Interest-Bearing Currency: Evidence from the Civil War Experience: A Comment

G Thomas Woodward

Journal of Money, Credit and Banking, 1995, vol. 27, issue 3, 927-37

Abstract: James Gherity (1993) reports an experience that falsifies predictions of the legal restrictions theory of the demand for money. He concludes that this failure is explained by Lawrence H. White's (1987) rather than Gail E. Makinen and G. Thomas Woodward's (1986) hypothesis of why interest-free money is a superior circulating medium. Gherity's conclusion depends on the erroneous proposition that transactions costs of using post-dated interest-bearing notes are avoided by tendering them at par. The experience cannot discriminate between the White explanation and that of Makinen and Woodward. For some of the note issues concerned, neither the legal restrictions theory, White, nor Makinen and Woodward explains the behavior that occurred. Copyright 1995 by Ohio State University Press.

Date: 1995
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