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produce beyond what imagination can conceive most fortunate and most flattering.
Every thing then ought to induce the bank of France to turn its views towards a project of which the execution is easy, the success certain, and the general and private benefit invaluable.*
Finally, the bank might, by undertaking the pay. ments of all the great commercial establishments, either foreign or French, give a still greater extent to the issue of its notes without greatly enlarging: the stock of its coin. ;
It is the property of all commercial establishments to draw to the place where they are established the ' liquidation of their speculations. Their demands and
their debts are extinguished in that place, and the bank would facilitate their liquidation by its notes. It might even share in the liquidation of general commerce. Whether the establishment of banks is not originally due to great conimercial establishments, is an important inquiry, into which I shall not enter at present: but it is certain that banks have arisen under the wings of those great commercial establishments.
The creation of branches of the bank in all manufacturing towns and places of great consumption, and the
* This part of my work was written long before the bank of France had adopted the measure which I suggest.; and although my object has been attained, I thought I ought to retain the arguments * on which my opinion is founded, and which appear calculated to
insure the success of my plan.
keeping the cash of great commercial establishments, whether foreign or French, are the two only means to which banks can resort, to employ their capital when it exceeds the particular wants of the commerce of the metropolis, and to assimilate themselves in some degree to banks wlich share in the liquidation of general commerce.
There are some other banks of circulation at Vienna, Madrid and Berlin ; but if I am rightly informed, those banks are less for the wants of commercial credit than for the wants of government; they are rather financial than commercial banks, and more connected with public than with commercial credit. I, have, therefore no occasion to enter into the detail of their operations, or to undertake the proof that they bear no relation to banks of circulation. The discussion would add nothing to the strength of my arguments, and be without avail for the science.
Having thus developed the laws, proceedings, and methods of banks of deposit and circulation, and their reciprocal influence on commercial credit, it will not be thought idle or uninteresting to inquire which of the two kinds of banks is most favourable to the progress of wealth.'
The services of banks of deposit are limited, but free from risk, inconvenience, or any disastrous con-. sequence. They accelerate the circulation of money, and multiply it by the velocity of this circulation ; they save the charges and risks of conveyance, avoid the friction, adulteration, and counterfeiting of coin; render errors in counting impossible, and prevent the
loss of the time taken up by payments in metallic currency. All these advantages are a clear gain, unallayed with any loss or risk.
The benefits afforded by banks of circulation are undoubtedly more extensive, more numerous, and more fascinating. They multiply the capitals necessary to support labour, industry, and commerce, by the facility of converting their produce into money as soon as it exists; by giving them fresh employment, and keeping them in constant and uninterrupted activity: and this invaluable service, which metallic money and deposit-banks render but imperfectly and at a considerable expense, is performed by banks of circulation with the greatest ease, and at a most trifling expence.
But these important benefits are attended with imminent and almost unavoidable risks. The velocity of the circulation of capital may be arrested by an unfavourable balance of foreign and local trade, by unfounded alarms, and by an overgrown commerce. When one of these three cases happens, circulation is shackled and frequently paralysed; capitals are not easily converted into money; labour is suspended, or left to languish ; and both private and public affairs experience a fatal and deplorable crisis.
When the result of the two kinds of commercial banks is thus contrasted, it is difficult to decide which is preferable. David Hume did not hesitate. He assigns the preference to deposit banks, and even proposes to improve them. Adam Smith appears to incline in favour of banks of circulation; and Mr. Henry Thornton, who is decidedly for the latter,
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 is 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 consumption, and degenerate therefore into a simple expenditure; the others are turned - to undertakings, speculations, and more or less suc
cessful, 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