The Theory of Money and Credit - Ludwig von Mises [129]
Exchanges made with the help of money can also be settled in part by offsetting if claims are transferred within a group until claims and counterclaims come into being between the same persons, these being then canceled against each other, or until the claims are acquired by the debtors themselves and so extinguished. In interlocal and international dealing in bills, which has been developed in recent years by the addition of the use of checks and in other ways which have not fundamentally changed its nature, the same sort of thing is carried out on an enormous scale. And here again credit increases in a quite extraordinary fashion the number of cases in which such offsetting is feasible. [3] In all these cases we have an exchange made with the help of money which is nevertheless transacted without the actual use of money or money substitutes simply by means of a process of offsetting between the parties. Money in these cases is still a medium of exchange, but its employment in this capacity is independent of its physical existence. Use is made of money, but not physical use of actually existing money or money substitutes. Money which is not present performs an economic function; it has its effect solely by reason of the possibility of its being able to be present.
The reduction of the demand for money in the broader sense which is brought about by the use of offsetting processes for settling exchanges made with the help of money, without affecting the function performed by money as a medium of exchange, is based upon the reciprocal cancellation of claims to money. The use of money is avoided because claims to money are transferred instead of actual money. This process is continued until claim and debt come together, until creditor and debtor are united in the same person. Then the claim to money is extinguished, since nobody can be his own creditor or his own debtor. [4] The same result may be reached at an earlier stage by reciprocal cancellation, that is by the liquidation of counterclaims by a process of offsetting. [5] In either case the claim to money ceases to exist, and then, and not until then, is the act of exchange which gave birth to the claim finally completed.
Any transfer of a claim which does not bring it nearer to being extinguished by cancellation or offsetting cannot decrease the demand for money. In fact, if the transfer of the claim is not instead of payment in money, then it is on the contrary the source of a fresh demand for money. Now cession of claims instead of payment in money has, apart from the use of money substitutes, never been of very great commercial importance. As far as claims that are already due are concerned, the holder will as a rule prefer to call in the outstanding sums of money, because he will invariably find it easier to buy (and carry through other transactions in the market) with money or money substitutes than with claims whose goodness has not been indisputably established. But if the holder does in exceptional cases transfer such a claim by way of payment, then the new holder will be in the same position. A further hindrance to the transfer of claims to money that are not yet due instead of payment in money is the fact that such claims can be accepted only by such persons as are able to agree to postponement of payment; to rest content with a claim that is not yet due, when immediate payment could be enforced, is to grant credit.
Commercial requirements had previously made use of the legal institution of the bill in a way that caused it to circulate in a manner fairly similar to that of fiduciary media. Toward the end of the eighteenth and at the beginning of the nineteenth century bills were current in the European commercial centers which were endorsed by the merchants in