7, With the report that the cabinet had decided to notify the

French government that the sending of further troops to

Mexico would meet with the disapprobation of the United

States. That little fear of a serious complication was enter-

tained is shown by the slight extent of the fall caused by

this news $68.03 on the 6th to $67.91 on the 7th. 6

Perhaps some explanation should be given why two mat-

ters of which much was made by contemporary commenta-

tors on the premium have been passed over so lightly in the

preceding analysis, viz., the quantity of money in circula-

tion and speculation. Statistical attempts to demonstrate or

disprove the validity of the quantity theory of the value of

money must always be inconclusive so long as there are no

1 New York Times, money article, February 10, 1863.

2 New York Herald, money article, June 19, 1865.

3 New York Times, money article, May 3, 1864.

* New York Herald, money article, June 5, 1865.

5 Hunt's Merchants 1 Magazine, Vol. LIII, p. 133.

6 New York Herald, money article, November 7, 1865.

208 HISTORY OP THE GREENBACKS

accurate data regarding the volume of exchanges to be per-

formed by the use of money and the rapidity of circula-

tion. 1 Of course, no such data are to be had for the years

of the Civil War, and besides there is the added embarrass-

ment that the quantity of money in use is involved in even

more obscurity than common. 2 A rigorous comparison

between the quantity and the gold value of the currency

or between quantity and prices is therefore out of the ques-

tion. But at least this much may be said with confidence :

the fluctuations of the gold premium cannot be accounted

for by actual issues and redemptions of government notes.

As the above remarks upon the second and third legal-tender

acts show, additional issues of United States notes affected

the value of the notes already in circulation as soon as their

probability was known and long before they were actually

made or even authorized. Indeed, in the six months follow-

ing the passage of the third legal-tender act, when notes

were being issued in accordance with its provisions, the value

of the currency appreciated in a marked degree. 8 That is,

the quantity of the greenbacks influenced their specie value

rather by affecting the credit of the government than by

altering the volume of the circulating medium.

Nor is the case of the quantity theorist improved by tak-

ing account of all forms of money in circulation instead of

the greenbacks alone. Most discussions of the value of an

inconvertible paper currency proceed on the assumption

that its quantity is arbitrarily determined by government,

and that the business community must adapt itself to the

situation. But such an assumption is hardly more true of

the North during the war than of the whole country before

suspension. In both periods free use was made of bank

1 1 feel none the less convinced of the soundness of this proposition because I

once made such an attempt. Journal of Political Economy, Vol. IV, pp. 159-65.

2 See Part n, chap, ii, sec. vii, above. 3 See pp. 217-20, below.

. SPECIE VALUE OF THE PAPER CURRENCY 209

notes and bank deposits as currency, and of course the vol-

ume of these elements in the circulating medium followed

the needs of the public. More than this, the amount of gov-

ernment currency in use as money was in neither case deter-

mined solely by treasury policy. Before suspension, free

coinage and free export provided for an automatic regulation

of the supply of specie ; after suspension a somewhat similar

element of elasticity was found in the presence of legal-

tender, interest-bearing treasury notes which could be treated

as an investment or used as money at the convenience of the

holder. 1 It would be difficult, indeed, to show that the vol-

ume of a currency comprising elements so elastic as these