B. Bills of Exchange

In previous sections we saw that bills of exchange are not money-substitutes, but credit instruments. Money-substitutes are claims to present money, equivalent to warehouse receipts. But some critics maintain that in Europe at the turn of the nineteenth century bills did circulate as money-substitutes. They circulated as final payment in advance of their due dates, their face value discounted for the period of time left for maturity. Yet these were not money-substitutes. The holder of a bill was a creditor. Each of the acceptors of the bill had to endorse its payment, and the credit standing of each endorser had to be examined to judge the soundness of the bill. In short, as Mises has stated:

The endorsement of the bill is in fact not a final payment; it liberates the debtor to a limited degree only. If the bill is not paid then his liability is revived in a greater degree than before.45

Hence, the bills could not be classed as money-substitutes.

• 45Mises, Theory of Money and Credit, pp. 285–86.