The Theory of Money and Credit - Ludwig von Mises [137]
[12] See Conant, "The Gold Exchange Standard in the Light of Experience," The Economic Journal 19 (1909): 200.
[13] In the pamphlet published in 1816, "Proposals for an Economical and Secure Currency with Observations on the Profits of the Bank of England," in Works, ed. McCulloch, 2d ed. (London, 1852), pp. 404 ff.
[14] See Patterson, Der Krieg der Banken, trans. from the English by Holtzendorff (Berlin, 1867), pp. 17 ff.; Wolf, Verstaatlichung der Silberproduktion und andere Vorschläge zur Währungsfrage (Zurich, 1892), pp. 54 ff.; Wolf, "Eine international Banknote," in Zietscrift für Sozialwissenschaft (1908), vol 11, pp. 44 ff.
[15] These words, written in 1911, need no addition today.
[16] See De Greef, "La monnaie, le crédit et le change dans le commerce international," Revue economique internationale 4 (1911): 58 ff.
Chapter 17. Fiduciary Media and the Demand for Money
1. The Influence of Fiuciary Media on the Demand for Money in the Narrower Sense. 2. The Fluctuations in the Demand for Money. 3. The Elasticity of the System of Reciprocal Cancellation. 4. The Elasticity of a Credit Circulation Based on Bills, especially on Commodity Bills. 5. The Significance of the Exclusive Employment of Bills as Cover for Fiduciary Media. 6. The Periodical Rise and Fall in the Extent to Which Bank Credit is Requisitioned. 7. The Influence of Fiduciary Media on Fluctuations in the Objective Exchange-Value of Money.
1 The Influence of Fiduciary Media on the Demand for Money in the Narrower Sense
The development of the clearing system, especially the extension of the clearinghouse proper, reduces the demand for money in the broader sense: part of the exchanges made with the help of money can be carried through without the actual physical circulation of money or money substitutes. Thus a tendency has arisen toward the reduction of the objective exchange value of money, which has counteracted the tendency for it to rise which was bound to result from the enormous increase in the demand for money in consequence of the progressive extension of the exchange economy. The development of fiduciary media has the same sort of effect; fiduciary media, which can, as money substitutes, take the place of money in commerce, reduce the demand for money in the narrower sense. This constitutes the great significance of fiduciary media, in this their effect on the exchange ratio between money and other economic goods is to be sought.
The development of fiduciary media, the most important institution for reducing the need for money in the narrower sense, equally with the establishment and development of clearinghouses, the most important institution for reducing the need for money in the broader sense, has not been merely left to the free play of economic forces. The demand for credit on the part of merchants and manufacturers and princes and states, and the endeavor to make a profit on the part of the bankers, were not the sole forces affecting its development. Intervention took place with the object of furthering and expediting the process. As the naive Midas-like trust in the usefulness of a large stock of precious metals disappeared and was replaced by sober consideration of the monetary problem, so the opinion gained strength that a reduction of the national demand for money in the narrower sense constituted an outstanding economic interest. Adam Smith suggested that the expulsion of gold and silver by paper, that is to say notes, would substitute for an expensive means of exchange a less expensive, which, however, would perform the same service. He compares gold and silver which is circulating in a country with a road over which all the corn has to be brought to market but on which nevertheless nothing grows. The issue of notes, he says, creates, as it were, a path through the air and makes it possible to turn a large part of the roads into fields and meadows and in this way