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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 against each other, and the difference is settled in banknotes; 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 exchangé the respective documents of their debt.

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 homoge neous, 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 manufactures 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

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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 burden 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

Sanuto, Vite de Duche di Venezia, Muratori Script, vol. xxii. col. 502.

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penalty of one hundred ducats, or forty-five pounds sterling.*

Venice was at that time a manufacturing and staple town, and a place of great consumption.

The produce of its manufactures amounted to above twelve hundred thousand pounds sterling.

As a manufacturing town and a place of great consumption, it was the interest of Venice to economize the use of metallic money, the cost of which increased its expences and diminished its profits, and to supply its place by bank-paper.

As a staple-town, Venice wanted bank-paper for that portion of consigned commodities only which were appropriated to its consumption. With regard to the rest of the warehoused merchandize, which was

* Histoire de Venise, par Laugier. The Abbé Laugier, in the fifth volume, page 532, after having related the death of Thomas (or Tommaso) Mocenigo, the fifty-eighth doge or duke of Venice, which happened in 1423, adds: "Thomas Mocenigo fit faire un réglement très essentiel pour la sureté du commerce. Le change s'étoit fait jusques là en papier, il fut réglé qu'on le feroit à l'avenir en argent comptant sous peine de cent ducats d'amende." This fact, as it strengthens the opinion of those who think that the convertibility of bank notes into metallic money of proper weight and fineness, is the only way of keeping gold and silver in the country, is extremely remarkable. I have endeavoured to find a more ample statement of it in the old historians of Venice: but M. Ant. Sabellico, in his Historia Rerum Venetarum ab urbe condita, makes no mention of the fact; and Lod. Ant. Muratori, in his Annali d'Italia, second edition, Milan, 1753, vol. xiii, page 80, simply says: "Curiosissime sono le aringhe di questo doge, rapportate dal Sanuto, perchè ci fan tra l'altre cose vedere qual fosse allora l'opulenza dell' inclita citta di Venezia. Yet Sanuto, in his Vitæ Ducum Venetorum Italicè scriptæ apud Muratori, Rerum

to be conveyed to strangers, and which left only a commission to the Venitian merchants, the use of metallic currency was very immaterial, because the "finding of the sums thus employed fell upon the foreign consumers. But as consumption is stimulated by cheapness and impeded by dearness, it was the interest of Venice, even as a staple-town, to economize the use of coin, because its cost was a dead loss to the consumer, and obstructed consumption.

Thus in the triple capacity of a manufacturing town, of a staple-town, and of a place of great consumption, it was the interest of Venice, that its commercial payments should be made in bank-paper.

But the wars in which the government of Venice was engaged with the Albanese and the dukes of Milan, occasioned considerable expences which could not be discharged otherwise than in metallic money. Commerce had not made sufficient progress, its resources were not sufficiently extensive, to relieve the wants of government and economize its expences; and as government considered payments in bank-paper as causing coin to disappear from circulation, or at least of rendering it more scarce, and making government purchase it at a higher price, it thought it had attained its end by ordering payments to be made in specie. Thus the interests of commerce often appear in opposition to the well or ill understood interests of government, and are sacrificed to it without any scruple.*

Italicarum Scriptores, vol. xxii. col. 885. and seq. does not allude to the aforementioned circumstance.--T.

* In this case the interest of government was the interest of the country, to which the interests of commerce ought always to be

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