(6 
MONEY 
readily accepted if allowed. When desirous of 
issuing inconvertible notes themselves, they pay no 
attention to the arguments against small notes and 
thus their issue satisfies a previously existing demand. 
After this preface about the nature and origin of 
“ paper currency’ we come to the question, what 
sffect it has on the value of the unit of account, or, in 
other words, on general prices. 
We must be careful not to fall into the mistake of 
imagining that because a note-issue circulates at a 
par with coin, as for example a five-pound Bank of 
England note before the war would readily exchange 
for five sovereigns, therefore everything in regard to 
the value of money and prices is just as it would 
be in the absence of the issue. The extent to which 
notes take the place of coin is commonly very much 
overrated. Writers have sometimes supposed that 
every issue displaced an amount of coin equal to its 
own total amount less any reserve kept against it by 
the issuers. Thisis very far from being true, since the 
superior convenience of notes for the higher denomina- 
tions of currency—that is for sums above five shillings 
or perhaps something rather less—leads to a much 
larger quantity of currency (coin plus notes) being 
kept on men’s persons than if there are no notes. 
Nevertheless it is true that all or most note-issues 
do to some extent economize or ‘‘ displace” coin, 
and thereby reduce the demand for it. We may 
certainly take it that the general tendency of note- 
issues, especially when the notes are for small sums 
and therefore compete with coin much more than with 
other machinery for paying money, is to reduce the 
demand for coin, though they need not displace coin 
to their full amount. 
Where the coin is restricted and has a much higher 
value than its metallic contents, a note-issue, although 
it retains its par value in coin, may thus have a