“there can be no doubt that these acts have tended to blunt and
deaden the public conscience, and they are chargeable in no small
degree with the demoralization which so generally prevails.”
_Niebuhr_ attributes the decline of old Spanish honesty which was
formerly so much relied on in all great money centers, principally
to the _vales_. (Nichtphilol. Nachlass, 489.)

938 This calls to our mind the impersonal mass-crimes to which our own
times so frightfully incline, when many a man who would recoil in
horror from an ordinary act of pocket-picking or from manslaughter
with intent to commit larceny, robs thousands in cold blood by means
of a swindling enterprise, or, for the sake of a fraudulent
insurance, destroys the lives of a whole ship’s crew.

939 Saxon loans of two million thalers treasury notes (_Kassenbillets_),
August, 1813, which were then to bear interest in silver and to be
paid in silver. The purchase of the precious metals, or loans made
by the state in foreign countries, with the intention of redeeming
paper money, effect the same end at a much greater cost. (_Peschel_,
D. Vierteljahrsschrift, 1858, III, 254.) If the currency consists of
bank notes endowed by the state with compulsory circulation and an
irredeemable character, such a metallic loan made in order to
reimburse the bank for a loan to the state in depreciated notes is a
gift made to the bank without reason; and the metallic money brought
into the country flows back into foreign parts when the bank
restriction is removed, because it, together with the appreciated
notes, creates a too abundant circulation.

940 Although in England the suspension of the redemption of notes had
lasted from 1797 to 1819, depreciation of notes during the greater
part of this time either did not occur at all (Summer of 1797 to
1799, 1802 ff.) or was very small; and even during the last five war
years, it did not amount to much over 30 per cent. About 1817, the
notes of themselves again rose to par, and had lost but little
during the following years, in consequence of the great loans of the
continental powers in the English market. Under such circumstances,
the repeated promise of the state to make the notes redeemable at
their full nominal value was certainly a cogent reason for the
Peel’s Act of 1819. In favor hereof are especially _Tooke_, Hist. of
Prices, II, p. 60 ff., and _J. S. Mill_, Principles, III, ch. 13.
Opposed to it, the so-called Birmingham-Atwood school and also _Lord
Ashburton_, in his statement before the Agricultural Committee,
1836. But according to _Rob. Muschet_, Tables, exhibiting the Gain
and Loss to the Bondholders arising from the Fluctuations in the
Value of the Currency (1826), the state creditors, on the whole,
lost more by the depreciation of the notes than they gained by their
subsequent rise. _Ad. Wagner_ also is decidedly in favor of the
course A.

941 This has occurred not unfrequently in the case of the paper money of
subdued revolt: thus, for instance, the Hungarian of 1849; in the
case of the Southern Confederacy. But the assignats, too, came to
this end, although, according to _Büsch_ (Werke IX, 526), the
intentions of the country at first were good; and in Austria, in
1810, many prophecies looking in this direction were made. (Per
contra _Rehberg_, Sämmtl. Schriften. IV, 334.) Not very differently
did it fare with the Swedish coin-tokens (_Münzzeichen_) of Charles
XII, which were altered 7 times between 1715 and 1718; and where
besides, the tokens called in in a much too short space of time were
transformed into small change coins 1/32 their value hitherto.
(_Brückner_ in _Hildebrand’s_ Jahrb. 1864, I, 161, ff.)

942 Thus it was, for instance, in Austria, in 1811 and 1820, at 1/5 and
2/5 of the nominal value, in 1799 in the United States, in 1813 in
Denmark with the currency notes (_Courantzettel_), in 1816 in Norway
with the royal bank dollar notes, in Sweden in 1814 with the bank
notes (_Bancozetteln_) at 37-½ per cent., in 1839 in Russia with the
_bankassignationen_, at 2/7 of their nominal value. Of theoretical
writers this course is recommended among others by _Jacob_,
Staatsfinanzwissenschaft, § 980 ff.; _Nebenius_, Œff. Credit, 2
Aufl., ff.; Deutsche Vierteljahrsschrift, 1841, I, 65; _Rau_,
Lehrbuch, III, § 528; _Helferich_, Tüb. Ztschr., 1856, 435 ff.
According to _v. Rotteck_, Lehrbuch, IV 402, it may be assumed that
paper money is spread among the people of a country in proportion to
their resources: which is also the hypothesis on which all direct
taxation is based. Hence the gradual depreciation of paper money
operates like the imposition of a tax and the _reduction of value_
(_Deralvirung_) is, so to speak, only the release of the same.
Besides _Gentz_ (Werke by Schlezier, IV, 58) shows from the example
of Austria in 1811, that in the case of the taking up of a
depreciated paper currency it makes a better impression to give 100
florins in specie for 1,000 florins in paper, than 200 florins in a
new kind of paper. The holders of the old paper money have now lost
confidence in all paper currency. Of similar import is the immediate
abolition of the compulsory circulation of paper money at its
nominal value (_Prince Smith_ in _Faucher’s_ Vierteljahrsschrift,
VII, 126 ff.), and the introduction of compulsory circulation in
accordance with the day’s quotations of the actual value of the
paper as compared with specie. (_Strache_, Die Valuta in Œsterreich,
1861; _per contra_, _Ad. Wagner_, Tüb. Zeitschr., 1861, 606 ff.)

943 Such measures as were adopted in Austria, in 1811, where a
“redemption and extinction deputation,” independent of the
government was established and sworn to prevent a further increase
of paper money, are not sufficient of themselves alone.

944 The Code Civil (art. 1895) makes the nominal value entirely
conclusive; so, also, the Prussian Landrecht (I, § 790): which is to
proclaim the omnipotence and infallibility of the state power in the
most ingenuous or else in the most brutal manner. The power given by
_Puchta_ to metallic value (Pandecten, VII, aufl., § 38) is
applicable neither to paper money nor to small coin; and it ignores
entirely that stamped coins and currency money are something
different from mere metallic commodities and even from metallic
bars. The Austrian civil law (_bürgerliche Gesetzbuch_) decides in
favor of the current value (986 seq.): a view which most modern
jurists since _Savigny_ (Obligationenrecht, I, 404; earlier yet,
_Hufeland_, Ueber die rechtliche Natur des Geldschulden, 180)
entertain. But they even fail to recognize that the depreciation,
for instance, of paper money as compared with specie and general
decrease of purchasing power are identical only in the case of such
paper money or reduced coins which have no compulsory circulation.
(_A. Wagner_, Tüb. Ztschr., 1863, 478 ff.)

945 Let us suppose that at the moment the state could perform its duty
to its servants only to the extent of one half. If it should frankly
admit this, pay one-half in good money and remain in debt for the
other half, it might subsequently, in better times, make good to
them or to their heirs what it had now refused; and thus private
credit, from the disturbance of which the state can only suffer,
suffer no diminution. Both are quite different when the state
disguises its insolvency under the mask of apparent full payment in
paper money which has lost 50 per cent. of its nominal value. In
opposition to the myth that the assignats saved France, see
_Levasseur_, in the Acad. des Sc. m. et. p.

946 It not unfrequently happens that a nation’s paper money has been
directly or indirectly affected by an unfriendly state. Thus for
instance, England, in 1794, tolerated an assignat manufactory at
Lambeth, while Frenchmen imitated English bank notes. (_Archenholz_,
Aenalen XI, 429.) Napoleon in 1812 issued forged Russian bank notes.
(_Cancrin_, Œconomie der menschl. Gesellschaft, 136. _Niebuhr_,
Gesch. der Revolution, II, 314.) When Maria Theresa first wished to
introduce paper money, Bolza, her minister of finance, in his urgent
appeal to her to desist from adopting such a measure, foretold the
subsequent bankruptcy etc. (_Mailath_, Oesterr. Gesch., V., 83.)
_Adam Smith_ compares gold and silver circulation to a highway
which, indeed, produces nothing directly. Paper money is an advance
similar to that which would be produced by the construction of a
machine adapted to the carriage of persons and goods through the
air, and which permit the highways hitherto used to be turned into
meadows, arable land etc. _Ad. Smith_ very strongly emphasizes the
insecurity of these “Dædalian wings” as compared with the “solid
ground of gold and silver,” especially in the transitory misfortune
produced by war. (W. of N., II, p. 78, Bas.) _David Hume_ says of
all paper media of exchange, that they share all the harmfulness of
an increase of specie money, enhancement of the price of
commodities, aggravation of the obstacles to exportation; but that
they do not share in the useful properties of specie money.
(Discourses, On Money and on the Balance of Trade.) The younger
_Mirabeau_ kept Necker from pursuing his plan to issue paper money
with the words: _du papier monnaie c’est la peste circulante!_
Inconsistent as Napoleon was in his bank policy (compare _Horn_,
Bankfreiheit, 304), he always rejected paper money. As in 1805 he
wrote to the minister of justice: _je ne veut pas de papier
monnaie_: so, in opposition to the minister of the interior, he in
1810 compared it to the plague: _le plus grandfléau des nations_.
(Acad. des Sciences m. et p., 1864, II, 212.) _Sismondi_, too,
compares paper money to the paper cannons of the Chinese, which
render a cheap service until the hour of danger comes. (N.
Principles, II, 107.) Of the banks he says: _les avantages
aussi-legers les dangers aussi graves_. (Eludes, II. 421).
_Cancrin_, Œkonomie der menschl. Gesellschaft, 1845, 152 ff., says
he thinks that possibly it might have been well never to have
established banks, but that yet the craving for the new is
preponderately good, it brings inventions and improvements with it.
Even _Tooke_ considers the insecurity of paper money a disadvantage
which more than counterbalances its cheapness. (Considerations on
the State of the Currency, 1829, 85.) On the doubts of _Jefferson_
and _Gallatin_, see _Wolowski_, Enquête, 170, seq. _Webster_ called
paper money “the most effectual of inventions to fertilize the rich
man’s field by the sweat of the poor man’s brow.” _Tout papier
monnaie par lui même est un mensonage._ (_M. Chevalier_, Cours, III,
428.) _M. Niebuhr_ calls banks a poison which should be used with
moderation. (Bankrevolution und Bankreform, 1846, 37.) Compare the
writers named in § 2.

_ 947 Avec la liberté un peuple n’a jamais de mauvaises monnaies_ (_F.
Lenormant_): entirely so, provided _liberté_ be translated “true and
insured freedom.”

948 Law’s giddy projects under the regents of Orleans and the assignats
of the first republic; Austria, Russia and the United States; the
Danish absolute monarchy, and Sweden, both under Charles XII., and
its oligarchical times. The history of Rhode Island paper money is
peculiarly scandalous. All debts had to be paid within two years, or
to be held invalid, and juries were dispensed with in such cases.
(_Ebeling_, Gesch. und Erdbeschreib. von N. America, II, 173 ff.)

_ 949 Ad. Müller_ compares “cosmopolitan” metallic money to a universal
language: paper money ties one to the country, as people do not like
to travel in foreign parts when they understand only their native
language. As paper money compels subjects to take an interest in the
state, a state like Austria would act very foolishly if it should
begin its reorganization by enhancing its depreciated values
(_Valuta_). (Elemente der Staatskunst, 180, III, 171; II, 339 ff.)
Even in 1830, he found fault with the Austrian loan for the payment
of the paper money. (Briefwechsel mit Gentz, 321 seq.) He lauded
paper money because he claimed it led a country back to the barter
And service-economy of the middle ages. (Verm. Schriften, I, 59 ff.)
Similarly, _Gentz_, in his later writings. Compare _Roscher_,
Gesch., der N. Œk., in Deutschland, II, 762.

950 Who, for instance, would lay by a paper dollar in the savings bank
for his godchild? In this respect, too, oriental countries have
preserved much of the medieval. Concerning the aversion of the
Egyptians of our day for all paper money, see _Stephan_, Ægypten,
250 seq. This is all the more surprising since during several months
after the harvest, there are from 4,000,000 to 8,000,000 piasters in
specie sent every day from Alexandria by post to private individuals
in the provinces. In addition to this there is the immense
difference in the French, English and Austrian coins circulating in
the country, and which have very different rates in the different
provinces. It is still worse in Arabia. (_v. Maltzan_, Reise, I,
27.)

951 Compare _v. Schlozer_, Anfangsgründe, I, 140 ff. _M. Niebuhr_ (Rau’s
Archiv. N.F. II, 125) finds paper money best adapted to countries
without any exchange-trade, but which at the same time require a
species of money easily computed and easy of transportation
(Russia); countries whose national economy has an extraordinarily
rapid growth (the United States); and in unusually solid countries
(Scotland).

_ 952 List_, Nat. System der politischen Œk., I, 394. A private
individual of small means who should go on his travels without money
would be subject to all sorts of annoyances; a king or a Rothschild,
just as soon as he was recognized as such, would find credit
everywhere. Thus, English businessmen have outstanding claims in all
parts of the world, which might without any great difficulty be
called in in the precious metals. The more the division of labor is
developed, the better may the condition of a nation’s whole economy
be seen reflected in the course of its banking system and its
exportation and importation.