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is repaid its advances to foreigners : yet the necessity of making these advances, obliges it to keep in its coffers a stock of metallic currency proportioned to their amount. Should the country be greatly indebted to foreigners, it may even happen that whatever may be the magnitude of the stock of coin reserved for this purpose, it may yet prove insufficient; in that case, the bank is forced to suspend its payments, and can no longer fulfil its destination.
If it be observed, that such a misfortune is not owing to the institution of banks, but to the disproportion of national industry to the need of or predilection for the produce of foreign industry, and to the ignorance or impotence of government in correcting this disorder and proportioning the expences of the state to its revenue ; I say, the observation is but specious. It is certain, that banks facilitate by their notes the circulation of both foreign and national produce, by accelerating its consumption and liquidating its value. If merchants had not the facility of getting their bills of exchange discounted in bank-notes, if 'they were always obliged to keep in their coffers the coin necessary to take up the bills they accept, they would be more reserved in their speculations, and the circulation of foreign commodities would be less active and more expensive ; their price would rise and the consumption diminish, and consequently the state would be a sufferer by such a commerce. It is therefore the interest of commercial banks, and the duty of . governments, to pay the greatest attention to the vibrations of the balance of trade, which is the crite
rion of their success and prosperity, or of their decline and ruin.
The second case takes place when political events occasion uneasiness about futurity, and cause extraordinary exigencies, or embarrassments in public affairs to be apprehended : in that case, the holders of banknotes hasten to exchange them for coin : those who are indebted to the bank, pay badly or with difficulty; and if the crisis lasts, the bank is obliged to pay all its notes in specie, and risks to recover only part of its demands : it is therefore forced to violate its engagements, to suspend its payments, and to wait for the return of confidence and credit.
Finally, banks of circulation have to fear lest the merchants, whose bills they discount, should abuse their facility for the purpose of extending their speculations beyond due bounds, and pile in their warehouses a larger stock of commodities than what ordinary consumption requires. The longer or shorter continuance of such a glut may force the merchants to exchange the bank-notes for coin in a proportion superior to what the banks receive. If a bank, in such a case, has not in its coffers a sufficient stock of metallic currency to meet such an exigency, its embarrassment aggravates the crisis, and it is again forced to suspend its payments, and to wait till the equilibrium between consumption and the stock on hand be re-established:
Against these dangers, which are but too often realized, and to which all banks of circulation have been more or less exposed, there is no effective remedy.
Palliatives afford but little or no relief. The only resource of a bank in such a case is to restrict the issue of its notes. But this measure increases the general distress, gives the alarm to commerce, and frequently accelerates the evil which it wishes to prevent. Mr. Henry Thornton remarks, that in that case the bank would even do better to give a greater latitude to its discounts, than to restrict the issue of its notes : but the advice does not appear very safe, and ought of course not be considered as convincing. Unfortunately, the discredit of banks of circulation, when it happens through any of the causes just stated, is as fatal as their credit was beneficial to commerce. It paralyses circulation, obstructs labour, carries disorder and desolation in every branch of industry and trade, and shakes social prosperity in its very foundation.
Notwithstanding these imminent and fatal risks; banks of circulation have been introduced into almost all countries of Europe, and their present advantages have got the better of distant fears.
England has, as it were exclusively, entrusted them with the circulation of all the values of her labour, her industry, her trade, her private income, and public revenue. There are banks in large and small towns, in boroughs, and even in villages. In 1800, their number amounted to three-hundred and eighty-six ;* and all were in some degree ramifica
* Henry Thornton's Inquiry into the Nature and Effects of the Paper-Credit of England, page 154.-But, in 1810, there were not less than eight hundred and eighteen private or country-banks in Great Britain. See an asount of the number of licences for the
tions of the Bank of England, and served the latter as channels of communication with every part of the empire.
. But a conjecture hazarded by Mr. Henry Thornton respecting the extent of the payments effected every day by the London banks, from sixty to seventy in number, deserves particular attention. He calculates them at the enormous sum of from four to five millions sterling a day; which, reckoning only four millions for three-hundred and ten days, gives one thousand two hundred and forty millions a year. And what appears not less wonderful is, that this immense circulation is effected with twelve or thirteen millions sterling in coin, or bank-notes, which supply its place.*
What an astonishingly rapid circulation! What · an economy in the cost of circulation ; and what an
immense benefit to the nation which created, and knew how to avail itself of this advantage !
Several distinguished writers, among whom David Hume holds the first rank, are of opinion, that such a considerable issue of paper-currency has the same
issue of promissory notes payable on demand, delivered to the House of Lords by the Stamp Office, July 4th, 1811.-T.
* The number of London bankers, on the first of February, 1812, was exactly seventy; the circulation of Bank of England notes amounted, in 1810, to twenty-three millions sterling; and the total circulation of Great-Britain, including the private bankers' notes, to fifty-six millions, to which may be added about four millions in spe. cie. See the very able speech of Mr. G. Johnstone, delivered in the House of Commons on the 19th of July, 1811.
effect as the introduction of a large quantity of gold and siver ; that it must necessarily depreciate, raise the price of labour and merchandize, and be detrimental to the sale of national produce abroad and at home.
. . . . . Hume observes, that the high price of commodities occasioned by the abundance of gold and silver is a disadvantage for an established commerce, and restricts it every-where by enabling poor nations to sell cheaper than the rich ones, * ;
Mr. Henry Thornton observes, with as much sagacity as justness, that the issue of a paper-currency, like the introduction of a large quantity of gold and silver, docs not raise the price of labour and commodities in one country only, but the effect, when it takes place, is general, and extends to all countries. Indeed, a paper currency drives gold and silver out of circu- . lation, and causes the metallic currency to be exported. This exportation augments the quantity of the precious metals wheresoever they are carried, sinks their value, and of course raises the price of labour and commodities. Consequently, it is not only in the country in which a paper-currency is issued, that the price of labour and its produce rises; the rise is general, and of course detrimental to none or hurtful to all countries.t
* Hume's Essays, Edinb. 1804; of the Balance of Trade, page 330.
+ But if a comparatively small island exports twenty-five millions of its coin, and increases its paper-currency to fifty-six millions, how .. can the effect of twenty-five millions upon a whole continent, be equal to that of thirty-millions additional currency upon a country that