Thepaperwhichwasissueduponthosecirculatingbillsofexchange，amounted，uponmanyoccasions，tothewholefunddestinedforcarryingonsomevastandextensiveprojectofagriculture，commerce，ormanufactures;andnotmerelytothatpartofitwhich，hadtherebeennopapermoney，theprojectorwouldhavebeenobligedtokeepbyhim，unemployedandinreadymoneyforansweringoccasionaldemands。Thegreaterpartofthispaperwas，consequently，overandabovethevalueofthegoldandsilverwhichwouldhavecirculatedinthecountry，hadtherebeennopapermoney。Itwasoverandabove，therefore，whatthecirculationofthecountrycouldeasilyabsorbandemploy，anduponthataccount，immediatelyreturneduponthebanksinordertobeexchangedforgoldandsilver，whichtheyweretofindastheycould。Itwasacapitalwhichthoseprojectorshadveryartfullycontrivedtodrawfromthosebanks，notonlywithouttheirknowledgeordeliberateconsent，butforsometime，perhaps，withouttheirhavingthemostdistantsuspicionthattheyhadreallyadvancedit。
　　Whentwopeople，whoarecontinuallydrawingandredrawingupononeanother，discounttheirbillsalwayswiththesamebanker，hemustimmediatelydiscoverwhattheyareabout，andseeclearlythattheyaretrading，notwithanycapitaloftheirown，butwiththecapitalwhichheadvancestothem。Butthisdiscoveryisnotaltogethersoeasywhentheydiscounttheirbillssometimeswithonebanker，andsometimeswithanother，andwhenthesametwopersonsdonotconstantlydrawandredrawupononeanother，butoccasionallyruntheroundofagreatcircleofprojectors，whofinditfortheirinteresttoassistoneanotherinthismethodofraisingmoney，andtorenderit，uponthataccount，asdifficultaspossibletodistinguishbetweenarealandfictitiousbillofexchange;betweenabilldrawnbyarealcreditoruponarealdebtor，andabillforwhichtherewasproperlynorealcreditorbutthebankwhichdiscountedit，noranyrealdebtorbuttheprojectorwhomadeuseofthemoney。Whenabankerhadevenmadethisdiscovery，hemightsometimesmakeittoolate，andmightfindthathehadalreadydiscountedthebillsofthoseprojectorstosogreatanextentthat，byrefusingtodiscountanymore，hewouldnecessarilymakethemallbankrupts，andthus，byruiningthem，mightperhapsruinhimself。Forhisowninterestandsafety，therefore，hemightfinditnecessary，inthisveryperiloussituation，togoonforsometime，endeavouring，however，towithdrawgradually，anduponthataccountmakingeverydaygreaterandgreaterdifficultiesaboutdiscounting，inordertoforcethoseprojectorsbydegreestohaverecourse，eithertootherbankers，ortoothermethodsofraisingmoney;sothathehimselfmight，assoonaspossible，getoutofthecircle。Thedifficulties，accordingly，whichtheBankofEngland，whichtheprincipalbankersinLondon，andwhicheventhemoreprudentScotchbanksbegan，afteracertaintime，andwhenallofthemhadalreadygonetoofar，tomakeaboutdiscounting，notonlyalarmed，butenragedinthehighestdegreethoseprojectors。Theirowndistress，ofwhichthisprudentandnecessaryreserveofthebankswas，nodoubt，theimmediateoccasion，theycalledthedistressofthecountry;andthisdistressofthecountry，theysaid，wasaltogetherowingtotheignorance，pusillanimity，andbadconductofthebanks，whichdidnotgiveasufficientlyliberalaidtothespiritedundertakingsofthosewhoexertedthemselvesinordertobeautify，improve，andenrichthecountry。Itwasthedutyofthebanks，theyseemedtothink，tolendforaslongatime，andtoasgreatanextentastheymightwishtoborrow。Thebanks，however，byrefusinginthismannertogivemorecredittothosetowhomtheyhadalreadygivenagreatdealtoomuch，tooktheonlymethodbywhichitwasnowpossibletosaveeithertheirowncreditorthepubliccreditofthecountry。
　　Inthemidstofthisclamouranddistress，anewbankwasestablishedinScotlandfortheexpresspurposeofrelievingthedistressofthecountry。Thedesignwasgenerous;buttheexecutionwasimprudent，andthenatureandcausesofthedistresswhichitmeanttorelievewerenot，perhaps，wellunderstood。Thisbankwasmoreliberalthananyotherhadeverbeen，bothingrantingcashaccounts，andindiscountingbillsofexchange。Withregardtothelatter，itseemstohavemadescarceanydistinctionbetweenrealandcirculatingbills，buttohavediscountedallequally。Itwastheavowedprincipleofthisbanktoadvance，uponanyreasonablesecurity，thewholecapitalwhichwastobeemployedinthoseimprovementsofwhichthereturnsarethemostslowanddistant，suchastheimprovementsofland。Topromotesuchimprovementswasevensaidtobethechiefofthepublic—spiritedpurposesforwhichitwasinstituted。Byitsliberalityingrantingcashaccounts，andindiscountingbillsofexchange，it，nodoubt，issuedgreatquantitiesofitsbanknotes。Butthosebanknotesbeing，thegreaterpartofthem，overandabovewhatthecirculationofthecountrycouldeasilyabsorbandemploy，returneduponit，inordertobeexchangedforgoldandsilverasfastastheywereissued。Itscofferswereneverwellfilled。Thecapitalwhichhadbeensubscribedtothisbankattwodifferentsubscriptions，amountedtoonehundredandsixtythousandpounds，ofwhicheightypercentonlywaspaidup。Thissumoughttohavebeenpaidinatseveraldifferentinstalments。
　　Agreatpartoftheproprietors，whentheypaidintheirfirstinstalment，openedacashaccountwiththebank;andthedirectors，thinkingthemselvesobligedtotreattheirownproprietorswiththesameliberalitywithwhichtheytreatedallothermen，allowedmanyofthemtoborrowuponthiscashaccountwhattheypaidinuponalltheirsubsequentinstalments。Suchpayments，therefore，onlyputintoonecofferwhathadthemomentbeforebeentakenoutofanother。Buthadthecoffersofthisbankbeenfilledeversowell，itsexcessivecirculationmusthaveemptiedthemfasterthantheycouldhavebeenreplenishedbyanyotherexpedientbuttheruinousoneofdrawinguponLondon，andwhenthebillbecamedue，payingit，togetherwithinterestandcommission，byanotherdraftuponthesameplace。Itscoffershavingbeenfilledsoveryill，itissaidtohavebeendriventothisresourcewithinaveryfewmonthsafteritbegantodobusiness。Theestatesoftheproprietorsofthisbankwereworthseveralmillions，andbytheirsubscriptiontotheoriginalbondorcontractofthebank，werereallypledgedforansweringallitsengagements。Bymeansofthegreatcreditwhichsogreatapledgenecessarilygaveit，itwas，notwithstandingitstooliberalconduct，enabledtocarryonbusinessformorethantwoyears。Whenitwasobligedtostop，ithadinthecirculationabouttwohundredthousandpoundsinbanknotes。Inordertosupportthecirculationofthosenoteswhichwerecontinuallyreturninguponitasfasttheywereissued，ithadbeenconstantlyinthepracticeofdrawingbillsofexchangeuponLondon，ofwhichthenumberandvaluewerecontinuallyincreasing，and，whenitstopped，amountedtoupwardsofsixhundredthousandpounds。Thisbank，therefore，had，inlittlemorethanthecourseoftwoyears，advancedtodifferentpeopleupwardsofeighthundredthousandpoundsatfivepercent。Uponthetwohundredthousandpoundswhichitcirculatedinbanknotes，thisfivepercentmight，perhaps，beconsideredascleargain，withoutanyotherdeductionbesidestheexpenseofmanagement。Butuponupwardsofsixhundredthousandpounds，forwhichitwascontinuallydrawingbillsofexchangeuponLondon，itwaspaying，inthewayofinterestandcommission，upwardsofeightpercent，andwasconsequentlylosingmorethanthreepercentuponmorethanthree—fourthsofallitsdealings。
　　Theoperationsofthisbankseemtohaveproducedeffectsquiteoppositetothosewhichwereintendedbytheparticularpersonswhoplannedanddirectedit。Theyseemtohaveintendedtosupportthespiritedundertakings，forassuchtheyconsideredthem，whichwereatthattimecarryingonindifferentpartsofthecountry;andatthesametime，bydrawingthewholebankingbusinesstothemselves，tosupplantalltheotherScotchbanks，particularlythoseestablishedinEdinburgh，whosebackwardnessindiscountingbillsofexchangehadgivensomeoffence。Thisbank，nodoubt，gavesometemporaryrelieftothoseprojectors，andenabledthemtocarryontheirprojectsforabouttwoyearslongerthantheycouldotherwisehavedone。Butittherebyonlyenabledthemtogetsomuchdeeperintodebt，sothat，whenruincame，itfellsomuchtheheavierbothuponthemandupontheircreditors。Theoperationsofthisbank，therefore，insteadofrelieving，inrealityaggravatedinthelong—runthedistresswhichthoseprojectorshadbroughtbothuponthemselvesandupontheircountry。Itwouldhavebeenmuchbetterforthemselves，theircreditors，andtheircountry，hadthegreaterpartofthembeenobligedtostoptwoyearssoonerthantheyactuallydid。Thetemporaryrelief，however，whichthisbankaffordedtothoseprojectors，provedarealandpermanentrelieftotheotherScotchbanks。Allthedealersincirculatingbillsofexchange，whichthoseotherbankshadbecomesobackwardindiscounting，hadrecoursetothisnewbank，wheretheywerereceivedwithopenarms。Thoseotherbanks，therefore，wereenabledtogetveryeasilyoutofthatfatalcircle，fromwhichtheycouldnototherwisehavedisengagedthemselveswithoutincurringaconsiderableloss，andperhapstooevensomedegreeofdiscredit。
　　Inthelong—run，therefore，theoperationsofthisbankincreasedtherealdistressofthecountrywhichitmeanttorelieve;andeffectuallyrelievedfromaverygreatdistressthoserivalswhomitmeanttosupplant。
　　Atthefirstsettingoutofthisbank，itwastheopinionofsomepeoplethathowfastsoeveritscoffersmightbeemptied，itmighteasilyreplenishthembyraisingmoneyuponthesecuritiesofthosetowhomithadadvanceditspaper。Experience，I
　　believe，soonconvincedthemthatthismethodofraisingmoneywasbymuchtooslowtoanswertheirpurpose;andthatcofferswhichoriginallyweresoillfilled，andwhichemptiedthemselvessoveryfast，couldbereplenishedbynootherexpedientbuttheruinousoneofdrawingbillsuponLondon，andwhentheybecamedue，payingthembyotherdraftsuponthesameplacewithaccumulatedinterestandcommission。Butthoughtheyhadbeenablebythismethodtoraisemoneyasfastastheywantedit，yet，insteadofmakingaprofit，theymusthavesufferedalossbyeverysuchoperation;sothatinthelong—runtheymusthaveruinedthemselvesasamercantilecompany，though，perhaps，notsosoonasbythemoreexpensivepracticeofdrawingandredrawing。Theycouldstillhavemadenothingbytheinterestofthepaper，which，beingoverandabovewhatthecirculationofthecountrycouldabsorbandemploy，returneduponthem，inordertobeexchangedforgoldandsilver，asfastastheyissuedit;
　　andforthepaymentofwhichtheywerethemselvescontinuallyobligedtoborrowmoney。Onthecontrary，thewholeexpenseofthisborrowing，ofemployingagentstolookoutforpeoplewhohadmoneytolend，ofnegotiatingwiththosepeople，andofdrawingtheproperbondorassignment，musthavefallenuponthem，andhavebeensomuchclearlossuponthebalanceoftheiraccounts。Theprojectofreplenishingtheircoffersinthismannermaybecomparedtothatofamanwhohadawater—pondfromwhichastreamwascontinuallyrunningout，andintowhichnostreamwascontinuallyrunning，butwhoproposedtokeepitalwaysequallyfullbyemployinganumberofpeopletogocontinuallywithbucketstoawellatsomemilesdistanceinordertobringwatertoreplenishit。
　　Butthoughthisoperationhadprovednotonlypracticablebutprofitabletothebankasamercantilecompany，yetthecountrycouldhavederivednobenefitfromit;but，onthecontrary，musthavesufferedaveryconsiderablelossbyit。Thisoperationcouldnotaugmentinthesmallestdegreethequantityofmoneytobelent。Itcouldonlyhaveerectedthisbankintoasortofgeneralloanofficeforthewholecountry。Thosewhowantedtoborrowmusthaveappliedtothisbankinsteadofapplyingtotheprivatepersonswhohadlentittheirmoney。Butabankwhichlendsmoneyperhapstofivehundreddifferentpeople，thegreaterpartofwhomitsdirectorscanknowverylittleabout，isnotlikelytobemorejudiciousinthechoiceofitsdebtorsthanaprivatepersonwholendsouthismoneyamongafewpeoplewhomheknows，andinwhosesoberandfrugalconducthethinkshehasgoodreasontoconfide。ThedebtorsofsuchabankasthatwhoseconductIhavebeengivingsomeaccountofwerelikely，thegreaterpartofthem，tobechimericalprojectors，thedrawersandre—drawersofcirculatingbillsofexchange，whowouldemploythemoneyinextravagantundertakings，which，withalltheassistancethatcouldbegiventhem，theywouldprobablyneverbeabletocomplete，andwhich，iftheyshouldbecompleted，wouldneverrepaytheexpensewhichtheyhadreallycost，wouldneveraffordafundcapableofmaintainingaquantityoflabourequaltothatwhichhadbeenemployedaboutthem。Thesoberandfrugaldebtorsofprivatepersons，onthecontrary，wouldbemorelikelytoemploythemoneyborrowedinsoberundertakingswhichwereproportionedtotheircapitals，andwhich，thoughtheymighthavelessofthegrandandthemarvellous，wouldhavemoreofthesolidandtheprofitable，whichwouldrepaywithalargeprofitwhateverhadbeenlaidoutuponthem，andwhichwouldthusaffordafundcapableofmaintainingamuchgreaterquantityoflabourthanthatwhichhadbeenemployedaboutthem。Thesuccessofthisoperation，therefore，withoutincreasinginthesmallestdegreethecapitalofthecountry，wouldonlyhavetransferredagreatpartofitfromprudentandprofitabletoimprudentandunprofitableundertakings。
　　ThattheindustryofScotlandlanguishedforwantofmoneytoemployitwastheopinionofthefamousMr。Law。Byestablishingabankofaparticularkind，whichheseemstohaveimaginedmightissuepapertotheamountofthewholevalueofallthelandsinthecountry，heproposedtoremedythiswantofmoney。TheParliamentofScotland，whenhefirstproposedhisproject，didnotthinkpropertoadoptit。Itwasafterwardsadopted，withsomevariations，bytheDukeofOrleans，atthattimeRegentofFrance。TheideaofthepossibilityofmultiplyingpapertoalmostanyextentwastherealfoundationofwhatiscalledtheMississippischeme，themostextravagantprojectbothofbankingandstock—jobbingthat，perhaps，theworldeversaw。
　　Thedifferentoperationsofthisschemeareexplainedsofully，soclearly，andwithsomuchorderanddistinctness，byMr。duVerney，inhisExaminationofthePoliticalReflectionsuponCommerceandFinancesofMr。duTot，thatIshallnotgiveanyaccountofthem。TheprinciplesuponwhichitwasfoundedareexplainedbyMr。Lawhimself，inadiscourseconcerningmoneyandtrade，whichhepublishedinScotlandwhenhefirstproposedhisproject。Thesplendidbutvisionaryideaswhicharesetforthinthatandsomeotherworksuponthesameprinciplesstillcontinuetomakeanimpressionuponmanypeople，andhave，perhaps，inpart，contributedtothatexcessofbankingwhichhasoflatebeencomplainedofbothinScotlandandinotherplaces。
　　TheBankofEnglandisthegreatestbankofcirculationinEurope。Itwasincorporated，inpursuanceofanactofParliament，byacharterundertheGreatSeal，datedthe27thofJuly，1694。Itatthattimeadvancedtogovernmentthesumofonemilliontwohundredthousandpounds，foranannuityofonehundredthousandpounds;orforL96，000ayearinterest，attherateofeightpercent，andL4000ayearfortheexpenseofmanagement。Thecreditofthenewgovernment，establishedbytheRevolution，wemaybelieve，musthavebeenverylow，whenitwasobligedtoborrowatsohighaninterest。
　　In1697thebankwasallowedtoenlargeitscapitalstockbyanengraftmentofL1，001，17110s。Itswholecapitalstocktherefore，amountedatthistimetoL2，201，17110s。Thisengraftmentissaidtohavebeenforthesupportofpubliccredit。In1696，tallieshadbeenatforty，andfifty，andsixtypercentdiscount，andbanknotesattwentypercent。Duringthegreatrecoinageofthesilver，whichwasgoingonatthistime，thebankhadthoughtpropertodiscontinuethepaymentofitsnotes，whichnecessarilyoccasionedtheirdiscredit。
　　Inpursuanceofthe7thAnne，c。7，thebankadvancedandpaidintotheexchequerthesumofL400，000;makinginallthesumofL1，600，000whichithadadvanceduponitsoriginalannuityofL96，000interestandL4000forexpenseofmanagement。In1708，therefore，thecreditofgovernmentwasasgoodasthatofprivatepersons，sinceitcouldborrowatsixpercentinterestthecommonlegalandmarketrateofthosetimes。Inpursuanceofthesameact，thebankcancelledexchequerbillstotheamountofL1，775，02717s。101/2d。atsixpercentinterest，andwasatthesametimeallowedtotakeinsubscriptionsfordoublingitscapital。In1708，therefore，thecapitalofthebankamountedtoL4，402，343;andithadadvancedtogovernmentthesumofL3，375，02717s。101/2d。
　　Byacalloffifteenpercentin1709，therewaspaidinandmadestockL656，204Is。9d。;andbyanotheroftenpercentin1710，L501，44812s。11d。Inconsequenceofthosetwocalls，therefore，thebankcapitalamountedtoL5，559，99514s。8d。
　　Inpursuanceofthe3rdGeorgeI，c。8，thebankdelivereduptwomillionsofexchequerbillstobecancelled。Ithadatthistime，therefore，advancedtogovernment17s。10d。Inpursuanceofthe8thGeorge1，c。21，thebankpurchasedoftheSouthSeaCompanystocktotheamountof14，000，000;andin1722，inconsequenceofthesubscriptionswhichithadtakeninforenablingittomakethispurchase，itscapitalstockwasincreasedbyL3，400，000。Atthistime，therefore，thebankhadadvancedtothepublicL9，375，02717s。101/2d。;anditscapitalstockamountedonlytoL8，959，99514s。8d。Itwasuponthisoccasionthatthesumwhichthebankhadadvancedtothepublic，andforwhichitreceivedinterest，beganfirsttoexceeditscapitalstock，orthesumforwhichitpaidadividendtotheproprietorsofbankstock;or，inotherwords，thatthebankbegantohaveanundividedcapital，overandaboveitsdividedone。Ithascontinuedtohaveanundividedcapitalofthesamekindeversince。In1746，thebankhad，upondifferentoccasions，advancedtothepublicL11，686，800anditsdividedcapitalhadbeenraisedbydifferentcallsandsubscriptionstoL10，780，000。
　　Thestateofthosetwosumshascontinuedtobethesameeversince。Inpursuanceofthe4thofGeorgeIII，c。25，thebankagreedtopaytogovernmentfortherenewalofitscharterL110，000withoutinterestorrepayment。Thissum，therefore，didnotincreaseeitherofthosetwoothersums。
　　Thedividendofthebankhasvariedaccordingtothevariationsintherateoftheinterestwhichithas，atdifferenttimes，receivedforthemoneyithadadvancedtothepublic，aswellasaccordingtoothercircumstances。Thisrateofinteresthasgraduallybeenreducedfromeighttothreepercent。Forsomeyearspastthebankdividendhasbeenatfiveandahalfpercent。
　　ThestabilityoftheBankofEnglandisequaltothatoftheBritishgovernment。Allthatithasadvancedtothepublicmustbelostbeforeitscreditorscansustainanyloss。NootherbankingcompanyinEnglandcanbeestablishedbyactofParliament，orcanconsistofmorethansixmembers。Itacts，notonlyasanordinarybank，butasagreatengineofstate。Itreceivesandpaysthegreaterpartoftheannuitieswhichareduetothecreditorsofthepublic，itcirculatesexchequerbills，anditadvancestogovernmenttheannualamountofthelandandmalttaxes，whicharefrequentlynotpaiduptillsomeyearsthereafter。Inthosedifferentoperations，itsdutytothepublicmaysometimeshaveobligedit，withoutanyfaultofitsdirectors，tooverstockthecirculationwithpapermoney。Itlikewisediscountsmerchants’bills，andhas，uponseveraldifferentoccasions，supportedthecreditoftheprincipalhouses，notonlyofEngland，butofHamburgandHolland。Upononeoccasion，in1763，itissaidtohaveadvancedforthispurpose，inoneweek，aboutL1，600，000，agreatpartofitinbullion。I
　　donot，however，pretendtowarranteitherthegreatnessofthesum，ortheshortnessofthetime。Uponotheroccasions，thisgreatcompanyhasbeenreducedtothenecessityofpayinginsixpences。
　　Itisnotbyaugmentingthecapitalofthecountry，butbyrenderingagreaterpartofthatcapitalactiveandproductivethanwouldotherwisebeso，thatthemostjudiciousoperationsofbankingcanincreasetheindustryofthecountry。Thatpartofhiscapitalwhichadealerisobligedtokeepbyhimunemployed，andinreadymoney，foransweringoccasionaldemands，issomuchdeadstock，which，solongasitremainsinthissituation，producesnothingeithertohimortohiscountry。Thejudiciousoperationsofbankingenablehimtoconvertthisdeadstockintoactiveandproductivestock;intomaterialstoworkupon，intotoolstoworkwith，andintoprovisionsandsubsistencetoworkfor;intostockwhichproducessomethingbothtohimselfandtohiscountry。Thegoldandsilvermoneywhichcirculatesinanycountry，andbymeansofwhichtheproduceofitslandandlabourisannuallycirculatedanddistributedtotheproperconsumers，is，inthesamemannerasthereadymoneyofthedealer，alldeadstock。Itisaveryvaluablepartofthecapitalofthecountry，whichproducesnothingtothecountry。Thejudiciousoperationsofbanking，bysubstitutingpaperintheroomofagreatpartofthisgoldandsilver，enablesthecountrytoconvertagreatpartofthisdeadstockintoactiveandproductivestock;intostockwhichproducessomethingtothecountry。Thegoldandsilvermoneywhichcirculatesinanycountrymayveryproperlybecomparedtoahighway，which，whileitcirculatesandcarriestomarketallthegrassandcornofthecountry，producesitselfnotasinglepileofeither。Thejudiciousoperationsofbanking，byproviding，ifImaybeallowedsoviolentametaphor，asortofwaggon—waythroughtheair，enablethecountrytoconvert，asitwere，agreatpartofitshighwaysintogoodpasturesandcorn—fields，andtherebytoincreaseveryconsiderablytheannualproduceofitslandandlabour。Thecommerceandindustryofthecountry，however，itmustbeacknowledged，thoughtheymaybesomewhataugmented，cannotbealtogethersosecurewhentheyarethus，asitwere，suspendedupontheDaedalianwingsofpapermoneyaswhentheytravelaboutuponthesolidgroundofgoldandsilver。Overandabovetheaccidentstowhichtheyareexposedfromtheunskillfulnessoftheconductorsofthispapermoney，theyareliabletoseveralothers，fromwhichnoprudenceorskillofthoseconductorscanguardthem。
　　Anunsuccessfulwar，forexample，inwhichtheenemygotpossessionofthecapital，andconsequentlyofthattreasurewhichsupportedthecreditofthepapermoney，wouldoccasionamuchgreaterconfusioninacountrywherethewholecirculationwascarriedonbypaper，thaninonewherethegreaterpartofitwascarriedonbygoldandsilver。Theusualinstrumentofcommercehavinglostitsvalue，noexchangescouldbemadebuteitherbybarteroruponcredit。Alltaxeshavingbeenusuallypaidinpapermoney，theprincewouldnothavewherewithaleithertopayhistroops，ortofurnishhismagazines;andthestateofthecountrywouldbemuchmoreirretrievablethanifthegreaterpartofitscirculationhadconsistedingoldandsilver。A
　　prince，anxioustomaintainhisdominionsatalltimesinthestateinwhichhecanmosteasilydefendthem，ought，uponthisaccount，toguard，notonlyagainstthatexcessivemultiplicationofpapermoneywhichruinstheverybankswhichissueit;butevenagainstthatmultiplicationofitwhichenablesthemtofillthegreaterpartofthecirculationofthecountrywithit。
　　Thecirculationofeverycountrymaybeconsideredasdividedintotwodifferentbranches:thecirculationofthedealerswithoneanother，andthecirculationbetweenthedealersandtheconsumers。Thoughthesamepiecesofmoney，whetherpaperormetal，maybeemployedsometimesintheonecirculationandsometimesintheother，yetasbothareconstantlygoingonatthesametime，eachrequiresacertainstockofmoneyofonekindoranothertocarryiton。Thevalueofthegoodscirculatedbetweenthedifferentdealers，nevercanexceedthevalueofthosecirculatedbetweenthedealersandtheconsumers;whateverisboughtbythedealers，beingultimatelydestinedtobesoldtotheconsumers。Thecirculationbetweenthedealers，asitiscarriedonbywholesale，requiresgenerallyaprettylargesumforeveryparticulartransaction。Thatbetweenthedealersandtheconsumers，onthecontrary，asitisgenerallycarriedonbyretail，frequentlyrequiresbutverysmallones，ashilling，orevenahalfpenny，beingoftensufficient。Butsmallsumscirculatemuchfasterthanlargeones。Ashillingchangesmastersmorefrequentlythanaguinea，andahalfpennymorefrequentlythanashilling。Thoughtheannualpurchasesofalltheconsumers，therefore，areatleastequalinvaluetothoseofallthedealers，theycangenerallybetransactedwithamuchsmallerquantityofmoney;thesamepieces，byamorerapidcirculation，servingastheinstrumentofmanymorepurchasesoftheonekindthanoftheother。
　　Papermoneymaybesoregulatedaseithertoconfineitselfverymuchtothecirculationbetweenthedifferentdealers，ortoextenditselflikewisetoagreatpartofthatbetweenthedealersandtheconsumers。Wherenobanknotesarecirculatedundertenpoundsvalue，asinLondon，papermoneyconfinesitselfverymuchtothecirculationbetweenthedealers。Whenatenpoundbanknotecomesintothehandsofaconsumer，heisgenerallyobligedtochangeitatthefirstshopwherehehasoccasiontopurchasefiveshillings’worthofgoods，sothatitoftenreturnsintothehandsofadealerbeforetheconsumerhasspentthefortiethpartofthemoney。Wherebanknotesareissuedforsosmallsumsastwentyshillings，asinScotland，papermoneyextendsitselftoaconsiderablepartofthecirculationbetweendealersandconsumers。BeforetheActofParliament，whichputastoptothecirculationoftenandfiveshillingnotes，itfilledastillgreaterpartofthatcirculation。InthecurrenciesofNorthAmerica，paperwascommonlyissuedforsosmallasumasashilling，andfilledalmostthewholeofthatcirculation。InsomepapercurrenciesofYorkshire，itwasissuedevenforsosmallasumasasixpence。
　　Wheretheissuingofbanknotesforsuchverysmallsumsisallowedandcommonlypractised，manymeanpeoplearebothenabledandencouragedtobecomebankers。Apersonwhosepromissorynoteforfivepounds，orevenfortwentyshillings，wouldberejectedbyeverybody，willgetittobereceivedwithoutscruplewhenitisissuedforsosmallasumasasixpence。Butthefrequentbankruptciestowhichsuchbeggarlybankersmustbeliablemayoccasionaveryconsiderableinconveniency，andsometimesevenaverygreatcalamitytomanypoorpeoplewhohadreceivedtheirnotesinpayment。
　　Itwerebetter，perhaps，thatnobanknoteswereissuedinanypartofthekingdomforasmallersumthanfivepounds。Papermoneywouldthen，probably，confineitself，ineverypartofthekingdom，tothecirculationbetweenthedifferentdealers，asmuchasitdoesatpresentinLondon，wherenobanknotesareissuedundertenpounds’value;fivepoundsbeing，inmostpartsofthekingdom，asumwhich，thoughitwillpurchase，littlemorethanhalfthequantityofgoods，isasmuchconsidered，andisasseldomspentallatonce，astenpoundsareamidsttheprofuseexpenseofLondon。
　　Wherepapermoney，itistobeobserved，isprettymuchconfinedtothecirculationbetweendealersanddealers，asatLondon，thereisalwaysplentyofgoldandsilver。Whereitextendsitselftoaconsiderablepartofthecirculationbetweendealersandconsumers，asinScotland，andstillmoreinNorthAmerica，itbanishesgoldandsilveralmostentirelyfromthecountry;almostalltheordinarytransactionsofitsinteriorcommercebeingthuscarriedonbypaper。ThesuppressionoftenandfiveshillingbanknotessomewhatrelievedthescarcityofgoldandsilverinScotland;andthesuppressionoftwentyshillingnoteswouldprobablyrelieveitstillmore。ThosemetalsaresaidtohavebecomemoreabundantinAmericasincethesuppressionofsomeoftheirpapercurrencies。Theyaresaid，likewise，tohavebeenmoreabundantbeforetheinstitutionofthosecurrencies。
　　Thoughpapermoneyshouldbeprettymuchconfinedtothecirculationbetweendealersanddealers，yetbanksandbankersmightstillbeabletogivenearlythesameassistancetotheindustryandcommerceofthecountryastheyhaddonewhenpapermoneyfilledalmostthewholecirculation。Thereadymoneywhichadealerisobligedtokeepbyhim，foransweringoccasionaldemands，isdestinedaltogetherforthecirculationbetweenhimselfandotherdealersofwhomhebuysgoods。Hehasnooccasiontokeepanybyhimforthecirculationbetweenhimselfandtheconsumers，whoarehiscustomers，andwhobringreadymoneytohim，insteadoftakinganyfromhim。Thoughnopapermoney，therefore，wasallowedtobeissuedbutforsuchsumsaswouldconfineitprettymuchtothecirculationbetweendealersanddealers，yet，partlybydiscountingrealbillsofexchange，andpartlybylendinguponcashaccounts，banksandbankersmightstillbeabletorelievethegreaterpartofthosedealersfromthenecessityofkeepinganyconsiderablepartoftheirstockbythem，unemployedandinreadymoney，foransweringoccasionaldemands。Theymightstillbeabletogivetheutmostassistancewhichbanksandbankerscan，withpropriety，givetotradersofeverykind。
　　Torestrainprivatepeople，itmaybesaid，fromreceivinginpaymentthepromissorynotesofabanker，foranysumwhethergreatorsmall，whentheythemselvesarewillingtoreceivethem，ortorestrainabankerfromissuingsuchnotes，whenallhisneighboursarewillingtoacceptofthem，isamanifestviolationofthatnaturallibertywhichitistheproperbusinessoflawnottoinfringe，buttosupport。Suchregulationsmay，nodoubt，beconsideredasinsomerespectsaviolationofnaturalliberty。
　　Butthoseexertionsofthenaturallibertyofafewindividuals，whichmightendangerthesecurityofthewholesociety，are，andoughttobe，restrainedbythelawsofallgovernments，ofthemostfreeaswellasofthemostdespotical。Theobligationofbuildingpartywalls，inordertopreventthecommunicationoffire，isaviolationofnaturallibertyexactlyofthesamekindwiththeregulationsofthebankingtradewhicharehereproposed。
　　Apapermoneyconsistinginbanknotes，issuedbypeopleofundoubtedcredit，payableupondemandwithoutanycondition，andinfactalwaysreadilypaidassoonaspresented，is，ineveryrespect，equalinvaluetogoldandsilvermoney;sincegoldandsilvermoneycanatanytimebehadforit。Whateveriseitherboughtorsoldforsuchpapermustnecessarilybeboughtorsoldascheapasitcouldhavebeenforgoldandsilver。
　　Theincreaseofpapermoney，ithasbeensaid，byaugmentingthequantity，andconsequentlydiminishingthevalueofthewholecurrency，necessarilyaugmentsthemoneypriceofcommodities。
　　Butasthequantityofgoldandsilver，whichistakenfromthecurrency，isalwaysequaltothequantityofpaperwhichisaddedtoit，papermoneydoesnotnecessarilyincreasethequantityofthewholecurrency。Fromthebeginningofthelastcenturytothepresenttime，provisionsneverwerecheaperinScotlandthanin1759，though，fromthecirculationoftenandfiveshillingbanknotes，therewasthenmorepapermoneyinthecountrythanatpresent。TheproportionbetweenthepriceofprovisionsinScotlandandthatinEnglandisthesamenowasbeforethegreatmultiplicationofbankingcompaniesinScotland。Cornis，uponmostoccasions，fullyascheapinEnglandasinFrance;thoughthereisagreatdealofpapermoneyinEngland，andscarceanyinFrance。In1751andin1752，whenMr。HumepublishedhisPoliticalDiscourses，andsoonafterthegreatmultiplicationofpapermoneyinScotland，therewasaverysensibleriseinthepriceofprovisions，owing，probably，tothebadnessoftheseasons，andnottothemultiplicationofpapermoney。
　　Itwouldbeotherwise，indeed，withapapermoneyconsistinginpromissorynotes，ofwhichtheimmediatepaymentdepended，inanyrespect，eitheruponthegoodwillofthosewhoissuedthem，oruponaconditionwhichtheholderofthenotesmightnotalwayshaveitinhispowertofulfil;orofwhichthepaymentwasnotexigibletillafteracertainnumberofyears，andwhichinthemeantimeborenointerest。Suchapapermoneywould，nodoubt，fallmoreorlessbelowthevalueofgoldandsilver，accordingasthedifficultyoruncertaintyofobtainingimmediatepaymentwassupposedtobegreaterorless;oraccordingtothegreaterorlessdistanceoftimeatwhichpaymentwasexigible。
　　SomeyearsagothedifferentbankingcompaniesofScotlandwereinthepracticeofinsertingintotheirbanknotes，whattheycalledanOptionalClause，bywhichtheypromisedpaymenttothebearer，eitherassoonasthenoteshouldbepresented，or，intheoptionofthedirectors，sixmonthsaftersuchpresentment，togetherwiththelegalinterestforthesaidsixmonths。Thedirectorsofsomeofthosebankssometimestookadvantageofthisoptionalclause，andsometimesthreatenedthosewhodemandedgoldandsilverinexchangeforaconsiderablenumberoftheirnotesthattheyWouldtakeadvantageofit，unlesssuchdemanderswouldcontentthemselveswithapartofwhattheydemanded。ThepromissorynotesofthosebankingcompaniesconstitutedatthattimethefargreaterpartofthecurrencyofScotland，whichthisuncertaintyofpaymentnecessarilydegradedbelowthevalueofgoldandsilvermoney。
　　Duringthecontinuanceofthisabuse（whichprevailedchieflyin1762，1763，and1764），whiletheexchangebetweenLondonandCarlislewasatpar，thatbetweenLondonandDumfrieswouldsometimesbefourpercentagainstDumfries，thoughthistownisnotthirtymilesdistantfromCarlisle。ButatCarlisle，billswerepaidingoldandsilver;whereasatDumfriestheywerepaidinScotchbanknotes，andtheuncertaintyofgettingthosebanknotesexchangedforgoldandsilvercoinhadthusdegradedthemfourpercentbelowthevalueofthatcoin。ThesameActofParliamentwhichsuppressedtenandfiveshillingbanknotessuppressedlikewisethisoptionalclause，andtherebyrestoredtheexchangebetweenEnglandandScotlandtoitsnaturalrate，ortowhatthecourseoftradeandremittancesmighthappentomakeit。
　　InthepapercurrenciesofYorkshire，thepaymentofsosmallasumasasixpencesometimesdependedupontheconditionthattheholderofthenoteshouldbringthechangeofaguineatothepersonwhoissuedit;aconditionwhichtheholdersofsuchnotesmightfrequentlyfinditverydifficulttofulfil，andwhichmusthavedegradedthiscurrencybelowthevalueofgoldandsilvermoney。AnActofParliamentaccordinglydeclaredallsuchclausesunlawful，andsuppressed，inthesamemannerasinScotland，allpromissorynotes，payabletothebearer，undertwentyshillingsvalue。
　　ThepapercurrenciesofNorthAmericaconsisted，notinbanknotespayabletothebearerondemand，butingovernmentpaper，ofwhichthepaymentwasnotexigibletillseveralyearsafteritwasissued;andthoughthecolonygovernmentspaidnointeresttotheholdersofthispaper，theydeclaredittobe，andinfactrenderedit，alegaltenderofpaymentforthefullvalueforwhichitwasissued。Butallowingthecolonysecuritytobeperfectlygood，ahundredpoundspayablefifteenyearshence，forexample，inacountrywhereinterestatsixpercent，isworthlittlemorethanfortypoundsreadymoney。Toobligeacreditor，therefore，toacceptofthisasfullpaymentforadebtofahundredpoundsactuallypaiddowninreadymoneywasanactofsuchviolentinjusticeashasscarce，perhaps，beenattemptedbythegovernmentofanyothercountrywhichpretendedtobefree。
　　Itbearstheevidentmarksofhavingoriginallybeen，whatthehonestanddownrightDoctorDouglasassuresusitwas，aschemeoffraudulentdebtorstocheattheircreditors。ThegovernmentofPennsylvania，indeed，pretended，upontheirfirstemissionofpapermoney，in1722，torendertheirpaperofequalvaluewithgoldandsilverbyenactingpenaltiesagainstallthosewhomadeanydifferenceinthepriceoftheirgoodswhentheysoldthemforacolonypaper，andwhentheysoldthemforgoldandsilver;