A comparison between these notes and subsidiary coin may be instructive. They are alike in having an intrinsic value less than their face value, and in being maintained at par in the circulation by redemption on demand in gold. They are unlike, however, in the fact that the intrinsic value of subsidiary coin is considerable, while that of government notes is practically nil, and in the fact that the former are not likely to be presented for redemption, while the temptation is very great to secure the redemption of the latter whenever gold is greatly needed. These differences are a sufficient explanation of the reason why subsidiary coinage is safe and treasury notes dangerous. In the case of the former the government assumes a risk equal only to the difference between their intrinsic and their face value, while in the case of the latter the government has no security whatever for the risk assumed. Nothing can take the place of subsidiary coins in the circulation, and consequently the demand for small change may be relied upon to keep them in circulation, provided the quantity issued is not excessive, while bank-notes, silver and gold certificates, and gold and silver coin can easily be made to fill the place of treasury notes in the circulating medium, and their presentation for redemption is facilitated by the fact that in no other way can gold coin for exportation or any other purpose be so easily and cheaply obtained.

* The endless chain was only temporarily broken at this time, see Noyes.

The conclusion to which we are forced by the considerations presented in this chapter is that no form of paper currency based entirely or largely upon government credit is to be recommended. Subsidiary coins of relatively high intrinsic value and gold or silver certificates represented dollar for dollar by gold and silver coin do not belong under this head and, consequently, may without danger be made permanent elements of a currency system. Inconvertible government notes, however, or convertible notes based upon a partial reserve are dangerous, the former in a degree which renders their use a national calamity, and the latter to such an extent that the nation which employs them may confidently expect occasions when its treasury will be embarrassed, if not humiliated, by them and its credit system seriously disturbed and perhaps thrown into the paroxysms of a commercial crisis.

References

Inconvertible government notes are condemned by all political economists, but the objections to them are not always identical with those given in the text. The following discussions are valuable: Walker's Money, chs. xiv-xvii, and Money, Trade, and Industry, chs. viii and ix; White's Money and Banking, pp. 117-235; Mill's Political Economy, bk. 11l, ch. xiii; Wagner's Die russische Papierwahrung, chs. i-vii; and Hertzka's Wahrung und Handel.

On the history of our own experience with this sort of currency see Knox's United States Notes, chs. i, ii, iii, and ix; Linder-man's Money and Legal Tender in the United States; Sumner's History of American Currency, ch. i; Davis's Currency and Banking in the Province 0} the Massachusetts Bay; and Report of the Comptroller of the Currency for 1879. On our experience with silver certificates see Taussig's Silver Situation in the United States; Noyes's Thirty Years of American Finance, ch. iv; and Knox, ch. x. The history of our greenbacks and treasury notes is admirably presented by Noyes; see also Knox, chs. ix and xi, and Professor Laughlin's Report of the Indianapolis Convention, pt. III.

On French experience see White's Paper Money Inflation in France; Courtois's Histoire des Banques en France; Vuhrer's Histoire de la Dette Publique en France, v. I, chs. xiii and xiv.

For the experience of other countries see Wagner's Die russische Papierwahrung; Ferraris's Moneta e corso Forzoso; and Kramar's Das Papiergeld in Oesterreich seit 1848.