Section II.. Advantages and Disadvantages of Paper Money.

Advantages And Disadvantages Of Paper Money.

Where it is at all possible to give paper money the same purchasing power as metallic money possesses, it is unquestionable that the former must have many advantages over the latter. True, paper money is very inconvenient for small amounts;(909) but all the more convenient for large amounts, as well for purposes of counting as for purposes of the storing up of values and for transmission from place to place; a matter of greater importance in proportion to the badness of a country’s means of transportation, and to the cheapness of the metal of its currency hitherto.(910) It seems a still more important matter to most people that paper money dispenses with the use of a great quantity of the precious metals for purposes of circulation, which can now either be turned into utensils, etc. in the country itself or used in foreign countries to make investments of capital there, or in the purchase of commodities.(911) In national economies whose commerce is a growing one, the same advantage finds a negative expression in this, that they are not compelled to satisfy the increasing demand for money by procuring costly metals.(912) Of the individual members of the nation, all these advantages of convenience will be experienced by those who employ the paper money. The economical or saving advantages of paper money are appropriated by the issuers to themselves, in the form of a non-interest bearing loan, which they make to those owners of money or to those who are entitled to a money-claim and to whom the paper money is acceptable instead of cash money.(913) A diminution for instance of the number of bank notes or of state paper money does not diminish the available capital of the people. Its only effect is that a smaller portion of it is at the disposal of the bank or of the government.

But in contrast with these advantages are the great disadvantages, since paper money is wanting in most of those properties which originally made the precious metals the best instruments of exchange and the best measures of value. In addition to this, paper money may be increased at pleasure, and at almost no cost; and an occasional surplus of it cannot flow either into other branches of employment (as a surplus of metallic money may into utensils, ornamentation, etc.) nor into other countries. And thus the constancy of value of paper money, that is, one of the chief requisites of all good money, is imperiled in the highest degree. True, the payment-power, or “legal tender” character given such money by the state may certainly supplement in some way its matter and form-value. But this supplement or addition constitutes, in the case of large amounts(914) a small quota; or else the quantity of money as compared with the amount of money needed for commerce would have to be fixed very accurately; a thing of peculiar difficulty in the case of paper money, which is almost costless.(915)