This class of notes is characterized by the fact that they are redeemable on demand in coin, and are thus exempt from the defect of depreciation. Two varieties should be distinguished and separately considered: -

A. Silver and gold certificates. - These may be described as notes issued to take the place of certain coins, and completely covered by the deposit of said coins in the public treasury. As typical of these may be taken our silver and gold certificates. The former were issued to take the place of silver dollars, which were not readily accepted by the people, but which the Bland Act practically compelled the Secretary of the Treasury to force into circulation. It will be remembered that this act ordered the coinage into silver dollars of not less than two nor more than four million dollars' worth of silver monthly. Partly on account of their inconvenient size and weight,

* See Andrew D. White's pamphlet on "Paper Money Inflation in France." these coins were speedily transferred to the treasury in the payment of public dues and tended to remain there in lieu of gold or other forms of currency. The expedient was therefore tried of issuing certificates of convenient denominations and making them redeemable on demand in silver dollars, a number of which, exactly equal to the face value of the certificates issued, being stored away in the vaults for that purpose. The expedient succeeded, and these notes have constituted a part of our circulation from that time until the present day. Our gold certificates are similar in character, except that they are issued in large denominations only, are redeemable in gold, and are used almost exclusively by banks in the payment of balances.

The utility of this class of notes cannot be questioned. They are more convenient than the coin they represent, and they obviate the loss which is necessarily occasioned by the wear and abrasion of coins in circulation. In these respects, however, they are no better than other forms of paper currency of the same denominations and like them redeemable in standard money. The real problem, therefore, concerns the desirability of the manufacture of the classes of coins which they represent. Regarding gold coins there can be and there is no question in the United States. So long as this metal continues to be our standard of value we shall need to put it up in the form of coins, and since, in such cities as New York, Chicago, Philadelphia, and Boston, large sums must daily be transferred between banks in the payment of balances, gold certificates in large denominations must be regarded as a useful and economical device. Regarding silver dollars a just decision is not so easy to reach, and opinions are divided. Gold monometallists, as a rule, believe that, if they are to be retained as a permanent part of our currency, they should be reduced to the grade of a subsidiary coin, and assimilated in weight to our half- and quarter-dollars and dimes. It may be questioned, however, whether the coin is needed at all, and whether it might not be better to substitute bank-notes for it. If it is to be retained in any form, however, the utility of substituting certificates for it for ordinary commercial purposes cannot be questioned, and in view of our familiarity with these notes and our dislike of the heavy silver dollars, such substitution is probably desirable.

B. Treasury notes. - The second variety of convertible government notes referred to above is characterized by the fact that, while the government guarantees their redemption in standard coin, it does not keep on deposit for that purpose the face value of the notes and does not retire them when once redeemed, but treats them as cash and pays them out again for ordinary expenses or in exchange for standard coin. A good illustration is furnished by our so-called greenbacks and Sherman notes. The former is an inheritance from our inconvertible currency period. When specie payments were resumed in 1879, something over $346,000,000 worth of the old notes were left in circulation. The Secretary of the Treasury was ordered to redeem them on demand in gold, but was denied the power to retire them. The Sherman notes were issued under authority of an act passed in 1890 directing the Secretary of the Treasury to purchase every month at its market value 4,500,000 ounces of silver, and to Issue in payment therefor treasury notes redeemable either in gold coin or silver dollars at his option. Since the act also made it the duty of the Secretary to maintain all forms of our currency at a parity with gold, and since the metallic value of silver dollars was at the time but little more than half their face value, the redemption of these notes on demand in gold was a practical necessity. As in the case of the greenbacks, the Secretary was also forbidden to retire these notes. Before the repeal in 1893 of the clause of this act authorizing the monthly purchase of silver bullion about $150,000,000 worth of notes were issued. Treasury notes similar to these in essentials have been circulated from time to time in other countries, but ours is the most notable attempt to permanently maintain a circulating medium of this sort.

In considering the merits and defects of this variety of notes, it should be observed that the only rational purpose of their employment as a permanent part of the currency is to supplement coin. Unlike the silver and gold certificates considered in the preceding section, they are not intended to circulate in the place of certain classes of coins. On the contrary, they are only partially covered by a coin reserve, and they are issued for the purpose of expanding the currency. This fact is clearly presented in the arguments of the advocates of these notes in Congress, who have lauded them as the ideal form of paper money and have proposed to substitute them for bank-notes.

In a previous chapter attention was called to the importance of elasticity in at least certain of the paper elements of the currency, on account of the fact that coin does not automatically move from place to place and increase and decrease in quantity in response to the changing needs of commerce. It should here be noted that treasury notes of the sort we are discussing do not possess this very desirable quality. Indeed, they are quite as inelastic as metallic money. Their issue must be authorized by law and their quantity strictly limited. It would be quite unsafe and opposed to all the canons of sound finance to permit the Secretary of the Treasury or any other public officer to issue them at his discretion, and, even if such power were granted, the notes could not be speedily sent to the places where they might be in greatest demand or their quantity adjusted to commercial needs. Being entirely unable to measure the monetary needs of different localities, at the very best he could order more notes printed when in his opinion the currency needs expansion, and pay them out in the ordinary course of business. It would be the merest chance, however, if the persons or the localities to which the government payments were due were those in need of more currency. When, as is and always must be the case, the quantity to be issued is fixed by statute, an increase beyond such limit, however much needed, is only possible after the slow-moving legislative machinery has been put into operation and more notes authorized. Moreover, their withdrawal from circulation by redemption in coin, when the need for them has passed, does not contract the currency, but simply substitutes coin for the notes. The inelasticity of such notes, therefore, must be conceded, and their maintenance as a permanent element of the currency justified on some other ground, if at all.