They fill the bill in normal times. But there are
emergencies and other exceptions. One of the commonest of the
emergencies is war.
In a previous chapter we pointed out that war is a characteristic
feature of a civilization that has passed the top-point of its expansion
and begun to decline. Then the chickens come home to roost. Civil war,
colonial wars and wars between imperial rivals follow each other,
creating emergencies in which demand for certain strategic goods and
services rises steeply, with no corresponding increase in supply. Prices
increase. The common defense requires immediate purchase of supplies.
The public treasury is exhausted. The government borrows from money
lenders (bankers). It also prints paper money and puts it in
circulation.
If the credit of the government is good, if the emergency is of short
duration, matters right themselves and the economy survives without
serious derangements. But war-emergency disrupts and sometimes destroys
an economy. This outcome often results from military defeat.
Another exception to normal economic transactions is buying on
credit--buying today and paying tomorrow. The temporary gap between
purchase and payment is filled by credit--a promise of the purchaser to
pay later and the confidence of the seller that the bill will be paid.
Such credit transactions are covered by notes, bonds and mortgages made
out by the buyer and accepted by the seller.
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