U N IV E R S IT À 7 O F O R E G O N
M O N T H L Y
vol ; x i
FEBRUARY, 1908
NO. 5
T h e Need for an Elastic Currency
Money as a medium of exchange is merely an instrument for
nloving goods. The. use" of money makes possible the production
of gocftls under the most favorable conditions and thé distribution
of such goods where they’Serve the most urgérit needs.* Clearly
the demand for an agent which sustains such a close relation to the
state of industry and trade’ will, be subject to variation from sea
son to season and from year to year. In the most progressive nations
of today thé precious metals have been made the basis of thé cur
rency? Now a gradual strengthening of the demand for money
through slow changes in industrial processes and trade relations
will tend to- stimulate the quest and'further the production of prec
ious metals and so to increase the money, supply ; and à gradual re
laxation'of the need will likewise be met by a conversion of metallic
morieyinto bullion for Üsè in the arts. But within a given area at
least the condition of trade and industry are subject to more or
less".violent changes,. to alternating periods, of stimulation and de
pression, and to these abrupt alterations in the demand for money
a metallic currency seems incapable of easy adaption.
But the diversihcatibh? of modern industry and the ^growth of
commerce have been accomplished with the development of, banks
and financial institutions and have given rise to the use of checks,
drafts and other credit devices which have supplemented the body
of metallic money and given it a certain element of elasticity. The
important Consideration from the standpoint of currency problems
is th a t there n e e d b e ? no fixed ratio between the volume , of such
credit transactions and the amount of specie‘ on which they are
based, but withiri the bounds of safety and reason they may swell
tô mèet an increasing demand for payments and subside with a