smaller quantity of money than any other method would have required; and it is probable that, with the deposit of a single million, as many payments were effected as with twenty millions in metallic currency. This singular phenomenon could undoubtedly not be attributed to money only; it was owing to other causes; and that such was the fact could no longer be doubted, when it was perceived that the notes of the Bank of England produced the same effects as the tranfers of the Bank of Amsterdam.

These causes deserve careful investigation.

At the foundation of the bank of England, London was but à manufacturing town, and a place of great consumption. Though a sea-port town, and enjoying a very extensive maritime commerce, it had not yet risen to the rank of a staple-town, that is, it had no share in the exchanges of general commerce.

As a manufacturing town, London was a creditor for the whole amount of the produce of its industry disposed of in the home or foreign trade.

As a place of great consumption, London was a debtor for the amount of all the commodities bought in the home-market, or imported from foreign coun tries.

The produce sold gave to the London merchants bills of exchange on the towns of the interior or upon foreign countries, and the commodities imported or purchased at home gave to those places bills upon London.

Had these bills, which made London alternately a debtor and a creditor, been drawn and become due at the same time, the method of Lyons would have com

pensated the debts and demands by simply exchanging the respective bills, and no coin would have been required but for common payments, and settling the differences.

But these bills of exchange were like those which Amsterdam and Hamburgh had to pay and compensate; they were payable at different dates; in order to be extinguished, they must necessarily be paid; and it mattered little of what nature the instrument of payment was, since he who received it in payment of a bill of exchange of which he was the holder, paid it again to the bearer of the bill of exchange of which he was the acceptor. The instrument lost its power only when the merchants of London held no more bills of exchange from the interior or from foreign countries, and there were yet bills of exchange drawn upon them unpaid. In that case the bank-notes could not discharge the debt, because they were not the actual money which can extinguish by payment a demand that cannot be extinguished by compensation.

Experience having once established this property of bank-paper, the Bank of England conformed its further operations to it, and employed it with equal success in liquidating and extinguishing commercial demands by the debts of commerce, public expences by the public revenue, and a great part of private expences by a great portion of private income. In short, with the help of its notes, the Bank of England liquidated all the commercial transactions of the London merchants at home and abroad; all the. engagements of government with its functionaries, agents, and contractors; and all the transactions of

opulent private individuals with their tradesmen, servants, and labourers.

Mr. Henry Thornton gives the same account of the operations of the Bank of England.

"Bills of exchange," says this author, who is extremely well acquainted with the paper circulation of England," are drawn upon London from every quarter of the kingdom, and remittances are sent to the metropolis to provide for them, while London draws no bills or next to none upon the country.' London is in this respect to the whole island in some degree what the centre of a city is to the suburbs. The traders may dwell in the suburbs, and lodge many goods there, and they carry on at home a variety of smaller payments, while their chief cash account is with the banker, who fixes his residence among the other bankers in the heart of the city. London is also become, especially of late, the trading metropo lis of Europe, and indeed of the whole world; the foreign drafts on account of merchants living in the out-ports and other trading towns, and carrying on business there, being made with scarcely any exceptions, payable in London. The metropolis, moreover, through the extent of its own commerce and the greatness of its wealth and population, has immense receipts and payments on its own account, and the circumstance of its being the seat of government and the place where the public dividends are paid, serves to increase its pecuniary transactions. The practice indeed of transferring the payments of the country to London being once begun, was likely to extend itself; for in proportion as the amount and number of pay

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ments and recepts is augmented in any one particular place, the business of paying and receiving is more easily and cheaply transacted, the necessary guineas becoming fewer in proportion to the sums to be received and paid, and the bank-notes wanted, though increasing on the whole, becoming fewer in proportion also."*

This enumeration of payments made and received in London in bank-notes shews, that they derive from the sources I have stated, and result either from London being a staple-town, from its having manufactures, or from its consumption; and that all these demands of London upon the inland country or foreign countries to be extinguished and compensated require only to be exchanged one against the other; this exchange is effected by bank-notes in the most simple, most rapid, and least expensive way. The bank notes with which the bills due by English merchants to foreigners for their importations are discounted, are immediately employed by foreigners to pay what they owe to England on account of the goods exported, and the bank-notes are returned to the bank by those who have to pay these bills. So that this circulation of bank-notes against inland and foreign bills is nothing in fact, but a mere and simple interchange of respective demands.

The same operation takes place with regard to the demands of London upon the provinces and of the provinces upon London. The notes which the bank

* Henry Thornton's Inquiry into the nature of Paper Credit, page 59.

directors give for those different bills make them owners of the bills, and the acceptors of them repay the bank its notes when the bills become due. So that, in this second operation, as in the first, bank notes are merely an instrument for exchanging and liquidating commercial demands.

Viewed in this light, and confined exclusively to this function, bank-notes want no funds for their guarantee; they carry with them the most efficacious guarantee that can be desired. The bills of exchange for which they are given, must always bring them back to the bank; and if on some rare occasion, the holder of the bank notes should wish to convert them into coin before the bills become due, the payment of the bills soon restores the value of the notes to the bank; whence it follows, that banks, limited to the liquidation of commercial debts and demands, require little or no capital stock.

There are, however, three cases in which banknotes, though sufficiently guaranteed by the bills for which they have been exchanged, may fall into actual discredit, be thrown out of circulation, and endanthe existence of banks and the true interests of the nation.

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The first is, when the debts due by the home merchants to foreigners, are more considerable than the debts due by foreigners to the national commerce, It is obvious that, in this case, after the reciprocal debts and demands have been compensated, the surplus must be paid in specie by the bank, which had given its notes for the bills drawn for this surplus. When › the discounted bills become due, the bank, it is true,