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These are the considerations which have hitherto been advanced on the system of banks of circulation.
I have connected the subject with that of the Bank • of England, because that establishment has been the
model of such kinds of banks, and still serves them as a pattern and an example.
The theory of banks has never been well understood in France ; a country so enlightened, which has made so great a progress in sciences, iu arts, in every kind of knowledge, and which has almost always accelerated their improvement when it had not given them the impulse. At least, the knowledge of the banking system has never been sufficiently diffused in France to dissipate the gloomy fears of ignorance, to protect the country against the deceitful illusions of improvidence, or to help her to overcome the obstacles connected with every new institution, and particularly with the establishment of banks, which comes in close contact with so many interests, and excites so many apprehensions and so much unasiness in the minds of all.
But the surprise ceases when we reflect on the nature and spirit of the ancient government of France. Instead of encouraging and favouring the study of political economy, it considered itself interested in proscribing it, or in leaving its tenets unpractised, and, if I may be allowed the expression, lived from day to day, and either rejected all
counts no more than twelve or thirteen millions of inhabitants? It is the most convincing argument that a great local depreciation in such . a case is unavoidable.-T. ,
innovations, or adopted them merely to abuse them, and to render them as fatal as they might have been useful, if they had been well directed.
In 1716, a bank of circulation was established at Paris on the plan and principles of the Bank of Eng. land. France was indebted for it to Mr, Law, a foreigner, a Scotchman, whose name is but too famous in the annals of finance. This bank had every
success that could be expected as long as it was con.. ducted according to the guardian and beneficial rules of banks of circulation.
But its nature was soon altered, and measures peculiar to commercial credit were applied to public . and private credit. I have elsewhere explained this mistake and its dangerous results. *
This mistake occasioned the ruin of the bank, and, what must appear very extraordinary, is that its beneficial effects, as long as it was confined to the operations of a bank of circulation, were completely forgotten. The bank was pronounced good for nothing, no doubt, because it was not found calculated for every use to which it had been attempted to be put,
· Sixty years after, a merchant, whose knowledge of political economy I have heard greatly extolled, and whose talents for that reason were little employed, succeeded by great exertions in establishing a disa , counting bank (caisse d'escompte) for the circulation of the commercial bills of Paris. The success of this bank exceeded his most sanguine expectations :
* Essai Politique sur le Retenu Public, † Mr. Panchaud,
indeed it could not fail to be considerable at a time when the commerce 'of France with foreign nations afforded every year a balance of thirty or forty millions of French livres; when Paris, the seat of a flourishing industry, the residence of a brilliant and magnificent court, of a numerous and opulent nobility, of a rich and sumptuous clergy, of an immence concourse of strangers eager in the pursuit of pleasure, and of several companies of financiers profusely layishing their fortune ; when Paris, I say, obtained, through its own private trade, as considerable a balance as that of the whole French trade with foreign countries. In such a state of things, it is difficult to conceive what reverses could have befallen a bank of circulation, the operations of which were limited to extinguish the debts and demands of the private trade of Paris,
But prompted by ignorance or weakness, or dazzled by its success, the discounting bank afforded . public credit an useless assistance; and the being deprived of its capital stock brought upon it the fate reserved to all banks which fondly imagine they may combine commercial with public credit. The discounting bank was obliged to dissolve itself, and to swell the list of the creditors of the state..
In the sixth year of the French republic (1798— 1799,) after the calamities of the revolution, but before order was restored to the French finances, and in the midst of the general discredit, the bankers of Paris opened a bank of running or current accounts for their private wants, to assist each other reciprocally in their operations, and to enjoy by their asso
ciation a credit and facilities which they could not have procured by any other means.
The example was soon followed. Some merchants of Paris established likewise a commercial bank to discount the bills of its share-holders.
The manufacturers, impelled by the same motives of personal interest, opened a bank to procure cash in cases of need.
Some speculators even established a land-bank to restore private credit, which had been entirely destroyed by a fatal paper-currency.
These heterogeneous establishments, different in their object and views, which performed but imperfectly the functions of banks of circulation, being founded upon a system of exclusion and limitation, restored however to circulation the active and productive movement which it had been deprived of for a great length of time; they recalled the nation to labour, industry, and those commercial speculations, which render modern nations flourishing and prospetous, establish order and peace among individuals, and ground the splendour and power of empires : though devoted to private interest only, they forwarded the interests of all.
Each of these banks experienced a different fate.
A defective administration, and the infidelity of one of its principal agents, shut up the bank of running or current accounts; no resource was left to commercial credit but in the commercial bank, and in the bank of the manufacturers, whose means were not very extensive.
In the eighth year of the French republic (1800
1801), a joint-stock company established, under the protection of the consular government, a bank called the Bank of France, which comprised in its speculations the totality of the commercè of Paris.
The existence of a general bank and of two private banks guided by the same spirit and directed to the same end, was a singular and remarkable phenomenon in the system of banks of circulation.
They first moved one by the side of the other without injuring and apparently without troubling each other: but it was not long ere the nature of things and the force of human passions triumphed over disinterestedness and the love of public good. Each bank experienced the torments of competition; each saw with sorrow that the bank-notes of its rival were substituted for its own, and that its discounts were limited by those of its competitor; they discounted more readily, and sent each other their notes to get them exchanged in specie.
Hence, each bank was obliged to keep a more considerable stock of metallic currency at hand, that they might not be caught unprovided ; bence originated mad speculations, and venturesome or badly devised undertakings, the bad success of which shook commercial credit and kept it in a precarious state.. ! The unbounded extension of discounts afforded also to the share-holders of these different banking establishments dividends so considerable, that it was difficult, not to say impossible, for the nation to lower the rate of interest and to attain a secure and lasting prosperity.
Considerations of this kind induced government to