Such economy is accomplished by making acknowledgments of debt circulate in the place of the actual payment: that is, substituting credit, as represented by bank-paper, for gold money.
The adoption of paper money saves time by making the largest sums as easily payable as the smallest.
It saves trouble by being more easily transferable than metal money.
It saves expense by its production being less costly than that of metal money, and by its setting free a quantity of gold to be used in other articles of production.
A further advantage of paper money is, that its destruction causes no diminution of real wealth, like the destruction of gold and silver coin; the one being only a representative of value,—the other also a commodity.
The remaining requisites of a medium of exchange, viz.—that it should be what all sellers are willing to receive, and little liable to fluctuations of value,—are not inherent in paper as they are in metallic money.
But they may be obtained by rendering paper money convertible into metallic money, by limiting in other ways the quantity issued, and by guarding against forgery.
Great evils, in the midst of many advantages, have arisen out of the use of paper money, from the neglect of measures of security, or from the adoption of such as have proved false. Issues of inconvertible paper money have been allowed to a large extent, unguarded by any restriction as to the quantity issued.[issued.]
As the issuing of paper money is a profitable business, the issue naturally became excessive when the check of convertibility was removed, while banking credit was not backed by sufficient security.
The immediate consequences of a superabundance of money, are a rise of prices, an alteration in the conditions of contracts, and a consequent injury to commercial credit.