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Indeed, whenever a merchant received any quantity of produce from the farmer or manufacturer, he gave him a bill of exchange upon his debtor; and when he transferred any part of this produce to the retail dealer, he in turn obtained of him a bill of exchange;

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before this time, in Italy and all other countries in which there was any commerce : there is not. I believe, any express mention of them (so little attention did historians pay to matters of real utility and importance), till a very extraordinary and infamous occasion connected them with the political events of the age. The Pope, having a quarrel with Manfred, king of Sicily, had, in the plenitude of his power as sovereign of the world, offered the kingdom of Sicily and Apulia, on condition of driving Manfred out of it, to the brothers of the king of France, and, after their refusal, to Richard, earl of Cornwall, brother of King Henry III. ; who said he might as well offer to make him king of the moon. At last he offered it to Henry for his second son, Edmund, who without hesitation accepted the fatal gift, and empowered the Pope to carry on his war against Manfred at the expence of England : whereupon he immediately took up large sums from the merchants of Italy. When they asked him for payment, he applied for the money to Henry, whose constant profusion made him for ever poor. While Henry was in terror of losing his son's visionary kingdom for want of money to feed the Pope's rapacity, Peter de Egeblanke, bishop of Hereford, told him, that he had hit upon an expedient to raise the sums wanted, which was, that the Italian merchants, who had advanced the money, being authorized by the King and the Pope, neither of whom had any reluctance to forward so honorable a business, should draw bills upon the English prelates for sums pretended to have been advanced to them by merchants of Sienna or Florence. This righteous plan was accordingly executed, and an agent was sent into England to receive payment of the bills.”—Possibly the Jews were mere imitators of the merchants of Sienna or Florence,

so that bills of exchange supplied the place of money in all commercial transactions, and performed its functions much better. They avoid, d the charges attendant on the transport of money, the losses resulting from the risk of the conveyance, and the friction, falsification and alteration of the coin ; they even afforded the means of extinguishing by compensation the reciprocal commercial debts between retail dealers and merchants of the same or of different places, of the same or of different countries ; and it is obvious how greatly this facility must have increased the benefits of credit and the resources of trade. The compensation of commercial debts, which was easily effected when two merchants of the same place had bills of exchange to the same amount on each other, became more difficult, when these bills were in the hands of different persons resident in difierent places or countries, it was then necessary that every individual who had a bill of exchange to pay, should provide himself with the money necessary to discharge that bill when due : and the quantity of money which this compensation, or rather this exchange of bills, would require, is obvious. Two ways equally ingenius were contrived to effect this exchange without the assistance of money ; both have been crowned with the same success. One is the setting off or compensating one debt against the other; and the other the banking system. The first way, that of setting off, was successfully practised for a great length of time at Lyons. All bills were drawn payable at one of the fairs, which took place every three months “. Every merchant having sums to pay and to receive, and all being alternately debtors and creditors to each other, the actual exchange of the documents of their respective debts liberated them mutually without the assistance of money ; or at least there was no occasion for any money, except for the settling of differences, which was a very trifling object, compared with the totality of the debts extinguished and paid. This method was peculiarly adapted to the situation of Lyons, whether it be viewed as a manufacturing town, or as a place of great consumption. As a manufacturing town, the active and passive debts of Lyons were all of the same kind; they were derived from the same source, followed the same track and arrived simultaneously at the same end. The passive debt was always contracted by the purchase of raw materials, and the active debt accrued by the sale of manufactured produce. A term of three months for the payment of the raw materials and the manufactured produce, was alike suitable to the merchants, whether they purchased raw materials or sold manufactured produce; it afforded them the time necessary to obtain by their sales wherewithal to pay for their purchases. The balance was always favourable, and the surplus discharged the wages of labour.

* This setting off is also known in London. The bankers send all bankers'-drafts daily to a common receptacle, where they are balanced agaiust each other, and the difference is settled in bankuotes; which contrivance economizes the use of the circulating medium, and renders the same sum adequate to a much greater amount of trade and payments than formerly.

As a place of great consumption, Lyons supplied its wants with the wages of its labour, or the benefits of its balance of trade; so that ultimately all its commercial transactions resolved themselves in a general compensation, and its merchants needed only to exchange the respective documents of their debts.

It is indeed difficult to imagine a method more simple, more easy, and more suitable in every respect to the situation of Lyons, than that of setting off, which for so great a length of time contributed to its splendour and prosperity: but it must be acknowledged, that this method could not be equally adapted to any manufacturing, commercial, or staple town, or to any place of great consumption ; and that it would not be crowned with the same success in every case and under any circumstances. For instance, it could not be introduced in a town whose industry is not homogeneous, whose transactions are not uniform, whose interests are not identic. There are no doubt in France and in the rest of Europe other manufacturing towns; but the manufactures are not of the same kind, or not the only industry of the place. Some manusactures want longer, other shorter credits; some branches of industry and trade are liable to more or less chances, which cannot always be reduced to a common term. In short, we might travel through all the commercial towns of France and of the rest of Europe, and perhaps not find one exactly similar to Lyons in every respect ; and yet the slightest difference would prevent the success of a measure which had such fortunate results in that celebrated town.

Whether it be owing to these considerations that

the measure has been attempted no-where else; or whether banking has appeared, as it really is in every respect, preferable ; the latter method has generally prevailed, and seems indeed entitled to the preference, because it furnishes circulation with means constantly proportioned to the prosperity of agriculture and industry. The first bank that ever existed in Europe is that of Venice. The republic smarting under the burthen of a war with the emperor of the East in 1171, and being also engaged in hostilities with the emperor of the West, the doge or duke Michel II, after having exhausted all financial resources, recurred to a forced loan borrowed from the wealthiest citizens. The creditors formed a board, which received the interest from government at the rate of four per cent., and divided it among its members in proportion to their contribution. This board afterwards formed the bank of Venice”, the principal operations of which consisted in paying all commercial bills of exchange. In 1423, its revenue amounted to about 1.200,000. sterling, and consisted chiefly in the interest paid by government. It is more than probable that it issued some paper-currency at that time for its operations. The fact, indeed, seems to be proved by the circumstance that a law was passed ordering that all payments of bills of exchange, which had been made in paper, should in future be effected in specie, under a

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* Sanuto, Vite de Duche di Venezia, Murator; Script, vol. xxii. Col. 509,

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