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has neglected nothing to insure the triumph of his opinion.
This variety of sentiments might perhaps be reconciled, if what is good in either mode of banking was adopted, or if both were so combined as to obtain the advantages of each and avoid their respective inconveniencies. Nothing needs to be done but to introduce a bank-paper, the metallic value of which should always be kept in the coffers of the bank. The thing is not impossible ; but this is not the proper place to enter upon the discussion of projects which would cause me to lose sight of the principles and remove me too far from my object.
Thus banks of deposit or of circulation are the perfection and as it were the strong. chest of commercial credit, and it is impossible to ascend without surprise and admiration every degree of the scale of commercial credit which transmits the productions of labour from the producer to the consumer, without any real equivalent, without the use of money, on the faith of successive and reciprocal promises returning to the coffers of the banks. It is only at the two extremities of the circulation, that is to say, at the period of production and that of consumption, that metallic money is necessary, and cannot be supplied by a substitute. The producer, be he a farmer or manufacturer, must pay
his labourers in coin, just as the consumer must pay the retail-dealer in coin for what he requires for his consumption. This part of circulation cannot be effected in paper currency without the greatest inconveniencies, without lapsing into the system of papermoney, or conventional money, of which both the defects and calamitous consequences have been pointed out, and without endangering alike commercial credit, production, and wealth.
In the intermediate stages of circulation between production and consumption metallic money
perfectly useless, and finds a convenient and useful substitute in commercial credit supported and liquidated by deposit-banks and banks of circulation.
Private credit bears little analogy to commercial credit. It resembles it only in one single point. Both circulate the produce of labour ; but that produce does not follow the same direction, has not the same destination, nor does it give the same results.
The produce which commercial credit circulates is destined for consumption ; and when it has reached the consumer, commercial credit has finished its course, and there remains no vestige either of its deeds or of its results.
The produce which private credit circulates is that which, having reached the consumer, has been economised, accumulated, and kept in reserve, through the passion of amassing, through the fear of want, or through the desire of greater comforts. These savings circulated by private credit are employed in two ways. Some, but the smallest number, serve merely to restore the level of consumptions, and degenerate therefore into a sinple expenditure ; the others are turned to undertakings, speculations, and more or less successful, but almost always beneficial, improvements.
When private credit throws these savings into the hands of prodigals and spendthrifts, it augments their expences, advances their ruin, and consequently serves
merely to restore the proportion between production and consumption. It has the same effect as if there had been no saving; as if every one had consumed his whole income, his whole share in the national
produce; and viewed in this light, it affords no benefit, and deserves neither consideration nor favour.
But when those savings are employed in undertakings, speculations, and improvements, they increase the sum of labour, ameliorate the condition of the labouring class, and favour population. They are, it is true, restored to consumption, as in the former case; but their consumption leaves an equivalent behind in an augmented population and increased produce of labour. They are of course the true source, or rather the most powerful lever of prosperity and wealth ; and private credit, which is the agent, the promoter of such beneficial results, deserves all the attention and benevolence of governments.
This twofold employment of the savings put into circulation by private credit, ought to warn banks of circulation not to meddle with the operations of private credit. Whether the funds thrown into circulation by private credit go into the hands of spendthrifts or speculators, the banks are immediately forced to convert them into metallic money ; because they are destined to consumption or to labour, and both, as has been observed, can only be paid in coin. As banks of circulation are chiefly established to save the use of coin, they evidently go astray from their destination when they suffer themselves to be voluntarily or fictitiously entrapped into the operations of private credit.
There are however some banks especially devoted to private credit. Such are the banks of Scotland, such was the land-bank (banque hypothécaire) of Paris, and such are all lombards (monts de piété, lumberoffices). But these establishments have no affinity whatever with banks of circulation. They can only be considered as associations of capitalists, who circulate private savings, and whose operations are limited to the lending of their own and borrowed capitals. When they issue notes their stock in specie must always be nearly in equal proportion to the amount of notes issued. They afford no other advantage than that of concentrating private credit, and giving it a greater influence, stability, and activity. These advantages are, no doubt, valuable, but not to be compared with those resulting from commercial credit.
Though the utility of private credit is so obvious, it yet has not made the same progress as commercial credit; and the reason lies in particular circumstances, which it is necessary to detail.
Most religions have taught, some even have ordered, that private loans should be made gratuitously. They wished that whatever one individual possesses too much, should be generously lent to him who wants it, without any equivalent, without any retribution, and on the only condition of returning the commodity that is lent. Undoubtedly this doctrine is worthy of the sentiments of humanity and charity, which all religions endeavour to awaken in the heart of man : but, it must be confessed, it ill agrees with human passions, with the interest of nations, and the prosperity of empires. Hence it has no other effect than to deprive
mankind of the invaluable advantages of private credit, and to render useless for all what some have too much. This consequence, which the progress of knowledge renders every day more obvious, has been but feebly remedied by the laws. They have not authorized any equivalent or price of loans which religion prohibited; they have only limited that equivalent or price, as if the contract of lending differed in its nature from other civil contracts; as if an individual could be induced to strip himself of what he has saved, without an equivalent that pleases or suits him ; as if the price of equivalents was not always proportioned to the mass of surplusses or savings. But let us leave to time the care of giving to these considerations the persuasive power which is denied to reason. await from the general interest, which is every day better felt and better known, a solid triumph over the errors or pusillanimity which still obstruct the progress of private credit, and oppose a fatal resistance to its success.
The denial or limitation of equivalents is not the only obstacle which private credit encounters ; it meets with one more serious and less easily overcome in the difficulty of re-payment, in the unpopularity which assails the creditor when he is obliged to enforce payment by a legal process, in the benevolence of the laws, and in the bias of courts of justice in favour of the borrower.
The preference granted to the debtor over the creditor is assuredly astonishing, and its motive cannot easily be guessed; I think however I have discovered it, and I hope I shall be pardoned for developing it at