(2 
MONEY 
done, the promises or “ notes’ pass from hand to 
hand easily, become generally acceptable, are *“ paper 
currency.” There is a demand for them because they 
are more convenient for keeping and paying large 
sums than gold, and still more than silver. They 
can be more easily stored and carried : each one is 
identifiable by its date and number and so less 
attractive to thieves than coin. True, they are more 
easily destroyed by fire, but the honest issuer does not 
take advantage of that accident. 
The person who “issues” the notes makes his 
profit by lending out most of the coin deposited, 
knowing full well that it is vastly improbable that 
many of the note-holders will all at once want to 
exchange this new currency for the old heavy bulky 
and inconvenient coins. Bold competitors will start 
in the business : on the strength of a little capital, or 
the pretence of a capital, they will issue notes by way 
of loan to borrowers without waiting for deposits, 
and the demand is soon fully supplied. 
In some such ways redeemable notes get into 
circulation. 
At this stage it is natural to say that the notes owe 
the fact that they circulate to the fact that the issuers 
must redeem them if required. But something more 
than redeemability is required to make them circulate ; 
when a note is redeemed it is at the end of its circula- 
tion, and what we want to know is rather why notes 
are not presented for redemption at once instead of 
circulating. They are kept circulating not because 
they are redeemable, but because other people than 
the issuer will take them. That is, because they are 
convenient to keep in hand in order to make future 
payments with ; there is, in fact, a demand for this 
kind of medium of exchange, so that people like to 
have it in preference to an equal amount of coin. 
That redeemability, or * convertibility ” as it is