very small part of the money which, being | small soever the proportion which the circulatforced abroad by those operations of banking, ing money may bear to the whole value of is employed in purchasing foreign goods for the annual produce, as but a part, and frehome consumption, is likely to be employed in quently but a small part, of that produce, is purchasing those for their use. The greater ever destined for the maintenance of induspart of it will naturally be destined for the try, it must always bear a very considerable employment of industry, and not for the main-proportion to that part. When, therefore, by tenance of idleness. the substitution of paper, the gold and silver haps, a fifth part of the former quantity, if the value of only the greater part of the other four-fifths be added to the funds which try, it must make a very considerable addition to the quantity of that industry, and, consequently, to the value of the annual produce of land and labour. When we compute the quantity of industry necessary for circulation is reduced to, perwhich the circulating capital of any society can employ, we must always have regard to those parts of it only which consist in provisions, materials, and finished work; the other, are destined for the maintenance of induswhich consists in money, and which serves only to circulate those three, must always be deducted. In order to put industry into motion, three things are requisite; materials to work upon, tools to work with, and the wages An operation of this kind has, within these or recompence for the sake of which the work five-and-twenty or thirty years, been performis done. Money is neither a material to worked in Scotland, by the erection of new bankupon, nor a tool to work with; and though ing companies in almost every considerable the wages of the workman are commonly paid to him in money, his real revenue, like that of all other men, consists, not in the mosey, but in the money's worth; not in the netal pieces, but in what can be got for them. The quantity of industry which any capital can employ, must evidently be equal to the number of workmen whom it can supply with materials, tools, and a maintenance suitable to the nature of the work. Money may be requisite for purchasing the materials and tools of the work, as well as the maintenance of the workmen ; but the quantity of industry which the whole capital can employ, is certainly not equal both to the money which purchases, and to the materials, tools, and maintenance, which are purchased with it, but only to one or other of those two values, and to the latter more properly than to the former. When paper is substituted in the room of gold and silver money, the quantity of the materials, tools, and maintenance, which the whole circulating capital can supply, may be increased by the whole value of gold and silver which used to be employed in purchasing them. The whole value of the great wheel of circulation and distribution is added to the goods which are circulated and distributed by means of it. The operation, in some measure, resembles that of the undertaker of some great work, who, in consequence of some improvement in mechanics, takes down his old machinery, and adds the difference between its price and that of the new to his circulating capital, to the fund from which he furnishes materials and wages to his workmen. town, and even in some country villages. The effects of it have been precisely those above described. The business of the country is almost entirely carried on by means of the paper of those different banking companies, with which purchases and payments of all kinds are commonly made. Silver very seldom appears, except in the change of a twenty shilling bank note, and gold still se!domer. But though the conduct of all those different companies has not been unexceptionable, and has accordingly required an act of parliament to regulate it, the country, notwithstanding, has evidently derived great benefit from their trade. I have heard it asserted, that the trade of the city of Glasgow doubled in about fifteen years after the first erection of the banks there; and that the trade of Scotland has more than quadrupled since the first erection of the two public banks at Edinburgh; of which the one, called the Bank of Scotland, was established by act of parliament in 1695, and the other, called the Royal Bank, by royal charter in 1727. Whether the trade, either of Scotland in general, or of the city of Glasgow in particular, has really increased in so great a proportion, during so short a period, I do not pretend to know. If either of them has increased in this proportion, it seems to be an effect too great to be accounted for by the sole operation of this cause. That the trade and industry of Scotland, however, have increased very considerably during this period, and tha the banks have contributed a good deal to this increase, cannot be doubted. The value of the silver money which circulated in Scotland before the Union in 1707, and What is the proportion which the circulat- which, immediately after it, was brought into ing money of any country bears to the whole the bank of Scotland, in order to be recoined, value of the annual produce circulated by amounted to £411, 117: 10: 9 sterling. No means of it, it is perhaps impossible to deter- account has been got of the gold coin; but it mine. It has been computed by different au- appears from the ancient accounts of the mint thors at a fifth, at a tenth, at a twentieth, and of Scotland, that the value of the gold annuat a thirtieth, part of that value. But how ally coined somewhat exceeded that of the sil ver. There were a good many people, too, bankers in all different parts of the world. upon this occasion, who, from a diffidence of But the easy terms upon which the Scotch repayment, did not bring their silver into the banking companies accept of repayment are, Bank of Scotland; and there was, besides, so far as I know, peculiar to them, and have some English coin, which was not called in. perhaps been the principal cause, both of the The whole value of the gold and silver, there- great trade of those companies, and of the before, which circulated in Scotland before the nefit which the country has received from it. Union, cannot be estimated at less than a mil- Whoever has a credit of this kind with one lion sterling. It seems to have constituted of those companies, and borrows a thousand almost the whole circulation of that country; pounds upon it, for example, may repay this for though the circulation of the Bank of sum piece-meal, by twenty and thirty pounds Scotland, which had then no rival, was consi- at a time, the company discounting a proporderable, it seems to have made but a very tionable part of the interest of the great sum, small part of the whole. In the present times, from the day on which each of those small the whole circulation of Scotland cannot be sums is paid in, till the whole be in this manestimated at less than two millions, of which ner repaid. All merchants, therefore, and althat part which consists in gold and silver, most all men of business, find it convenient to most probably, does not amount to half a mil- keep such cash accounts with them, and are lion. thereby interested to promote the trade of those companies, by readily receiving their notes in all payments, and by encouraging all those with whom they have any influence to do the same. But though the circulating gold and silver of Scotland have suffered so great a diminution during this period, its real riches and prosperity do not appear to have suffered any. Its agriculture, manufactures, and trade, on the contrary, the annual produce of its land and labour, have evidently been augmented. The banks, when their customers apply to them for money, generally advance it to them in their own promissory notes. These It is chiefly by discounting bills of ex- the merchants pay away to the manufacturers change, that is, by advancing money upon them for goods, the manufacturers to the farmers before they are due, that the greater part of for materials and provisions, the farmers to banks and bankers issue their promissory notes. their landlords for rent; the landlords repay They deduct always, upon whatever sum they them to the merchants for the conveniencies advance, the legal interest till the bill shall be- and luxuries with which they supply them, come due. The payment of the bill, when it and the merchants again return them to the becomes due, replaces to the bank the value banks, in order to balance their cash accounts, of what had been advanced, together with a or to replace what they may have borrowed of clear profit of the interest. The banker, who them; and thus almost the whole money busiadvances to the merchant whose bill he dis-ness of the country is transacted by means of counts, not gold and silver, but his own pro. Hence the great trade of those commissory notes, has the advantage of being able to discount to a greater amount by the whole value of his promissory notes, which he finds, by experience, are commonly in circulation. He is thereby enabled to make his clear gain of interest on so much a larger sum. them. By means of those cash accounts, every merchant can, without imprudence, carry on a greater trade than he otherwise could do. If there are two merchants, one in London and the other in Edinburgh, who employ equal The commerce of Scotland, which at pre- stocks in the same branch of trade, the Edinsent is not very great, was still more inconsi- burgh merchant can, without imprudence, derable when the two first banking companies carry on a greater trade, and give employment were established; and those companies would to a greater number of people, than the Lonhave had but little trade, had they confined don merchant. The London merchant must their business to the discounting of bills of ex- always keep by him a considerable sum of change. They invented, therefore, another money, either in his own coffers, or in those method of issuing their promissory notes; by of his banker, who gives him no interest for granting what they call cash accounts, that is, it, in order to answer the demands continually by giving credit, to the extent of a certain sum coming upon him for payment of the goods (two or three thousand pounds for example), which he purchases upon credit. Let the orto any individual who could procure two per-dinary amount of this sum be supposed five sons of undoubted credit and good landed es. hundred pounds; the value of the goods in his tate to become surety for him, that whatever warehouse must always be less, by five hunmoney should be advanced to him, within the dred pounds, than it would have been, had he sum for which the credit had been given, not been obliged to keep such a sum unem. should be repaid upon demand, together with ployed. Let us suppose that he generally disthe legal interest. Credits of this kind are, I poses of his whole stock upon hand, or of believe, commonly granted by banks and goods to the value of his whole stock upon hand, once in the year. By being obliged to ♦ See Ruddiman's Preface to Anderson's Diplomata, in a year five hundred pounds worth less gonds keep so great a sum unemployed, he must sell &c. Scotia. than he might otherwise have done. His an-payment, to a much greater extent; the alarm nual profits must be less by all that he could which this would occasion necessarily increashave made by the sale of five hundred pounds ing the run. worth more goods; and the number of people| Over and above the expenses which are comemployed in preparing his goods for the mar-mon to every branch of trade, such as the exket must be less by all those that five hundred pense of house-rent, the wages of servants, pounds more stock could have employed. clerks, accountants, &c. the expenses peculiar The merchant in Edinburgh, on the other to a bank consist chiefly in two articles: first, hand, keeps no money unemployed for an- in the expense of keeping at all times in its swering such occasional demands. When coffers, for answering the occasional demands they actually come upon him, he satisfies them of the holders of its notes, a large sum of mofrom his cash account with the bank, and gra- ney, of which it loses the interest; and, sedually replaces the sum borrowed with the condly, in the expense of replenishing those money or paper which comes in from the oc-coffers as fast as they are emptied by answercasional sales of his goods. With the same ing such occasional demands. stock, therefore, he can, without imprudence, A banking company which issues more pahave at all times in his warehouse a larger per than can be employed in the circulation quantity of goods than the London merchant; of the country, and of which the excess is conand can thereby both make a greater profit tinually returning upon them for payment, himself, and give constant employment to a ought to increase the quantity of gold and silgreater number of industrious people who pre-ver which they keep at all times in their cofpare those goods for the market. Hence the fers, not only in proportion to this excessive great benefit which the country has derived increase of their circulation, but in a much from this trade. greater proportion; their notes returning upon them much faster than in proportion to the excess of their quantity. Such a company, therefore, ought to increase the first article of their expense, not only in proportion to this forced increase of their business, but in a much greater proportion. The facility of discounting bills of exchange, it may be thought, indeed, gives the English merchants a conveniency equivalent to the cash accounts of the Scotch merchants. But the Scotch merchants, it must be remembered, can discount their bills of exchange as easily as the English merchants; and have, besides, the additional conveniency of their cash ac counts. The coffers of such a company, too, though they ought to be filled much fuller, yet must empty themselves much faster than if their The whole paper money of every kind which business was confined within more reasonable can easily circulate in any country, never can bounds, and must require not only a more vioexceed the value of the gold and silver, of lent, but a more constant and uninterrupted which it supplies the place, or which (the com- exertion of expense, in order to replenish them. merce being supposed the same) would circu- The coin, too, which is thus continually drawn late there, if there was no paper money. If in such large quantities from their coffers, twenty shilling notes, for example, are the cannot be employed in the circulation of the lowest paper money current in Scotland, the country. It comes in place of a paper which whole of that currency which can easily circu- is over and above what can be employed in late there, cannot exceed the sum of gold and that circulation, and is, therefore, over and asilver which would be necessary for transact-bove what can be employed in it too. But as ing the annual exchanges of twenty shillings that coin will not be allowed to lie idle, it value and upwards usually transacted within must, in one shape or another, be sent abroad, that country. Should the circulating paper in order to find that profitable employment at any time exceed that sum, as the excess which it cannot find at home; and this concould neither be sent abroad nor be employed tinual exportation of gold and silver, by enin the circulation of the country, it must im- hancing the difficulty, must necessarily enmediately return upon the banks, to be ex-hance still farther the expense of the bank, in changed for gold and silver. Many people finding new gold and silver in order to rewould immediately perceive that they had plenish those coffers, which empty themselves more of this paper than was necessary for so very rapidly. Such a company, therefore, transacting their business at home; and as they could not send it abroad, they would immediately demand payment for it from the banks. When this superfluous paper was Let us suppose that all the paper of a parconverted into gold and silver, they could ea- ticular bank, which the circulation of the coun sily find a use for it, by sending it abroad; try can easily absorb and employ, amounts exbut they could find none while it remained in actly to forty thousand pounds, and that, for the shape of paper. There would immediate- answering occasional demands, this bank is ly, therefore, be a run upon the banks to the obliged to keep at all times in its coffers ten whole extent of this superfluous paper, and if thousand pounds in gold and silver Should they showed any difficulty or backwardness in this bank attempt to circulate forty-four thous must in proportion to this forced increase of their business, increase the second article of their expense still more than the first. and pounds, the four thousand pounds which | but by drawing a second set of bills, either are over and above what the circulation can upon the same, or upon some other corresponeasily absorb and employ, will return upon it dents in London; and the same sum, or raalmost as fast as they are issued. For an- ther bills for the same sum, would in this swering occasional demands, therefore, this manner make sometimes more than two or bank ought to keep at all times in its coffers, not eleven thousand pounds only, but fourteen thousand pounds. It will thus gain nothing by the interest of the four thousand pounds excessive circulation; and it will lose the whole expense of continually collecting four thousand pounds in gold and silver, which will be continually going out of its coffers as fast as they are brought into them. three journeys; the debtor bank paying always the interes and commission upon the whole accumulated sum. Even those Scotch banks which never distinguished themselves by their extreme imprudence, were sometimes obliged to employ this ruinous resource. The gold coin which was paid out, either by the Bank of England or by the Scotch banks, in exchange for that part of their paper Had every particular banking company al- which was over and above what could be emways understood and attended to its own par-ployed in the circulation of the country, beticular interest, the circulation never could ing likewise over and above what could be emhave been overstocked with paper money. But ployed in that circulation, was sometimes sent every particular banking company has not al- abroad in the shape of coin, sometimes meltea ways understood or attended to its own parti- down and sent abroad in the shape of bullion, cular interest, and the circulation has frequent-and sometimes melted down and sold to the ly been overstocked with paper money. Bank of England at the high price of four By issuing too great a quantity of paper, of pounds an ounce. It was the newest, the which the excess was continually returning, heaviest, and the best pieces only, which were in order to be exchanged for gold and silver, carefully picked out of the whole coin, and the Bank of England was for many years to- either sent abroad or melted down. At home, gether obliged to coin gold to the extent of and while they remained in the shape of coin, between eight hundred thousand pounds and those heavy pieces were of no more value than a million a-year; or, at an average, about the light; but they were of more value abroad, eight hundred and fifty thousand pounds. or when melted down into bullion at home. For this great coinage, the bank (in conse- The Bank of England, notwithstanding their quence of the worn and degraded state into great annual coinage, found, to their astonishwhich the gold coin had fallen a few years ment, that there was every year the same scarago) was frequently obliged to purchase gold city of coin as there had been the year before; bullion at the high price of four pounds an and that, notwithstanding the great quantity ounce, which it soon after issued in coin at of good and new coin which was every year L.3 17: 10 an ounce, losing in this man-issued from the bank, the state of the coin, ner between two and a half and three per instead of growing better and better, became cent. upon the coinage of so very large a sum. every year worse and worse. Every year they Though the bank, therefore, paid no seignor- found themselves under the necessity of coinage, though the government was properly at ing nearly the same quantity of gold as they the expense of this coinage, this liberality of had coined the year before; and from the congovernment did not prevent altogether the ex-tinual rise in the price of gold bullion, in pense of the bank. consequence of the continual wearing and clipThe Scotch banks, in consequence of an ex. ping of the coin, the expense of this great ancess of the same kind, were all obliged to em-nual coinage became, every year, greater and ploy constantly agents at London to collect greater. The Bank of England, it is to be money for them, at an expense which was sel- observed, by supplying its own coffers with dom below one and a half or two per cent. coin, is indirectly obliged to supply the whole This money was sent down by the waggon, kingdom, into which coin is continually flowand insured by the carriers at an additional ex-ing from tho e coffers in a great variety of pense of three quarters per cent. or fifteen ways. Whatever coin, therefore, was wanted shillings on the hundred pounds. Those a- to support this excessive circulation both of gents were not always able to replenish the Scotch and English paper money, whatever coffers of their employers so fast as they were vacuities this excessive circulation occasioned emptied. In this case, the resource of the in the necessary coin of the kingdom, the banks was, to draw upon their correspondents Bank of England was obliged to supply them. in London bills of exchange, to the extent of The Scotch banks, no doubt, paid all of them the sum which they wanted. When those very dearly for their own imprudence and incorrespondents afterwards drew upon them attention: but the Bank of England paid very for the payment of this sum, together with dearly, not only for its own imprudence, but the interest and commission, some of those for the much greater imprudence of almost all banks, from the distress into which their ex- the Scotch banks. cessive circulation had thrown them, had some- The over-trading of some bold projectors times no other means of satisfying this draught, in both parts of the united kingdom, was the original cause of this excessive circulation of is in this case continually running out from paper money. its coffers may be very large, that which is What a bank can with propriety advance to continually running into them must be at least a merchant or undertaker of any kind, is not equally large: so that, without any further either the whole capital with which he trades, care or attention, those coffers are likely to be or even any considerable part of that capital; always equally or very near equally full, and but that part of it only which he would other- scarce ever to require any extraordinary exwise be obliged to keep by him unemployed pense to replenish them. If, on the contrary, and in ready money, for answering occasional the sum of the repayments from certain other demands. If the paper money which the bank customers, falls commonly very much short of advances never exceeds this value, it can never the advances which it makes to them, it canexceed the value of the gold and silver which not with any safety continue to deal with such would necessarily circulate in the country if customers, at least if they continue to deal there was no paper money; it can never ex- with it in this manner. The stream which is in ceed the quantity which the circulation of the this case continually running out from its cofcountry can easily absorb and employ. fers, is necessarily much larger than that which is continually running in; so that, unless they are replenished by some great and continual effort of expense, those coffers must soon be exhausted altogether. The banking companies of Scotland, accordingly, were for a long time very careful to require frequent and regular repayments from all their customers, and did not care to deal with any person, whatever might be his fortune or credit, who did not make, what they called, frequent and regular operations with them. By this attention, besides saving almost entirely the extraordinary expense of replenishing their coffers, they gained two other very considerable advantages. When a bank discounts to a merchant a real bill of exchange, drawn by a real creditor upon a real debtor, and which, as soon as it becomes due, is really paid by that debtor; it only advances to him a part of the value which he would otherwise be obliged to keep by him unemployed and in ready money, for answering occasional demands. The payment of the bill, when it becomes due, replaces to the bank the value of what it had advanced, together with the interest. The coffers of the bank, so far as its dealings are confined to such customers, resemble a water-pond, from which, though a stream is continually running out, yet another is continually running in, fully equal to that which runs out; so that, First, by this attention they were enabled without any further care or attention, the pond keeps always equally, or very near equally full. Little or no expense can ever be necessary for replenishing the coffers of such a bank. to make some tolerable judgment concerning A merchant, without over-trading, may frequently have occasion for a sum of ready money, even when he has no bills to discount. When a bank, besides discounting his bills, advances him likewise, upon such occasions, such sums upon his cash account, and accepts of a piece-meal repayment, as the money comes in from the occasional sale of his goods, up-situation of each of them. on the easy terms of the banking companies company, which lends money to perhaps five of Scotland; it dispenses him entirely from hundred different people, and of which the the necessity of keeping any part of his stock attention is continually occupied by objects of by him unemployed and in ready money for a very different kind, can have no regular inanswering occasional demands. When such formation concerning the conduct and circumdemands actually come upon him, he can an- stances of the greater part of its debtors, beswer them sufficiently from his cash account. yond what its own books afford it. In reThe bank, however, in dealing with such cus- quiring frequent and regular repayments from tomers, ought to observe with great attention, all their customers, the banking companies whether, in the course of some short period of Scotland had probably this advantage in (of four, five, six, or eight months, for ex-view. ample), the sum of the repayments which it Secondly, by this attention they secured commonly receives from them, is, or is not, themselves from the possibility of issuing more fully equal to that of the advances which it paper money than what the circulation of the commonly makes to them. If, within the country could easily absorb and employ. When course of such short periods, the sum of the they observed, that within moderate periods repayments from certain customers is, upon of time, the repayments of a particular cusmost occasions, fully equal to that of the ad- tomer were, upon most occasions, fully equal vances, it may safely continue to deal with to the advances which they had made to him, such customers. Though the stream which they might be assured that the paper money |