When paper is fubftituted in the room of gold CHA P. and filver money, the quantity of the materials, tools, and maintenance, which the whole circulating capital can fupply, may be increafed by the whole value of gold and filver which used to be employed in purchafing them. The whole value of the great wheel of circulation and diftribution, is added to the goods which are circu. lated and diftributed by means of it. The operation, in fome meafure, refembles that of the undertaker of fome great work, who, in confequence of fome improvement in mechanics, takes down his old machinery, and adds the difference between its price and that of the new to his circulating capital, to the fund from which he furnifhes materials and wages to his workmen. What is the proportion which the circulating money of any country bears to the whole value of the annual produce circulated by means of it, it is, perhaps, impoffible to determine. It has been computed by different authors at a fifth, at a tenth, at a twentieth, and at a thirtieth part of that value. But how finall foever the proportion which the circulating money may bear to the whole value of the annual produce, as but a part, and frequently but a finall part, of that produce, is ever destined for the maintenance of industry, it muft always bear a very confiderable proportion to that part. When, therefore, by the fubftitution of paper, the gold and filver neceffary for circulation is reduced to, perhaps, a fifth part of the former quantity, if the value of only the greater part of the other four-fifths be added to the BOOK the funds which are deftined for the maintenance II. of industry, it must make a very confiderable addition to the quantity of that industry, and, confequently, to the value of the annual produce of land and labour. An operation of this kind has, within thefe five-and-twenty or thirty years, been performed in Scotland, by the erection of new banking companies in almoft every confiderable town, and even in fome country villages. The effects of it have been precisely those above described. The bufinefs of the country is almost entirely carried on by means of the paper of thofe different banking companies, with which purchases and payments of all kinds are commonly made. Silver very feldom appears, except in the change of a twenty-fhillings bank note, and gold still feldomer. But though the conduct of all thofe different companies has not been unexceptionable, and has accordingly required an act of parliament to regulate it; the country, notwithstanding, has evidently derived great benefit from their trade. I have heard it afferted, that the trade of the city of Glasgow doubled in about fifteen years after the firft erection of the banks there; and that the trade of Scotland has more than quadrupled fince the firft erection of the two public banks at Edinburgh, of which the one, called The Bank of Scotland, was established by act of parliament in 1695; the other, called The Royal Bank, by royal charter in 1727. Whether the trade, either of Scotland in general, or of the city of Glafgow in particular, has II. has really increased in fo great a proportion, dur- c H A P. ing fo fhort a period, I do not pretend to know. If either of them has increased in this proportion, it seems to be an effect too great to be accounted for by the fole operation of this caufe. That the trade and induftry of Scotland, however, have increased very confiderably during this period, and that the banks have contributed a good deal to this increafe, cannot be doubted. The value of the filver money which circulated in Scotland before the Union, in 1707, and which, immediately after it, was brought into the bank of Scotland in order to be re-coined, amounted to 411,1177. 108. 9d. fterling. No account has been got of the gold coin; but it appears from the ancient accounts of the mint of Scotland, that the value of the gold annually coined fomewhat exceeded that of the filver*. There were a good many people too upon this occafion, who, from a diffidence of repayment, did not bring their filver into the bank of Scotlan and there was, befides, fome English coin, which was not called in. The whole value of the gold and filver, therefore, which circulated in Scotland before the Union, cannot be estimated at lefs than a million fterling. It feems to have conftituted almost the whole circulation of that country; for though the circulation of the bank of Scotland, which had then no rival, was confiderable, it seems to have made but a very fmall part of the whole. In the prefent times the * See Ruddiman's Preface to Anderfon's Diplomata, &c. Scotia. whole BOOK whole circulation of Scotland cannot be estimated II. at lefs than two millions, of which that part which confifts in gold and filver, most probably, does not amount to half a million. But though the circulating gold and filver of Scotland have fuffered fo great a diminution during this period, its real riches and profperity do not appear to have fuffered any. Its agriculture, manufactures, and trade, on the contrary, the annual produce of its land and labour, have evidently been augmented. It is chiefly by discounting bills of exchange, that is, by advancing money upon them before they are due, that the greater part of banks and bankers iffue their promiffory notes. They deduct always, upon whatever fum they advance, the legal intereft till the bill fhall become due. The payment of the bill, when it becomes due, replaces to the bank the value of what had been advanced, together with a clear profit of the intereft. The banker who advances to the merchant whofe bill he discounts, not gold and filver, but his own promiffory notes, has the advantage of being able to discount to a greater amount by the whole value of his promiffory notes, which he finds by experience, are commonly in circulation. He is thereby enabled to make his clear gain of intereft on fo much a larger fum. The commerce of Scotland, which at prefent is not very great, was ftill more inconfiderable when the two firft banking companies were efta-' blished; and thofe companies would have had but little trade, had they confined their bufinefs to II. to the discounting of bills of exchange. They CHA P. invented, therefore, another method of iffuing their promiffory notes; by granting, what they called, cash accounts, that is by giving credit to the extent of a certain fum (two or three thoufand pounds, for example), to any individual who could procure two perfons of undoubted credit and good landed eftate to become furety for him, that whatever money fhould be advanced to him, within the fum for which the -credit had been given, should be repaid upon demand, together with the legal intereft. Credits of this kind are, I believe, commonly granted by banks and bankers in all different parts of the world. But the eafy terms upon which the Scotch banking companies accept of re-payment are, fo far as I know, peculiar to them, and have, perhaps, been the principal caufe, both of the great trade of those companies, and of the benefit which the country has received from it. Whoever has a credit of this kind with one of thofe companies, and borrows a thoufand pounds upon it, for example, may repay this fum piece-meal, by twenty and thirty pounds at a time, the company difcounting a proportionable part of the intereft of the great fum from the day on which each of thofe fmall fums is paid in, till the whole be in this manner repaid. All merchants, therefore, and almost all men of bufinefs, find it convenient to keep fuch cash accounts with them, and are thereby interested to promote the trade of thofe companies, by readily receiving their notes in all payments, and |