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be precisely of the fame value with those pen- CHAP. fions; as muft likewife be the revenue of the different perfons to whom they are paid. That revenue, therefore, cannot confift in those metal pieces, of which the amount is fo much inferior to its value, but in the power of purchafing, in the goods which can fucceffively be bought with them as they circulate from hand to hand.

Money, therefore, the great wheel of circulation, the great inftrument of commerce, like all other inftruments of trade, though it makes a part, and a very valuable part, of the capital, makes no part of the revenue of the society to which it belongs; and though the metal pieces of which it is compofed, in the courfe of their annual circulation, diftribute to every man the revenue which properly belongs to him, they make themselves no part of that revenue.

Thirdly, and laftly, the machines and inftruments of trade, &c. which compofe the fixed capital, bear this further resemblance to that part of the circulating capital which confifts in money; that as every faving in the expence of erecting and supporting those machines, which does not diminish the productive powers of labour, is an improvement of the neat revenue of the fociety; fo every faving in the expence of collecting and fupporting that part of the circulating capital which confifts in money, is an improvement of exactly the fame kind.

It is fufficiently obvious, and it has partly too been explained already, in what manner every faving in the expence of fupporting the fixed





BOOK capital is an improvement of the neat revenue of the fociety. The whole capital of the undertaker of ever work is neceffarily divided be tween his fixed and his circulating capital. While his whole capital remains the fame, the fmaller the one part, the greater must neceffarily be the other. It is the circulating capital which furnishes the materials and wages of labour, and puts industry into motion. Every faving, there fore, in the expence of maintaining the fixed capital, which does not diminish the productive powers of labour, muft increase the fund which puts industry into motion, and confequently the annual produce of land and labour, the real revenue of every fociety.

The fubftitution of paper in the room of gold and filver money, replaces a very expenfive inftrument of commerce with one much less coftly, and fometimes equally convenient. Circulation comes to be carried on by a new wheel, which it cofts lefs both to erect and to maintain than the old one. But in what manner this operation is performed, and in what manner it tends to increase either the grofs or the neat revenue of the fociety, is not altogether fo obvious, and may therefore require fome further explication.

There are feveral different forts of paper money; but the circulating notes of banks and bankers are the fpecies which is best known, and which feems beft adapted for this purpose.

When the people of any particular country have fuch confidence in the fortune, probity, and prudence of a particular banker, as to be


lieve that he is always ready to pay upon demand c HAP. fuch of his promiffory notes as are likely to be at any time presented to him; thofe notes come to have the fame currency as gold and filver money, from the confidence that fuch money can at any time be had for them.

A particular banker lends among his cuftomers his own promiffory notes, to the extent, we shall suppose, of a hundred thousand pounds. As thofe notes ferve all the purposes of money, his debtors pay him the fame intereft as if he had lent them fo much money. This interest is the fource of his gain. Though fome of thofe notes are continually coming back upon him for payment, part of them continue to circulate for months and years together. Though he has generally in circulation, therefore, notes to the extent of a hundred thousand pounds, twenty thousand pounds in gold and filver may, frequently, be a fufficient provifion for anfwering occafional demands. By this operation, therefore, twenty thousand pounds in gold and filver perform all the functions which a hundred thousand could otherwife have performed. The fame exchanges may be made, the fame quantity of confumable goods may be circulated and diftributed to their proper confumers, by means of his promiffory notes, to the value of a hundred thoufand pounds, as by an equal value of gold and filver money. Eighty thousand pounds of gold and filver, therefore, can, in this manner, be fpared from the circulation of the country; and if different operations of the fame kind fhould,

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BOOK should, at the fame time, be carried on by many different banks and bankers, the whole circulation may thus be conducted with a fifth part only of the gold and filver which would otherwise have been requifite.

Let us fuppofe, for example, that the whole circulating money of fome particular country amounted, at a particular time, to one million fterling, that fum being then fufficient for circulating the whole annual produce of their land and labour. Let us fuppofe too, that fome time thereafter, different banks and bankers iffued promiffory notes, payable to the bearer, to the extent of one million, referving in their different coffers two hundred thousand pounds for anfwering occafional demands. There would remain, therefore, in circulation, eight hundred thousand pounds in gold and filver, and a million of bank notes, or eighteen hundred thoufand pounds of paper and money together. But the annual produce of the land and labour of the country had before required only one million to circulate and diftribute it to its proper confumers, and that annual produce cannot be immediately augmented by thofe operations of banking. One million, therefore, will be fufficient to circulate it after them. The goods to be bought and fold being precisely the fame as before, the fame quantity of money will be fufficient for buying and felling them. The channel of circulation, if I may be allowed fuch an expreffion, will remain precifely the fame as before. One million we have fuppofed fufficient



to fill that channel. Whatever, therefore, is CHAP. poured into it beyond this fum, cannot run in it, but muft overflow. One million eight hundred thousand pounds are poured into it. Eight hundred thousand pounds, therefore, must overflow, that fum being over and above what can be employed in the circulation of the country. But though this fum cannot be employed at home, it is too valuable to be allowed to lie idle. It will, therefore, be fent abroad, in order to feek that profitable employment which it cannot find at home. But the paper cannot go abroad; because at a distance from the banks which iffue it, and from the country in which payment of it can be exacted by law, it will not be received in common payments. Gold and filver, therefore, to the amount of eight hundred thousand pounds will be fent abroad, and the channel of home circulation will remain filled with a million of paper, instead of the million of thofe metals which filled it before.


But though fo great a quantity of gold and filver is thus fent abroad, we must not imagine that it is fent abroad for nothing, or that its proprietors make a present of it to foreign nations. They will exchange it for foreign goods of fome kind or another, in order to fupply the confumption either of fome other foreign country, or of their own.

If they employ it in purchafing goods in one foreign country in order to fupply the confumption of another, or in what is called the carrying trade, whatever profit they make will be an ad[FF 3


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