The prime purpose of making money legal tender is to reduce the danger of dispute as to payments; but another purpose often has been to force people to use a depreciated money whether they would or not.  The purpose of the issue of political money is usually to gain the profit of seigniorage for the public treasury, and often it has been the desperate expedient of nearly bankrupt governments.  Governmental paper money differs from bank notes in that its value does not necessarily depend on the promise of redemption by the issuer.  It differs from promissory notes and bonds in that its value is not based on the interest it yields, but mainly on its monetary uses.  The issue of paper money may save the government the payment of interest on an equal amount of bonds.  The promise to receive paper in payment for taxes or for public lands may help to maintain its value by reducing its quantity, but nothing short of its prompt redemption in standard coins makes it truly redeemable.

Sec. 10. #Irredeemable paper money.# The most notable examples of paper money in the eighteenth century were the American colonial currencies, the continental notes, and the French assignats.  In all the American colonies before the Revolution, notes or bills of credit were issued which were in most cases legal tender.  Parliament forbade the issues, but to no effect.  Without exception they were issued in large amounts and without exception they depreciated.  The continental notes were issued by the Continental Congress in the first year of the war (1775), and for the next five years.  The object at first was to anticipate taxes, and it was expected that the states would redeem and destroy the notes, but this was not done.  The notes passed at par for a time, but depreciated rapidly as their number increased.  It has been estimated that the country had less than $10,000,000 of coin before the war, and when, in 1780, over $200,000,000 of notes were in circulation they were completely discredited:  hence the phrase “not worth a continental.”  Specie then quickly came back into use.  A few years later the leaders of the French Revolution, failing to learn the lesson of the American experience, issued, on the security of land, notes called assignats in such enormous quantities that they became worth no more than the paper on which they were printed.  The paper money issued under the English bank restriction act of 1797-1820 is especially notable because it gave rise to the controversy which did much to develop the modern theory of the subject.  Parliament forbade the Bank of England to redeem its notes in coin because the government wished to borrow the coin the bank held.  The result was the issue of a large amount of bank money not subject to the ordinary rule of redemption on demand.  It was virtually governmental paper money.  The notes depreciated and drove gold out of circulation, and it was not until 1821 that specie payments were definitely resumed.