Page:Stabilizing the dollar, Fisher, 1920.djvu/312

258 to keep the price level up to par, in actual practice the Treasury would be sure, in self-interest, to issue all it could without producing redundancy and loss from redemption.

The system described in this section would be exactly analogous to a system into which our present gold standard system would be transformed if we were to drop the free coinage, or deposit of gold (and permit, instead, the issue of certificates in payment of Government expenses limited merely by the obligation to redeem in gold).

3. The Same System Modified by the Omission of Redemption

To make our statement complete and symmetrical it should be added that we could imagine the opposite modification of the system, the "free coinage" feature being retained but the redemption feature omitted, the Treasury being allowed to issue certificates not only in exchange for (warrants for) commodities but also, at discretion, for expenses. But such a system would work only theoretically, i.e. on the assumption that the Treasury should systematically keep down its issues. It would be effectually stopped from undue contraction (were there any danger of that!) by the loss which would be imposed on it by warrant-brokers in demanding "coinage" of commodities. But, practically, the temptation would always be to expand and, as there would be no clear check on expansion, such a system would be almost sure to break down. It would be, in effect, what is called a "fiat money" system and little, if any, better than a pure "fiat money" system in which there is neither redemption nor coinage but only discretionary issue. Such a system is fundamentally unsound because there is nothing to check inflation. It would be analogous to a system into which our present gold standard system could be transformed by omitting redemption. Many writers (e.g. Parsons,