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The bank of Rotterdam, created in 1635, was also founded upon the model of that of Amsterdam.
So was the bank of Hamburgh in 1688.
In short, until the foundation of the Bank of England, all the banks, created after that of Venice, were deposit-banks, which effected the payments of those who had deposits with them, by transfers on their books; and of course rendered no other service to commerce than to avoid the charges of transport, to guard against errors in calculation and base coin, and to save the time which paying in metallic money requires..
By means of a blank check, with which the mer-, chants of Amsterdam are furnished by the bank, and on which they write the sums which they wish to transfer, they may, without moving, pay more in one , hour than they could do in a day, if they were obliged to pay in specie. · These advantages of banks must, no doubt have recommended them to the attention of the merchants and governments of all countries; and it appears unaccountable that such banks were not established every where in proportion as nations made any progress in commerce. It is as if nations were placed near each other merely to injure and destroy each other, and never to profit by their respective knowledge and discoveries ; never to assist and help each other. They are not aware that the communication of knowledge and useful discoveries and the interchange of their produce would increase the mass of that produce, multiply their means of wealth in proportion to their respective labour, and afford them advantages which
are not to be found in their systems of exclusions and prohibitions, or in their mutual monopolies and hostilities.
Notwithstanding her extensive home and foreiga trade ; in spite of her efforts to pursue the career of wealth which the Dutch so successfully followed, and even to exclude them from that career; and not withstanding her extreme attention to appropriate to herself every measure useful to commerce, England witnessed for near a century the success of the bank of Amsterdam without being sensible of its advantages, without being tempted to share them, and even without suspecting their existence.
It was the stadtholder of Holland, William III, to whom England entfusted her government, that first. made her sensible of the importance and utility of a bank; and yet it was only after a very considerable time that his knowledge, his influence, and the con-. vincing authority of experience, could naturalize such
a banking establishment on a soil where it has so much prospered, and where it exhibits this very day one of the most extraordinary phenomena of commercial credit.
Many causes may be assigned for this inconceivable, tardiness, as many causes account for the subsequent prodigious success of the Bank of England. ·
The Bank of England lost its way on its very oụtset. Instead of devoting itself to the commercial credit of which the banks of Amsterdam and Hamburgh had so ably laid the foundation, it endeavoured to revive public credit, and lent government the money which its shares had produced. The first operation of the bank confounded the commercial with the public
credit, though they are essentially different ; as will be seen hereafter. This confusion caused the bank to languish for sixteen years. Its credit experienced the fate of public credit, its notes were at a discount of 20 per cent., and it was only through the constant protection of parliament and through a very uncommon perseverance, that the Bank of England was finally established on a solid foundation. • The charter of the bank made it a corporation, and
granted it the exclusive privilege of banking as a joint-stock company. Subsequent statutes allowed the bank to lend money on pledges, and to deal in gold and silver bullion.
These grants shew, that the founders of the bank and the parliament of England had not very correct notions of the nature and object of banks of circula- , tion; and this becomes evident, when we consider that the bank, even when it was in the greatest distress, advanced to government all the money it could procure, either by creating new shares, or through private loans. In its commencement the bank was, and could not be considered otherwise than, a chest for government to borrow from, or a lombard (lumber-office) totally unconnected with commercial credit.
But if the bank mistook at first the career which it had to run with so much glory, it was not long ere it discovered its error, and wisely promoted the object which it was to accomplish. Without ceasing to be faithful to its engagements with the public creditor, from which it could not separate itself on account of the sums advanced to government, the bank leaned
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 discreditofthe 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.
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 led 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 sile ver or of paper.
It has already been observed, that the transfers of the money deposited in the bank of Amsterdam li. quidated, without displacing any money, the totality of the commercial transactions of that city, and that by means of these tranfers 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 å