resiliency, for no matter to what extent it has been expanded by temporary demand, it will contract as demand abates.

But all this change must be automatic, and not by the dictum of any man or any number of men; not even by the unanimous vote of all concerned. But how shall we arrange so to regulate the quantity of our money that its value shall remain constant? The answer is simple enough. Hitherto we have been requiring from each male citizen of voting age thirty to sixty days of public service each year, for which receipts have been given. These receipts were not payments for service but acknowledgments of service due and rendered. This little government does not pay for anything. It receives what is due it and gives receipts. These receipts pass current because, being impersonal, anyone who is prepared to surrender them to the amount of his services due is thereby discharged of his obligation; shows that he has rendered the service personally or by proxy. By surrendering them he designates for credit to his own account that part of public service for which the certificates were issued; and the certificates go back to be canceled or to be reissued in acknowledgment of further service.

But hitherto we have done only such public work as estimates called for without any reference to creating a circulating medium, and if this has given us the proper amount to use as money it is simply a happy accident. There is one way and only one way to determine how much public work should be done, and that is to provide employment for all who cannot be more profitably engaged in private employment.

Naturally you will ask how this can be done. It is very simple, as most great truths are. All the change we need to make in our present method is an ordinance authorizing and commanding the board of public works to employ all unskilled laborers who apply, at two certificates per day (as we have been giving), and as many skilled laborers as may be needed, at such compensation as is necessary to secure the number required. While I do not think it important, it may be well for technical reasons to provide in the ordinance that the certificates shall be legal tender.

The way in which this plan will work to accomplish what we seek is this: If at any time, for any reason whatsoever, more than the natural proportion of labor had gone into public work, there would then be less than the natural production of private wealth, and prices of commodities would be above normal because of relative scarcity.

Private employers would then offer somewhat more than the public wage, thus drawing labor away from the public service and restoring the state of balance. On the other hand, should more than the natural proportion of labor be engaged in private production the prices of commodities would fall because of their abundance. Some of the privately employed labor would then be released and would go into public work, restoring the balance. In fact, there will be no noticeable shifting from private to public employment and back again, except of those whose private employment is seasonal in character. The state of balance will be preserved just as the water level in two connected reservoirs, each having variable supply, is preserved, by flow of the water from one to the other.

In a large community, one of many millions, my opinion is that there would be no noticeable shifting from public to private work and back again, except of those laborers who habitually do so because of the irregular character of their private employment. Indeed, we may find that except for those intermittent workers there will be no shifting. I suspect the ultimate development will be that most young men will serve an apprenticeship in public work, and the currency volume will be adjusted by the slightly varying average time they remain. This apprenticeship work, if it all goes into the public service temporarily, should be a very accurate gauge or index of the currency, for if we can imagine a perfectly even standard of business, that is, unvarying prosperity, the demand for money should. be in proportion to the number of producers, and the apprentices are the enlisting force in the industrial army.

On the other hand, if there should ever be too many certificates in circulation their value would fall slightly, or business would become more brisk at prevailing prices and workers would be drawn from public to private employment (not many but a few) and cancellation by payment of taxes would bring about adjustment.

To summarize this system of natural money: The ideal money is redeemable by service. It is because all the individuals of a nation owe services to the government and because the surrender of the currency cancels that service, that they receive it in exchange for goods. The last person who gives service or goods in exchange for such money, and then, instead of having it redeemed again, turns it in to pay his taxes, has given it its final redemption. It is not the function of government to redeem money. The money is not a governmental debt, but the government's receipt for a debt paid,

and there is no obligation on the part of the government except to acknowledge it as such receipt and receive it in lieu of service.

D. The Regulation of Government Paper Currency

115. METHODS OF REGULATING GOVERNMENT PAPER The following methods have been used in regulating the issues of government paper currency:

1. Full specie reserve method. By this method the issuing government retains in its coffers metallic money equal in amount to the paper issued. The paper is thus a true representative currency, serving merely in lieu of so much specie.

2. Percentage specie reserve method.-With this method a specie reserve equal to a certain fixed percentage of the paper must be held by the issuer. The amount of paper may be changed with changes in the amount of reserve.

3. Minimum specie reserve method.-A certain fixed minimum quantity of specie is held as reserve, and the paper outstanding against this may or may not be increased or decreased.

4. The uncovered issue method.-A certain fixed amount of paper may be issued, secured by bonds, etc., and beyond this amount any quantity may be issued if backed by a full specie reserve.

5. The elastic uncovered issue method. This method differs from the above only in that the uncovered issue may be extended in time of emergency.

6. Property reserve method.-Land or other real estate, or personalty such as bonds, stocks, etc., may be used as security for government paper currency.

7. Revenue payments method.-A free issue of paper money which relies on its acceptability for taxes in lieu of coin to keep up its value.

8. The deferred convertibility method.-Notes may be issued promising to pay metallic money at some future date, either definitely fixed, or dependent upon political or other contingent events.

9. Fiat method. The government may give freely issued paper full legal-tender power and command its acceptance in payment of all obligations. It is irredeemable.

10. Limited issue method. The issue may be definitely restricted in amount in order that an active demand may prevent depreci

II. Force of habit method.-An issue once redeemable may circulate by force of custom after the government has been absolved from the obligation of redemption.

116. IRREDEEMABLE PAPER ALWAYS BAD'

BY JOHN WITHERSPOON

Irredeemable paper money such as was issued by the Continentai Congress and the various state legislatures during the Revolution, that is, paper bills stating that the person holding them is entitled to receive a certain sum specified in them, is not, properly speaking, money at all. It is barely a sign without being a pledge or standard of value, and therefore is essentially defective as a medium of universal commerce. To arm such bills with the authority of the state, and make them a legal tender in all payments, is an absurdity so great that it is not easy to speak with propriety upon it. Perhaps it would give offense if I should say it is an absurdity reserved for American legislatures, no such thing having even been attempted in the old countries. It has been found, by the experience of ages, that money must have a standard of value, and if any prince or state debase the metal below the standard, it is utterly impossible to make it succeed. How can it be possible to make that succeed which has no value at all? In all such instances there may be great injuries done to particular persons by wiping off debts; but to give such money general currency is wholly impossible. The measure carries absurdity in its very face. Why will you make a law to oblige men to take money when it is offered them? Are there any who refuse it when it is good? If it is necessary to force them, does this not demonstrate that it is not good? We have seen indeed this system produce a most ludicrous inversion of the nature of things. For two or three years we constantly saw and were informed of creditors running away from their debtors and the debtors pursuing them in triumph, and paying them without mercy.

117. PAPER MONEY SOUND IN THEORY

BY DAVID RICARDO

By limiting the quantity of money it can be raised to any conceivable value. It is on this principle that paper money circulates; 'Adapted from Works, IV, 222-23. (Philadelphia: William W. Woodward,

1802.)

Adapted from Principles of Political Economy and Taxation, 1818 (Gonner's edition), pp. 341-44.

the whole charge for paper money may be considered as seignorage. Though it has no intrinsic value, yet by limiting its quantity, its value in exchange is as great as an equal denomination of coin, or of bullion in that coin. There is no point more important in issuing paper money than to be fully impressed with the effects which follow from the principle of limitation of quantity. It is not necessary that paper money should be payable in specie to secure its value; it is only necessary that its quantity should be regulated according to the value of the metal which is declared to be the standard.

Experience, however, shows that neither a State nor a Bank ever has had the unrestricted power of issuing paper money, without abusing that power; in all States, therefore, the issue of paper money ought to be under some check and control; and none seems so proper for that purpose as that of subjecting the issuers of paper money to the obligation of paying their notes, either in gold coin or in bullion.

118. GUIDES FOR THE CONTROL OF PAPER MONEY' BY CHARLES GIDE

It may be asserted that in the present state of economic science there is no excuse for a government overstepping the limit and issuing irredeemable paper money in excess. There are several signs, familiar to the economist and the financier, which should warn us of the danger, even when it is far off, and which are surer indications than the pilot obtains from sounding-lead and landmarks.

1. The first of these signs is the premium for gold. As soon as paper money has been issued in quantities too great for the needs of a community, it begins (by virtue of the universal law of value) to be depreciated; the first effect of this depreciation, the first sign that that is coming, although the general public may not be aware of it, is that metallic money begins to command a premium.

2. The second sign is a rise in the rate of exchange. Bills payable abroad, i.e., foreign bills of exchange, are sold in all the great commercial centers of the world. Like any other commodity, they have a market price that is quoted at the stock exchange; this is called the rate of exchange. These bills, or claims on foreign countries, are always payable in gold or silver, generally in gold, because gold is the international money. If, for example, the United States is under a paper-money system and its paper begins to be depreciated,

I

Adapted from Principles of Political Economy, 1888 (Veditz translation), pp. 270-73. (By permission of D. C. Heath & Co., who hold the copyright.)