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merce of nations, and the other from the private trade of cities, or large assemblages of individuals composing the same society.
All nations cannot share equally in the great and lucrative liquidation of general commerce.
This advantage is reserved to local conveniencies, to particular circumstances, and sometimes to happy situations, which it is not in the power of human combinations to produce or to change. Venice, Amsterdam, Hamburgh, have had prosperous banks for the liquidation of general commerce; and it is impossible to assign any other reasons for it, but considerations derived from their locality, their government, particular circumstances, and a thousand other secondary motives, which it would be useless to inquire into and to develope. Most nations therefore must renounce sharing in the liquidation of general commerce.
But all nations may have banks for the liquidation of their private trade, either with foreign countries, or with the different cities within their territory; and all may derive invaluable advantages from such establishments. Such banks may be established in all places, which afford much produce, and where consumption is considerable. England has adopted the banking system with a success that has been disputed, it is true, but which is alike attested by experience and demonstrated by reason.
France has hitherto attempted the experiment of banks in the metropolis only, and for its private trade; but this trade is so limited, that it cannot flatter itself with the hope of giving to its bank the extent and importance of the other banks of Europe.
All possible combinations afford but two means of employing capitals in the banking system.
The first and, no doubt, the most extensive and most productive of great results, would be to establish successively, and in proportion as its capitals should exceed the wants of the private trade of Paris, branches of the bank of France in all large manufacturing towns and places of great consumption. The extent of this vast empire, the immensity of its population, the richness of its produce, the incalculable consumption of its towns, would perhaps afford liquidations equivalent to those of the general cornmerce which are shared by a few cities of Europe. This extension of the operations of the bank of France would increase its labours and its benefits tenfold; it would save the use of specie in the liquidation of the commercial debts, and even in a considerable part of the liquidation of the demands of labour and consumption ; and I should not be surprized if, with a capital of 200 millions of French livres, it rendered the same service which is this day performed with a metallic currency of above 2,000 millions.
The saving of 1,800 millions would free consumption of an interest of 180 millions, at the rate of 10 per cent. ; which crushes commerce, falls heavy on the consumer, restrains consumption, and consequently is detrimental to reproduction.
On the other hand, these 1,800 millions, having become useless to commercial circulation, would flow towards agriculture and manufactures, stimulate their establishment and improvements, and increase their
produce beyond what imagination can conceive most fortunate and most flattering.
Every thing then ought to induce the bank of France to turn its views towards a project of which the execution is easy, the success certain, and the general and private benefit invaluable. *
Finally, the bank might, by undertaking the payments of all the great commercial establishments, either foreign or French, give a still greater extent to the issue of its notes without greatly enlarging the stock of its coin.
It is the property of all commercial establishments to draw to the place where they are established the liquidation of their speculations. Their demands and their debts are extinguished in that place, and the bank would facilitate their liquidation by its notes. It might even share in the liquidation of general commerce. Whether the establishment of banks is not originally due to great commercial establishments, is an important inquiry, into which I shall not enter at present: but it is certain that banks have arisen under the wings of those great commercial establish
The creation of branches of the bank in all manufacturing towns and places of great consumption, and the
* This part of my work was written long before the bank of France had adopted the measure which I suggest; and although my object has been attained, I thought I ought to retaia the arguments on which my opinion is founded, and which appear calculated to insure the success of my plap.
keeping the cash of great commercial establishments, whether foreign or French, are the two only means to which banks can resort, to employ their capital when it exceeds the particular wants of the commerce of the metropolis, and to assimilate themselves in some degree to banks which share in the liquidation of general
There are some other banks of circulation at Vienna, Madrid, and Berlin ; but if I am rightly informed, those banks are less for the wants of commercial credit than for the wants of government; they are rather financial than commercial banks, and more connected with public than with commercial credit. I have therefore no occasion to enter into the detail of their operations, or to undertake the proof that they bear no relation to banks of circulation. The discussion would add nothing to the strength of my arguments, and be without avail for the science.
Having thus developed the laws, proceedings, and methods of banks of deposit and circulation, and their reciprocal influence on commercial credit, it will not be thought idle or uninteresting to inquire which of the two kinds of banks is most favourable to the
gress of wealth.
The services of banks of deposit are limited, but free from risk, inconvenience, or any disastrous consequence. They accelerate the circulation of money, and multiply it by the velocity of this circulation; they save the charges and risks of conveyance, avoid the friction, adulteration, and counterfeiting of coin; render errors in counting impossible, and prevent the loss of the time taken up by payments in metallic currency. All these advantages are a clear gain, unallayed with any loss or risk.
The benefits afforded by banks of circulation are undoubtedly more extensive, more numerous, and more fascinating. They multiply the capitals necessary to support labour, industry, and commerce, by the facility of converting their produce into money as soon as it exists ; by giving them fresh employment, and keeping them in constant and uninterrupted activity: and this invaluable service, which metallic
money and deposit-banks render but imperfectly and at a considerable expence, is performed by banks of circu. lation with the greatest ease, and at a most trifling expence.
But these important benefits are attended with imminent and almost unavoidable risks. The velocity of the circulation of capital may be arrested by an unfavourable balance of foreign and local trade, by unfounded alarms, and by an overgrown commerce. When one of these three cases happens, circulation is shackled and frequently paralysed ; capitals, are not easily converted into money ; labour is suspended, or left to languish ; and both private and public affairs experience a fatal and deplorable crisis.
When the result of the two kinds of commercial banks is thus contrasted, it is difficult to decide which is preferable.
David Hume did not hesitate. He assigns the preference to deposit-banks, and even proposes to improve them. Adam Smith appears to incline in favour of banks of circulation ; and Mr. Henry Thornton, who is decidedly for the latter,