PROFESSOR TAUSSIG'S LECTURE.

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for a deficit; but, the amount being much more than necessary, the government has been able to put aside 90 millions of legal tender notes.

But the above remedy could be only a temporary one. The permanent remedies are two, (a) retirement of the legal tender notes, or, (b) separation of the two functions of the treasury. According to the latter plan, if the government is to continue to issue convertible paper money, it should set up a separate establishment which should be entirely free from the fluctuations of revenue. This is the principle on which the currency of England rests.

The other permanent remedy, the retirement of the legal tender notes, is the best. But the strong argument for this plan is not the one ordinarily given, the "endless chain" argument, the depletion of the gold reserve. For this could be remedied by the former plan of keeping down the volume of currency. The real argument for the complete retirement of the legal tender notes is the danger of over-issue. This is the familiar argument against the issue of inconvertible paper money.

The political prospects, however, point not in this direction, but towards a contraction of the currency. There is a reasonable hope, too, that the two functions of the treasury will be separated, but that, contrary to the English system, the government will retain the function of issuing currency.