THE SILVER STANDARD AND THE DISLOCATION OF ITS PARITY 391
On the other hand, it was the considered opinion of Jevons* that “the Bank of England and bankers generally have just the same latitude in increasing or diminishing their advances now (i.e. under the Act of 1884) as they would have under a
[n un] restricted system”; for, as he elsewhere argued, if the limitation on fiduciary issue is arbitrary, and if people want more money, “ it is always open to them to use metallic money instead. The limitation is imposed not upon money itself, but upon the representative part.”† What, then, is the reason that the Indian Paper Currency Act should produce the evils which its English prototype did not ? A priori there need be no such convulsions in a money market subject to such law. The Act, by limiting the isue of notes, did seem to leave no choice but to use metallic money even for seasonal demand. This would be true if notes were the only form in which credit could be used. As a matter of fact, this is not so. Credit could take the form of a promise to pay, issued by a bank, as well as it could take the form of an order on the bank to pay, without making any difference to the social economy of the people who used them. Consequently, if under the provisions of the Act banks are restricted from issuing promises to pay, it does not follow that the only way open to them is a resort “to use metallic money instead,” for they are equally free to consent to honour as many orders to pay as they like. Indeed, the success or failure of the Act depends upon which of the two alternatives the banks adopt. It is obvious that those who will submit to the ruling of the Act and resort to metallic money will have to bear the “convulsions,” and those who will circumvent the Act by utilizing other forms of credit will escape them. The chief reason, then, why the Act has worked so well in England and so badly in India, is due to the fact that, whereas English banks have succeeded in implanting the order or cheque system of using credit in place of the note system, Indian banks have unfortunately failed. That they should have failed was however, inevitable. A cheque system presupposes a literate population, and a banking system which conducts its business in the vernacular of the people. Neither of these two conditions obtains in India. The
*Cf. his Essay on the “Frequent Autumnal Pressure in the Money Market and the Action of the Bank of England,” Investigations in Currency and Finance (ed. Foxwell), 1884, p. 179. Italics by Jevons. There is, however, an apparent misprint in the original, which at the close of the quotation reads “ as they would have under a restricted system.”
† Money and the Mechanism of Exchange, Kegan Paul, London, 1890, p. 225.