Jim Glass at Worthwhile Canadian

Over at Worthwhile Canadian Initiative, Nick Rowe asks Is money a liability?

Jim Glass responds:

Are coins debt? A $1 coin today serves exactly the same way as a $1 bill.

'Twas not always so. In the gold standard era a $1 bill was a liability *and* a debt because it was a promise to deliver a $1 gold coin. But with the elimination of the gold standard and that promise, the $1 bill became the "base" so to speak, and stepped into the role of the coin...

This means they would not be a "debt", as they do not represent a claim of any sort...

I shortened Jim Glass's response to focus on answering Rowe's question and the parts of his statement that I agree with totally.

I think the key concept is that when the gold standard was eliminated, and the promise to pay gold for paper was eliminated, paper money stopped being a promise to pay. It stopped being a debt at that point and became instead, as Glass says, a replacement for gold.

This is perfect, because it solves a big problem. It solves the problem that the quantity of gold did not always expand at a rate best suited to the economy's current growth potential. With paper money as a replacement for gold, insufficiency of money need no longer be a problem.

One problem remains, which is the expansion of private money beyond what the base money can comfortably support. But this problem is no different than it was under the gold standard or in the free banking era. No different, except when money was gold and private money was paper, it was easy to see the difference. Now it is harder to see the difference.