[366] Nicholson, loc. cit., 84ff.
[367] Ibid., 76ff.
[368] Cf. Laughlin, J. L., Principles of Money, and Scott, W. A., Money and Banking.
[369] Cf. infra, our discussion of credit. It is not maintained that credit needs to be based on physical goods, but it is maintained that credit is based on values, which are generally not the value of a sum of gold.
[370] I have elaborated this notion in a hypothetical case in the chapter on "Dodo-Bones," to which I would now refer. See also the analysis of an "ideal credit economy" in the discussion of reserves in the section on Credit, in Part III.
[371] Infra, the discussion of reserves in Part III.
[372] Cf. the chapter on "The Origin of Money," infra.
[373] See especially History of the Greenbacks, pp. 188ff.; 207-208; 275-279.
[374] Various efforts have been made by adherents of the quantity theory to meet the facts developed by Mitchell with reference to the Greenbacks. Thus, it has been suggested that the coming to par of the Greenbacks shortly before the resumption of specie payments was an accidental coincidence, due to the fact that the volume of trade in the United States just happened to grow to the right amount to bring the Greenbacks to par at that time. No statistical evidence has been offered for this thesis, I believe. It is, indeed, the only logical thing which a quantity theorist could say on the matter, except one alternative, (F. R. Clow, J. P. E., vol. II, p. 597) namely, that if the Greenbacks should exist in such quantity that, under the quantity theory, their value ought to fall below the discounted future value of the gold in which they were to be redeemed, speculators would take them out of circulation, holding them for the interest, and so reduce their quantity that the value would rise to that discounted future value. The first thesis, that based on putative changes in the volume of trade, though highly improbable in fact, is logically possible. The second thesis, however (Purchasing Power of Money, p. 261) meets serious difficulties. What motive would a speculator have for taking the Greenbacks out of circulation, and hoarding them? The answer is, he gets thereby the "interest," as the Greenbacks approach the date for redemption in gold. If this were the only way in which he could get this gain, the answer would be good. But there is another way in which he can get it, and something more besides, namely, by lending out his Greenbacks. In that case, since the creditor gets the full benefit of an appreciating standard of deferred payments, he would get all the "interest" which he could get by hoarding, and, in addition, he would get contract interest on his loan. Of course, if the principle of "appreciation and interest" worked out with perfect smoothness, he would find his contract interest reduced as the other rose, and one might even expect, if the Greenbacks were very redundant, that contract interest would disappear. There is no evidence that this did happen, however! And so long as any contract interest existed, we have a thoroughly valid reason why a holder of Greenbacks would lend them rather than hoard them.
Another effort to harmonize the facts with the theory consists in the contention that anticipated future increases in the Greenbacks would work in the same way as actual increases. But this is to shift the whole basis of the quantity theory, which rests in the notion of a mechanical and—in the mass—unconscious equilibration of quantity of money and number of exchanges. The quantity of money is not increased until it is increased! Cf. Mill, Principles, Bk. III, ch. 12, par. 2, and Jos. F. Johnson, Money and Currency, Rev. ed., p. 235.