II. BOOK and by encouraging all thofe with whom they have any influence to do the fame. The banks, when their customers apply to them for money, generally advance it to them in their own promiffory notes. Thefe the merchants pay away to the manufacturers for goods, the manufacturers to the farmers for materials and provifions, the farmers to their landlords for rent, the landlords repay them to the merchants for the conveniencies and luxuries with which they fupply them, and the merchants again return them to the banks in order to balance their cash accounts, or to replace what they may have borrowed of them; and thus almoft the whole money bufinefs of the country is tranfacted by means of them. Hence the great trade of those companies. By means of those cash accounts every merchant can, without imprudence, carry on a greater trade than he otherwife could do. If there are two merchants, one in London, and the other in Edinburgh, who employ equal stocks in the fame branch of trade, the Edinburgh merchant can, without imprudence, carry on a greater trade, and give employment to a greater number of people than the London merchant. The London merchant muft always keep by him a confiderable fum of money, either in his own coffers, or in thofe of his banker, who gives him no intereft for it, in order to answer the demands continually coming upon him for payment of the goods which he purchases upon credit. Let the ordinary amount of this fum be fuppofed five hundred I II. hundred pounds. The value of the goods in CHA P. his warehouse muft always be lefs by five hun dred pounds than it would have been, had he not been obliged to keep fuch a fum unemployed. Let us fuppofe that he generally dif pofes of his whole ftock upon hand, or of goods to the value of his whole ftock upon hand, once in the year. By being obliged to keep fo great a fum unemployed, he must fell in a year five hundred pounds worth lefs goods than he might otherwife have done. His annual profits muft be lefs by all that he could have made by the fale of five hundred pounds worth more goods; and the number of people employed in preparing his goods for the market, must be lefs by all thofe that five hundred pounds more stock could have employed. The merchant in Edinburgh, on the other hand, keeps no money unemployed for anfwering fuch occafional demands. When they actually come upon him, he fatisfies them from his cafh account with the bank, and gradually replaces the fum borrowed with the mo ney or paper which comes in from the occafional fales of his goods. With the fame ftock, therefore, he can, without imprudence, have at all times in his warehouse a larger quantity of goods than the London merchant; and can thereby both make a greater profit himself, and give conftant employment to a greater number of industrious people who prepare thofe goods for the market. Hence the great benefit which the country has derived from this trade. The BOOK The facility of discounting bills of exchange, it may be thought indeed, gives the English merchants a conveniency equivalent to the cash accounts of the Scotch merchants. But the Scotch merchants, it must be remembered, can discount their bills of exchange as eafily as the English merchants; and have, befides, the additional conveniency of their cash accounts. The whole paper money of every kind which can easily circulate in any country never can exceed the value of the gold and filver, of which it fupplies the place, or which (the commerce being fuppofed the fame) would circulate there, if there was no paper money. If twenty fhilling notes, for example, are the lowest paper money current in Scotland, the whole of that currency which can easily circulate there cannot exceed the fum of gold and filver which would be neceffary for tranfacting the annual exchanges of twenty fhillings value and upwards ufually tranf acted within that country. Should the circulating paper at any time exceed that fum, as the excefs could neither be fent abroad nor be employed in the circulation of the country, it must immediately return upon the banks to be exchanged for gold and filver. Many people would immediately perceive that they had more of this paper than was neceffary for tranfacting their business at home, and as they could not fend it abroad, they would immediately demand payment of it from the banks. When this fuperfluous paper was converted into gold and filver, they could easily find a ufe for it by fending it abroad; 3 II. abroad; but they could find none while it re- c HA P. mained in the shape of paper. There would immediately, therefore, be a run upon the banks to the whole extent of this fuperfluous paper, and, if they fhewed any difficulty or backwardness in payment, to a much greater extent; the alarm, which this would occafion, neceffarily increafing the run. Over and above the expences which are com mon to every branch of trade; fuch as the expence of houfe-rent, the wages of fervants, clerks, accountants, &c. ; the expences peculiar to a bank confift chiefly in two articles: First, in the expence of keeping at all times in its cof fers, for anfwering the occafional demands of the holders of its notes, a large fum of money, of which it lofes the intereft: And, fecondly, in the expence of replenishing thofe coffers as faft as they are emptied by anfwering fuch occafional demands. A banking company, which iffues more paper than can be employed in the circulation of the country, and of which the excess is continually returning upon them for payment, ought to increafe the quantity of gold and filver, which they keep at all times in their coffers, not only in proportion to this exceffive increafe of their circulation, but in a much greater proportion; their notes returning upon them much fafter than in proportion to the excefs of their quan tity. Such a company, therefore, ought to increase the first article of their expence, not only VOL. II. G G in BOOK in proportion to this forced increase of their business, but in a much greater proportion. II. The coffers of fuch a company too, though they ought to be filled much fuller, yet must empty themselves much fafter than if their businefs was confined within more reasonable bounds, and muft require, not only a more violent, but a more conftant and uninterrupted exertion of expence in order to replenish them. The coin too, which is thus continually drawn in fuch large quantities from their coffers, cannot be employed in the circulation of the country. It comes in place of a paper which is over and above what can be employed in that circulation, and is therefore over and above what can be employed in it too. But as that coin will not be allowed to lie idle, it muft, in one fhape or another, be fent abroad, in order to find that profitable employment which it cannot find at home; and this continual exportation of gold and filver, by enhancing the difficulty, muft neceffarily enhance ftill further the expence of the bank, in finding new gold and filver in order to replenish those coffers, which empty themselves fo very rapidly. Such a company, therefore, muft, in proportion to this forced increafe of their business, increase the second article of their expence ftill more than the first. Let us fuppofe that' all the paper of a parti cular bank, which the circulation of the country can easily abforb and employ, amounts exactly to forty thousand pounds; and that for answering occafional |
