This section is from the "The Science Of Wealth" book, by Amasa Walker.
A credit currency, it may be safely assumed, is always redundant; and, as such, its effect on contracts is twofold. Obligations to pay money made with a specie standard, and paid with credit currency, will impose a loss of value on the creditor equal to the depreciation of the currency. Great injustice and suffering resulted from this cause during the progress of the American wars of the Revolution and of the Rebellion.
On the other hand, contracts made to pay money during the existence of a credit currency, but which mature and are discharged under a value currency, will subject the debtor to the loss of all the difference in the value of the two currencies. Great injustice and suffering resulted from this source, on the recognition of American independence, in the last century, among the first of which may be reckoned the Shay's Rebellion of Massachusetts. At what time, and with what results, the return to specie payments at the present period will next be made, it is yet impossible to predict.
Historically, it is found to be true, that a credit currency has never yet been kept within the natural limit of the value currency of the country in which it was established. The "continental money" of the American Revolution; the assignats of the French Revolution; the bank money of England during the Napoleonic wars; and, lastly, the greenbacks, or treasury notes, issued during the late Rebellion, and the present paper currency of Russia, are illustrations in point.
The French assignats were issued in such excess that their utter repudiation by the government became a necessity. So of the " mandates " which followed them. The " continental money " became entirely worthless. The notes of the British Bank, which depreciated during the great struggle with France, were finally restored to par at the cost of immense suffering and loss to the commercial and business classes.
The paper issues of the American government will, doubtless, be paid; but it will be at an incalculable amount of bankruptcy and ruin to those who are greatly indebted.
The treasury notes, now acting as currency, will be redeemed ultimately; that is, be taken in for taxes and other dues to government, and thus annihilated. They could not be paid in coin, but are sufficiently certain to be cancelled in the way just indicated.
A credit currency never has been regulated in such a manner as to keep it on a par with specie, and probably never will be. The necessities of government are so pressing that the temptation to increase the amount becomes too great for resistance. As prices rise in consequence, the currency becomes of less and less value, that is, has a decreasing power in exchange, so that the inducement to issue becomes continually stronger as the volume expands. Unless this course can be arrested, final bankruptcy is sure.
But the issue of a legal-tender credit currency is, under any circumstances, a great wrong, and can never be justified except in the most extreme cases of national peril; and, even in those instances where it has been defended as an indispensable measure, events have generally proved it to have been a mistaken and short-sighted policy.