more towards commercial credit, and perceived that all its efforts ought to be directed to circulate commercial bills without the intervention of metallic money,

It was a difficult problem for the bank to solve, since it could only offer its own credit guaranteed by the capitals which it had in the public funds; a guarantee already discredited in public opinion by the discredit of the funds, and perfectly novel and unknown in money concerns. The banks that had preceded the Bank of England, had all effected their payments in real coin, equal and even superior to the standard of the common metallic currency. How should the bank be able to deviate from the customary method which had become a generally adopted rule? This consideration did not stop the bank-directors. They dared to open a new path; they created bank-notes convertible into specie at the pleasure of the holder, and used them in all their payments. The promise to pay in coin at the pleasure of the holder was obviously and notoriously illusory; and both the bank and the public knew perfectly well that it could not be realized for there was not, and there could not be, any other coin in the coffers of the bank but what was received as interest of the public debt, and its amount bore no proportion to its notes.

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Bank-notes were however received in circulation, and though at a discount for a considerable length of time, they yet recovered their value in proportion as the services which they rendered to circulation became better known, as their nature was better appreciated, and the circumstance clearly understood that the basis of their credit rested less on the primitive capital

of the bank than on the equivalent commercial bills of which they effected the payment. Thus the Bank of England notes owed their success to the same principles which cause the commercial credit of all countries to prosper and flourish; that is, to an entire confidence in the good faith and probity of the individuals engaged in commerce.

The successful attempt of the Bank of England ied to the discovery of one of the properties of banks, which had not yet been and which could not have been suspected as long as banks had made use in their operations of real coin of a standard superior to the common metallic currency. Till that time it had been, and must have been, supposed that the services and successes of banks were due to their monied capitals. On a more close inspection, however, it would have been perceived that those capitals bore no proportion to the operations of banks, and that the ability, good faith, and fidelity of the directors and agents of such banks, are their true support in both cases it would have been seen that bank-money is but an instrument to liquidate commercial debts, and that of course it matters little whether it be of gold and silver or of paper.

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It has already been observed, that the transfers of the money deposited in the bank of Amsterdam liquidated, without displacing any money, the totality of the commercial transactions of that city, and that by means of these transfers as many payments were effected in one hour as could be performed in metallic currency in one day. I ought to add, that the rapidity of this mode of payment required a smaller quantity

of money than any other method would have required ; and it is probable that, with the deposit of a single million, as many payments were affected as with twenty millions in metallic currency. This singular phenomenon could undoubtedly not be attributed to money only; it was owing to other causes; and that such was the fact could no longer be doubted when it was perceived that the cotes of the Eank of England produced the same effects as the transfers of the Bank of Amsterdam.

These causes deserve careful investigation.

At the foundation of the Bank of England, London was but a manufacturing town and a place of great consumption. Though a sea-port town, and enjoying a very extensive mariume commerce, it had not yet risen to the rank of a staple-town, that is, it had no share in the exchanges of general commerce.

As a manufacturing town, London was a creditor for the whole amount of the produce of its industry disposed of in the home or foreign trade.

As a place of great consumption, London was a debtor for the amount of all the commodities bought in the home-market, or imported from foreign countries.

The produce sold gave to the London merchants bills of exchange on the towns of the interior or upon foreign countries, and the commodities imported or purchased at home gave to those places bills upon London.

Had these bills, which made London alternately a debtor and a creditor, been drawn and become due at the same time, the method of Lyons would have com

pensated the debts and demands by simply exchanging the respective bills, and no coin would have been required but for common payments, and settling the differences.

But these bills of exchange were like those which Amsterdam and Hamburgh had to pay and compensate; they were payable at different dates; in order to be extinguished, they must necessarily be paid; and it mattered little of what nature the instrument of payment was, since he who received it in payment of a bill of exchange of which he was the holder, paid it again to the bearer of the bill of exchange of which he was the acceptor. The instrument lost its power only when the merchants of London held no more bills of exchange from the interior or from foreign countries, and there were yet bills of exchange drawn upon them unpaid. unpaid. In that case the bank-notes could not discharge the debt, because they were not the actual money which can extinguish by payment a demand that cannot be extinguished by compensation.

Experience having once established this property of bank-paper, the Bank of England conformed its further operations to it, and employed it with equal success in liquidating and extinguishing commercial demands by the debts of commerce, public expences by the public revenue, and a great part of private expences by a great portion of private income. In short, with the help of its notes, the Bank of England liquidated all the commercial transactions of the London merchants at home and abroad; all the engagements of government with its functionaries, agents, and contractors; and all the transactions of

opulent private individuals with their tradesmen, servants, and labourers.

Mr. Henry Thornton gives the same account of the operations of the Bank of England.

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"Bills of exchange," says this author, who is extremely well acquainted with the paper circulation of England, are drawn upon London from every quarter of the kingdom, and remittances are sent to the metropolis to provide for them, while London draws no bills or next to none upon the country. London is in this respect to the whole island in some degree what the centre of a city is to the suburbs. The traders may dwell in the suburbs, and lodge many goods there, and they carry on at home a variety of smaller payments, while their chief cash account is with the banker, who fixes his residence among the other bankers in the heart of the city. London is also become, especially of late, the trading metropolis of Europe, and indeed of the whole world; the foreign drafts on account of merchants living in the out-ports and other trading towns, and carrying on business there, being made, with scarcely any excep tions, payable in London. The metropolis, moreover, through the extent of its own commerce and the greatness of its wealth and population, has immense receipts and payments on its own account, and the circumstance of its being the seat of government and the place where the public dividends are paid, serves to increase its pecuniary transactions. The practice indeed of transferring the payments of the country to London being once begun, was likely to extend itself; for in proportion as the amount and number of pay