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Having approximated, as much as conjecture will allow, the limits of the discounts of the bank for the private trade of Paris and for the provincial or foreign merchants, and having taken the former at four-hundred millions of livres, and the latter at two hundred and thirty millions, it is of great importance to shew how far the latter were detrimental to the bank, to ascertain this detriment, and to render it so evident, that the bank-directors may be still more disposed to guard against such discounts.

The six discounts of the bank at the rate of sixty days each, had each, as we observed before, put into circulation one-hundred and five millions of French livres in bank-notes; which supposition placed the notes, compared to the metallic money stock of the bank, in the proportion of one to two.

But of these one-hundred and five millions in notes, the part destined for provincial and foreign merchants was immediately exchanged for specie, and constituted about a third of the whole; consequently, thirtyseven millions of the specie of the bank took the place of thirty-seven millions in notes. Deducting these thirty-seven millions of specie from the forty-five millions of metallic currency which constituted the capital stock of the bank, there were only eight millions in coin left to take up above seventy-four millions in notes, which made the proportion of notes to cash as one to nine, instead of one to two; in which last proportion they would have continued, had all the discounts been for the private trade of Paris.

This approximation is sufficient to shew the different nature of the two discounts, and to warn banks

to be on their guard against those discounts which are merely covered loans, and which tend only to strip them of their capital, to transform them into mere lenders, and to confound commercial with private credit.

When I am thus precluding the bank of France from discounting provincial and foreign bills, which are mere loans and totally unconnected with the operations of the bank; I shall, no doubt, be asked to what use the bank could have put that part of its capital stock which was useless to the circulation of the private trade of Paris. The question is connected with the very essence of banks, and can only be resolved by a profound knowledge of the nature and properties of banks.

Banks take commercial bills and give in exchange bank-notes payable on demand in coin. Bills of exchange and bank-notes have neither of them any intrinsic value; but they both contain a promise to pay such a value. It is therefore a mere exchange of claims, an interchange of promises, between the banks and the merchants who receive their notes. Neither does the merchant who pays his bank-notes to his creditors, give them any thing more than the promise which they contain. His creditors pay these notes to the retail-dealers for the commodities which they want, and thus receive the intrinsic value which they had been promised by transferring to the retail-dealers the claim which they derived from the promise contained in the bank-notes handed to the retail-dealer in payment for his commodities.

The retail-dealer, in his turn, gives the bank-notes to the bank in exchange for his accepted bill when it becomes due; and on receiving back his bill, he obtains not an intrinsic value, but the engagement which he had contracted to furnish one, just as the bank, on receiving back its notes, does not receive any intrinsic value, but the promise which it had given to furnish an intrinsic value. So that, after all, this circulation of bills of exchange and bank-notes circulates but respective promises to furnish an intrinsic value and their being ultimately exchanged for each other effects a mere commercial liquidation. On the other hand, other holders of bank-notes paid to the retail-dealer for his commodities, had received them for some personal service and some intrinsic value, of which the purchased commodities were the exact equivalent; the bank-notes consequently effect a second liquidation between the consumer and the owner of the commodity consumed.

The only difference between these liquidations is, that the former may be effected without the intervention of coin, and that the second requires a more or less considerable quantity of coin according to the nature of the consumptions, the wealth of the consumers, and the amount of bank-notes.

Thus, to liquidate the demands and debts of commerce and those of labour and consumption, is the characteristic property of banks, the extent and limit of their power.

But the demands of commerce and consumption are of two kinds; one resulting from the general com

merce of nations, and the other from the private trade of cities, or large assemblages of individuals composing the same society.

All nations cannot share equally in the great and lucrative liquidation of general commerce. This advantage is reserved to local conveniences, to particular circumstances, and sometimes to happy situations, which it is not in the power of human combinations to produce or to change. Venice, Amsterdam, Hamburgh, have had prosperous banks for the liquidation of general commerce; and it is impossible to assign any other reasons for it, but considerations derived from their locality, their government, particular circumstances, and a thousand other secondary motives, which it would be useless to inquire into and to develope. Most nations therefore must renounce sharing in the liquidation of general commerce.

But all nations may have banks for the liquidation of their private trade, either with foreign countries, or with the different cities within their territory; and all may derive invaluable advantages from such establishments. Such banks may be established in all places, which afford much produce, and where consumption is considerable. England has adopted the banking system with a success that has been disputed, it is true, but which is alike attested by experience and demonstrated by reason.

France has hitherto attempted the experiment of banks in the metropolis only, and for its private trade; but this trade is so limited, that it cannot flatter itself with the hope of giving to its bank the extent and importance of the other banks of Europe.

All possible combinations afford but two means of employing capitals in the banking system.

The first and, no doubt, the most extensive and most productive of great results, would be to establish successively, and in proportion as its capitals should exceed the wants of the private trade of Paris, branches of the bank of France in all large manufacturing towns and places of great consumption. The extent of this vast empire, the immensity of its population, the richness of its produce, the incalculable consumption of its towns, would perhaps afford liquidations equivalent to those of the general commerce which are shared by a few cities of Europe. This extension of the operations of the bank of France would increase its labours and its benefits tenfold; it would save the use of specie in the liquidation of the commercial debts, and even in a considerable part of the liquidation of the demands of labour and consumption; and I should not be surprised if, with a capital of 200 millions of French livres, it rendered the same service which is this day performed with a metallic currency of above 2,000 millions,

The saving of 1,800 millions would free consumption of an interest of 180 millions, at the rate of 10 per cent.; which crushes commerce, falls heavy on the consumer, restrains consumption, and consequently is detrimental to reproduction.

On the other hand, these 1,800 millions, having become useless to commercial circulation, would flow towards agriculture and manufactures, stimulate their establishment and improvements, and increase their