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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 usually tranfacted 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 bufinefs at home, and as they could not fend it abroad, they would immediately demand payment of it from the banks. When this superfluous paper was converted into gold and filver, they could eafily find a ufe for it by fending it abroad;
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 confist chiefly in two articles: First, in the expence of keeping at all times in its coffers, 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 fast as they are emptied by answering fuck 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 in crease the quantity of gold and filver, which they keep at all times in their coffers, not only in proportion to this exceffive increase of their circulation, but in a much greater proportion; their notes returning upon them much fafter than in proportion to the excefs of their quantity. Such a company, therefore, ought to increase the first article of their expence, not only
BOOK in proportion to this forced increase of their business, but in a much greater proportion.
The coffers of fuch a company too, though they ought to be filled much fuller, yet must empty themselves much fafter than if their bufinefs was confined within more reasonable bounds, and must 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 must, in one shape 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, must 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 increase of their business, increase the fecond article of their expence ftill more than the firft.
Let us fuppofe that all the paper of a particular bank, which the circulation of the country can easily abforb and employ, amounts exactly to forty thousand pounds; and that for anfwering occafional
occafional demands, this bank is obliged to keep C H A P. at all times in its coffers ten thousand pounds in gold and filver. Should this bank attempt to circulate forty-four thousand pounds, the four thousand pounds which are over and above what the circulation can eafily abforb and employ, will return upon it almost as faft as they are iffued. For answering occafional demands, therefore, this bank ought to keep at all times in its coffers, not eleven thousand pounds only, but fourteen thousand pounds. It will thus gain nothing by the intereft of the four thousand pounds exceffive circulation; and it will lose the whole expence of continually collecting four thousand pounds in gold and filver, which will be continually going out of its coffers as fast as they are brought into them.
Had every particular banking company always understood and attended to its own particular intereft, the circulation never could have been overstocked with paper money. But every particular banking company has not always understood or attended to its own particular interest, and the circulation has frequently been overftocked with paper money.
By iffuing too great a quantity of paper, of which the excefs was continually returning, in order to be exchanged for gold and filver, the bank of England was for many years together obliged to coin gold to the extent of between eight hundred thousand pounds and a million a year; or at an average, about eight hundred and fifty thousand pounds. For this great coin
BOOK age the bank (in confequence of the worn and degraded state into which the gold coin had fallen a few years ago) was frequently obliged to purchafe gold bullion at the high price of four pounds an ounce, which it foon after iffued in coin at 37. 178. 10 d. an ounce, lofing in this manner between two and a half and three per cent. upon the coinage of fo very large a fum. Though the bank therefore paid no feignorage, though the government was properly at the expence of the coinage, this liberality of government did not prevent altogether the expence of the bank.
The Scotch banks, in confequence of an excefs of the fame kind, were all obliged to employ conftantly agents at London to collect money for them, at an expence which was feldom below one and a half or two per cent. This money was fent down by the waggon, and infured by the carriers at an additional expence of three quarters per cent. or fifteen fhillings on the hundred pounds. Thofe agents were not always able to replenish the coffers of their employers fo faft as they were emptied. In this cafe the refource of the banks was, to draw upon their correfpondents in London bills of exchange to the extent of the fum which they wanted. When thofe correfpondents afterwards drew upon them for the payment of this fum, together with the intereft and a commiffion, fome of those banks, from the diftrefs into which their exceffive circulation had thrown them, had fometimes no other means of fatisfying this draught but by