The danger or likelihood of overissue is the greatest objection to government paper money. Overissue brings about inflation, rising prices, bigger profits, business boom, and a demand for more and more issues; the cycle once begun is intoxicating and in democracies the legislatures are likely to yield to the popular clamor for new issues. Every issue, however, means an inflation of prices, a scaling of debts and contracts. The train of attendant evils is dire, and ultimate catastrophe is inevitable. Credit thus defeats itself. Moreover, a paper money party invariably arises which preaches the doctrine that paper money, being cheap and easily created and performing the functions of money satisfactorily, is the best kind of money, and a better means of finance indeed than taxes - which directly affect pocketbooks - or than bond sales - which must later be repaid with interest. Paper issues work out their results so insidiously and indirectly through inflation that for a time only their virtues are perceived, while their evils work unhindered.

The issuing government is not without guides to determine when an issue is excessive. One indication is a premium on gold; paper will be accepted only at a discount, the premium varying with the issues and with the government credit. Since foreign payments must be settled in gold, foreign exchange rates in a paper money country will rise and fall as the price of gold in terms of paper fluctuates. Metallic money, first the standard money and then subsidiary forms, will be withdrawn from circulation and go into hiding, into the melting pot, or abroad. Prices payable in paper will rise largely and rapidly, but a holder of specie can really buy on approximately the old basis by exchanging his gold for paper and buying at the paper prices. The premium on gold is thus a rough index to the appreciation of prices of goods.