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 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).