The sluice gates would be opened and the remaining constraints against the
overissue of base money would be severely, even irremediably, weakened.
An influential group of classicals known as the strict bullionists arose to attribute these inflationary phenomena solely to the redundancy of money and to accuse the Bank of taking advantage of the absence of a convertibility constraint to
overissue the currency.
The majority, however, though recognizing "a very close connection between the ease or difficulty of issuing notes and the activity and efficiency of the redemption system," believed that legislation redesigning the redemption system was needed to prevent
overissue of asset currency.(79)
We can infer that the melting edict itself indicates
overissue of money because coins would come to be melted only if their value was declining relative to melted copper.
The gold standard has much to commend it: it imposes a discipline against the
overissue of currency, restrains monetary meddlers, and has a fairly good track record.
Joseph Salerno (2003) argues that concerns about deflation are primarily due to legal restrictions on labor markets, while George Selgin (2001) creates a "principle of adverse clearings" to explain why private banks would be unable to
overissue currency in a free-banking environment.
First, there might be an "
overissue" problem, as discussed by Friedman (1960).
Profit incentives would restrain
overissue, because people would not hold units lacking purchasing-power stability.
They argued that in the antebellum period, private banks issued notes against gold and silver reserves with no external force to check them and therefore tended to
overissue notes and to engender economic instability.
A quantity commitment solves the problem of making a credible commitment not to
overissue. But it has a major shortcoming when applied to currency.
Hence, the deposited money represents a bailment or a present good, and the
overissue of money substitutes constitutes fraud.
In other words, a monetary
overissue occurs as "the market borrows unduly much from the bank and becomes too abundantly supplied with means of payment" (517).