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surplus to make up the six hundred and thirty millions of livres discounted, and amounting to two hundred and thirty millions of livres, must have been foreign to the trade of Paris, and employed merely for the benefit of foreigners, or of the merchants of the departments or provinces of France.
The bank-directors acknowledged in their accounts, that foreign countries and the merchants of the departments had really partaken of their discounts: but they did not specify the amount of either.
“ It happens," says the censor, in his report, " that distant speculators exchange in the bank, by means of their correspondents, their bills on Paris for specie ; and having this specie sent to them, they employ it in other bills at a lower rate, but advantageous enough to afford easy and often renewed benefits. Thus a bank so useful to Paris has also a salutary and much more valuable than valued influence upon
the greatest number of departments," But the safety and prosperity of banks, whose fate is so intimately connected with the progress of wealth, which I am now investigating, forces me to observe that this employment of the capital of the bank, held out as advantageous for the departments, was neither profitable to them nor to the bank, but, on the contrary, expensive for both.
The bills of the provincial merchants discounted at the bank of France in Paris were, it is true, discounted in bank-notes; but these notes were immediately exchanged for coin, because bank-notes were not known in the provinces, where specie alone was circulated. The result of this discount was therefore
a loan of the bank to the merchants of the departments at the rate of half per cent a month, or six per cent a year. The loan in itself would undoubtedly have been very advantageous to the departments, had it been within the means of the bank : but as the loan exceeded the means of the bank, the directors eagerly collected in the departments the metallic currency which they had lent, and at a heavy expence returned to the coffers of the bank the funds which the provincial merchants had carried away at a great expence; so that the whole operation consisted in conveying the coin from Paris to the departments, and back again from the departments to Paris, and to burthen the bank and the departments with the charges of a conveyance equally useless to both parties. This circulation was not productive of
any advantage either to Paris or to the departments ; it was merely a change of place without any benefit whatever, against which banks of circulation ought constantly to guard by the most efficacious measures, if they wish to attain their end without efforts and without danger.
I shall not dwell upon the still greater inconveniency of discounting the bills of foreigners unconnected with the private trade of Paris, which, according to the censor of the bank himself, had “ no other object than to convey the capital of the bank to our enemies and to incapacitate the bank from pursuing its operations :" whatever I might say on this head, would merely be a tedious repetition of what I have stated, and could add nothing to the strength of the observations of the censor upon this subject.
Having approximated, as much as conjecture will allow, the limits of the discounts of the bank for the private trade of Paris and for the provincial or foreign merchants, and having taken the former at four-h undred millions of livres, and the latter at two-hundred and thirty millions, it is of great importance to shew how far the latter were detrimental to the bank, to ascertain this detriment, and to render it so evident that the bank-directors may be still more disposed to guard against such discounts.
The six discounts of the bank at the rate of sixty days each, had each, as we observed before, put into circulation one-hundred and five millions of French livres in bank-notes ; which supposition placed the notes, compared to the metallic money stock of the bank, in the proportion of one to two.
But of these one-hundred and five millions in notes, the part destined for provincial and foreign merchants was immediately exchanged for specie, and constituted about a third of the whole ; consequently, thirtyseven millions of the specie of the bank took the place of thirty-seven millions in notes. Deducting these thirty-seven millions of specie from the forty-five millions of metallic currency which constituted the capital stock of the bank, there were only eight millions in coin left to take up above seventy-four millions in notes, which made the proportion of notes to cash as one to nine, instead of one to two; in which last proportion they would have continued, had all the discounts been for the private trade of Paris.
This approximation is sufficient to shew the different nature of the two discounts, and to warn banks
to be on their guard against those discounts which are merely covered loans, and which tend only to strip them of their capital, to transform them into mere lenders, and to confound commercial with private credit.
When I am thus precluding the bank of France from discounting provincial and foreign bills, which are mere loans and totally unconnected with the operations of the bank; I shall, no doubt, be asked to what use the bank could have put that part of its capital stock which was useless to the circulation of the private trade of Paris. The question is connected with the very essence of banks, and can only be resolved hy a profound knowledge of the nature and properties of banks.
Banks take commercial bills and give in exchange bank-notes payable on demand in coin. Bills of exchange and bank-notes have neither of them any intrinsic value ; but they both contain a promise to pay such a value. It is therefore a mere exchange of claims, an interchange of promises, between the banks and the merchants who receive their notes. Neither does the merchant who pays his bank-notes to his creditors, give them any thing more than the promise which they contain. His creditors pay these notes to the retail-dealers for the commodities which they want, and thus receive the intrinsic value which they had been promised by transferring to the retail-dealers the claim which they derived from the promise contained in the bank-notes handed to the retail-dealer in payment for his commodities.
The retail-dealer, in his turn, gives the bank-notes to the bank in exchange for his accepted bill when it becomes due ; and on receiving back his bill, he obtains not an intrinsic value, but the engagement which he had contracted to furnish one, just as the bank, on receiving back its notes, does not receive any intrinsic value, but the promise which it had given to furnish an intrinsic value. So that, after all, this circulation of bills of exchange and bank-notes circulates but respective promises to furnish an intrinsic value: and their being ultimately exchanged for eaclı other effects a mere commercial liquidation.
On the other hand, other holders of bank-notes paid to the retail-dealer for his commodities, had received them for some personal service and some intrinsic value, of which the purchased commodities were the exact equivalent; the bank-notes consequently effect a second liquidation between the consumer and the owner of the commodity consumed.
The only difference between these liquidations is, that the former may be effected without the intervention of coin, and that the second requires a more or less considerable quantity of coin according to the nature of the consumptions, the wealth of the consumers, and the amount of bank-notes,
Thus, to liquidate the demands and debts of commerce and those of labour and consumption, is the characteristic property of banks, the extent and limit
of their power.
But the demands of commerce and consumption are of two kinds ; one resulting from the general con