Intheinfancyofbanking，andincountrieswherethetrueprinciplesofthetradearenotwellunderstood，wefindbankstakingageneralalarm，wheneverawrongbalanceoftradeoccasionsarunuponthem。Thisterrordrivesthemtoexpedientsforsupportingtheircredit，whichwearenowtoexamine，andwhichweshallfindtohaveaquitecontrarytendency。
Thebettertoexplainthiscombination，wemustrecalltomind，thatthepaymentofthegrandbalanceincoinorbillsisunavoidabletobanks。Wehavesaidthatthisbalanceiscommonlypaidbyexchangers，whopickupthecoinincirculation；athingthebankcannotprevent。ThiswehavecalledexhaustingapartofB。theconsequenceofthisis，tomaketheproprietorsofC
comeuponthebank，anddemandcoinforfillingupB:tothisthebankmustalsoagree。ButbytheseoperationsCcomestobediminished，belowthelevelnecessaryforcarryingontrade，industry，andalienation:uponwhichIhavesaidtherecommonlycomesanapplicationtothebanktogivemorecredit，inordertosupportdomesticcirculation，whichifcompliedwith，moresolidpropertyisconsequentlymelteddown。
Thisswellsthemassofsecurities，andraisesAtoitsformerlevel。Butherethebankhasachoice，andmayrefusetograntmorecredit:intheformeroperationsithadnone。Nowifthebank，fromaterrorofbeingdrainedofcoin，shouldrefusetoissuenotesuponnewcredits，forthedemandsofdomesticcirculation；inthiscase，Isay，theyfailintheirdutytothenation，asbanks，andhurttheirowninterest。Astotheirdutytothenation，Ishallnotinsistuponit；butIthinkIcandemonstratethattheyfailintheirmannerofreasoning，withrespecttotheirowninterest，andthatisenough。
Isay，then，thataslongasthereisonesinglenoteincirculation，andanypartofagrandbalanceowing，thisnotewillcomeuponthebankforpayment，withoutapossibilityofitsavoidingthedemand。Refusingthereforecredit，whileanynotesremaininthehandsofthepublic，isrefusinganinterestwhichmayhelptomakeupthepastlosses:butofthismorehereafter。
Inthenextplace，IthinkIhavedemonstrated，thatassoonasthegrandbalanceispaid，itisimpossiblethatanymoredemandsforcoincancomeuponthebankforexportation。Whythenshouldabankdososignalaprejudicetotheircountry，astorefusetolendthempaper，whichtheready-moneydemandsofthecountrymustkeepincirculation？Andwhydothisatsogreatalosstothemselves？Ithasbeensaidabove，andIthinkwithjustice，thatthisrecruit，issuedtofillupcirculation，addstothemassofbanksecurities，andveryproperlyrepresentsthatpartoftheincomeofthesolidpropertyofthecountry，whichthebankmustdisposeoftoforeigners，inordertoprocurefromthemthecoinorbillsnecessaryforansweringthedemandforpaymentofagrandbalance。
Inthislightnothingcanappearmoreimprudent，thantorefusecredit。
Abankisforcedtopaytothelastfarthingofthisbalance；
bypayingit，thenotesthatwerenecessaryfordomesticcirculationarereturnedtothem；andtheyrefusetoreplacethem，forfearthattheirsupplyingcirculationshouldcreateanewbalanceagainstthem！Thisisvoluntarilytakingonthemselvesallthelossofbanking，andrejectingtheadvantagesofit。
Suchmanagementmaybeprudentwhenthecirculatingnotesofabankareveryfew，andwhenthebalanceisverygreat。Inthiscase，indeed，werethethingpossible，itmightbeprudenttogiveoverbankingforawhile，tillmatterstookafavourableturn。Butifwesupposetheircirculatingnotestoexceedthebalancedue，thenallthehurtwhichcanbedoneisdonealready；
andthemorenotesthatareissued，andthemorecreditthatisgiven，mustbesomuchthebetterforthebank；becausetheinterestdueuponallthatareissuedabovethebalance，mustbeclearprofittothebank。
Tobringwhathasbeensaidwithinanarrowercompass，andtolayitunderoureyeatonce，letuscallthesumofmoneynecessaryforcarryingonthedomesticcirculationofacountry，whereabankisestablished，A。
Thespecieitself，tocarryiton，B。
Thebalancestoothernations，D。
ThebankmustbeabletocommandcoinandcreditequaltothesumofBandD。IftheyhaveincreditthevalueofDinanyforeignplace，whereageneralcirculationofexchangeiscarriedon，thentheyhaveoccasiononlyforBathome，andcanfurnishbillstotheamountofD。
ButinfurnishingbillstotheamountofD，thosewhoreceivethebillsfromthebank，mustpaytothebankthevalueofthesebillsinbanknotes；andthenoteswithwhichtheypayforthebills，mustbetakenoutofA，whichAwesupposetobenecessaryforcarryingondomesticcirculation。ThisdiminutionuponthevalueofA，willoccasionanewdemandfornotesinordertocarryAtoitsformerextent；andthebankatissuingthenotesdemanded，willreceivenewsecuritiesfromthosewhodemandthem。Farther，theinterestpaiduponthesenewsecurities，willanswerforthepaymentoftheinterestofthemoneyowingtoforeigners，inconsequenceofthebillsdrawnuponthemtotheorderofthosewhoboughtthebillsfromthebankforthepaymentofD。
Thistransactionconcluded，theconsequencewillbe:thatA
willbemadeuptothecompletesumnecessaryfordomesticcirculation；andthattheinterestofthemoneyborrowedfromforeigners，inordertoacquitthebalanceD，willbepaidoutoftheinterestpaiduponthenewsecurities。
AssoonasDisthuscompletelypaidoff，werecoindrawnfromthebank，andsentawaybyprivatepeople，exchangers，etc。itwould，formabalanceduetothecountry；whichbalancewouldrenderexchangefavourable，andwouldoccasionalosstothosewhosentawaythecoin。Duringthisperiod，themorecreditthebankgives，somuchmorewillitsprofitsincrease，andnodemandcanbemadeuponitforcoin。
Toconclude:Letbanksnevercomplainofthosewhodemandcoinofthem，exceptinthecasewhenitisdemandedinordertobemelteddown，orfordomesticcirculation，whichmayaswellbecarriedonwithpaper。
Andsosoonasademandforcointopayaforeignbalancebegins，itisthenboththedutyandinterestofallgoodcitizenstobeasassistantaspossibletobanks，bycontentingthemselveswithpaperfortheirownoccasions，andbythrowingintothebankallthecoinwhichcasuallyfallsintotheirhands。
Asforduty，Ishalloffernoargumenttoenforceit。ButIsayitbecomesanationalconcerntoassistthebank；becausethelossincurredbythebankinprocuringcoin，fallsultimatelyoneveryindividual，byraisingexchange；byraisingprices；byraisingtheinterestofmoneytobeborrowed；and，lastofall，byconstitutingaperpetualinteresttobepaidtoforeigners，outoftherevenueofthesolidpropertyofthecountry。Uponsuchoccasions，agoodcitizenoughttoblushatpullingoutapurse，whenhisowninterest，andthatofhiscountry，shouldmakehimsatisfiedwithapocketbook。
Chap。XIII
ContinuationoftheSameSubject；andofthePrinciplesuponwhichBanksoughttoborrowAbroad，andgivecreditatHome。
Ineveryquestionrelativetothissubject，wemustreturntoprinciples。Thisistheonlysuremethodofavoidingerror。Themoreintelligentreader，therefore，mustexcuseshortrepetitions，andconsiderthemasasacrificeheismakingtothoseofslowercapacities，towhomtheyareuseful。
Theprincipleofbankinguponmortgage，istolendpapermoney，andtogivecredittothosewhohaveproperty，andadesiretomeltitdown。Thisiscalculatedforthebenefitoftrade，andforanencouragementtoindustry。Ifsuchbanks，therefore，borrow，itmustbedoneconsistentlywiththeprinciplesuponwhichtheirbankingisfounded。Iftheborrowingshouldtendtodestroythoseadvantageswhichtheirlendinghadprocured，thentheoperationiscontrarytoprinciples，andabusive。Somuchforrecapitulation。
Whiletradeflourishesandbringsinabalance，banksneverhaveoccasiontoborrow；itisthentheylendandgivecredit。
This，Ibelieve，wemaytakeforgranted。
Whenthecountrywherethebankisestablishedbeginstooweabalancetoothernations，thebank，aswehaveseeninthelastchapter，isobligedtopayitoffincoinorinbills。Wehavethereshewn，thatinsuchcasesitisinconsistentwiththeirprinciplesandinterest，towithholdlendingandgivingcredit，asfarasisnecessaryforkeepingupthefundofdomesticcirculationtothatstandardwhichalienationandready-moneydemandsrequire。
Torefusecredit，andatthesametimetoborrowathome，mustthen，atfirstsight，appeartobedoublyinconsistent。ButinordertosetthispointintheclearestlightIamcapable，I
shallreasonuponasuppositionanalogoustothesituationoftheScotchbanks，andbythismeansavoidabstractreasoningasmuchasIcan。
LetmethensupposethatScotland，duringthelastyearsofthewar，endedin1763，andeversinceIwritein1764，fromtheunavoidabledistressofthetimes，wasobliged，first，toimportconsiderablequantitiesofgraininsomebadyears；
secondly，torefundtheEnglishloansofmoneysettledthereinformertimes；thirdly，tofurnishsomeoftheinhabitantswithfunds，whichtheythoughtfittoplaceinEngland；fourthly，topaytheamountofadditionaltaxesimposedduringthewar；while，atthesametime，severaloftheordinaryresourceswerewithdrawn；suchas，first，agreatpartoftheindustriousinhabitantswhowenttosupplythefleetsandarmies；secondly，theabsenceoftheordinarycontingentoftroops；andthirdly，thecuttingoffofseveralbeneficialarticlesofcommerce。Letmesuppose，Isay，thatfromthetotaloftheselossesincurred，andadvantagessuspended，Scotlandhaslostannually，foreightyearspast，twohundredthousandpounds。Iamnocompetentjudgeoftheexactnessofthisestimate，itisofnoconsequencetotheargument；butIthinkIhavecarriedit，asIwishtodo，ratherbeyondthetruth。
Ontheotherhand，letmesupposethatthesumofcurrencyinpaper，sufficientwiththelittlecointherewastocirculatethewholeofthealienationsinScotlandthatistosay，thewholedomesticcirculation，supposingnobalancetobeowingtoEnglandorothercountriestobeonemillionsterling。IampersuadedIamherebelowthetrueestimate，butnomatter。
Isitnotevident，fromthissupposition，andfromtheprincipleswehavebeendeducing，thatunlessthebanksofScotlandhadborrowedeveryyear200，000l。sterling，andalienatedannuallyinfavourofEngland，afundforpayingtheinterestoftwohundredthousandpoundscapital；themillionofScotscurrencywouldhavebeendiminishedinproportiontothedeficiency:andwouldnottheconsequenceofthisbe，caeterisparibus，tobringthecurrencybelowthedemandforit；and，consequently，tohurttrade，industry，andalienation？
Nowsupposingthebanks，insteadofborrowinginEnglandafundequaltothisgrandbalanceasIhavesaidtheyshoulddo，toremaininconsternationandinactivity，givingthewholeoftheirattentiontotheprovidingofcoinandbillstosupplythedemandofexchangers，whosebusinessitistosendoutthisannualbalance；whatwouldtheconsequencebe？
Ianswer，thatifthebanks，insuchacase，donotfollowtheplanIhaveproposed，theconsequencewillbe，thattwohundredthousandpoundsoftheirpaperwillbe，thefirstyear，takenoutofthedomesticcirculationofScotland；willbecarriedtothebank，andcoindemandedforit。Ifthecoinisfoundinthebank，itiswell:itgoesaway，andleavesthepapercirculationofScotlandat800，000l。Thisvoidmustoccasionapplicationstothebankforcreditstosupplyit。Isitnotthentheinterestofthebanktosupplyit？Wehavesaidintheformerchaptersthatitis。Butnowletussupposeittobeobjected，thatifbanksshouldissuenotesatsuchatime，theircashhavingbeenexhausted，theywouldbeobligedtostopaltogether，uponareturnofthosenotesissueduponadditionalcredits。
TothisIrepeatagain，becauseoftheimportanceofthesubject，thatnotesissuedtosupportthedemandofcirculationnevercanreturnuponthebank，soastoformademandforcoin；
andiftheydoreturn，itmustbeinordertoextinguishthesecuritiesgrantedbythosewhohavecreditinbanksIexceptalwaysthatregulardemandforcoin，atalltimesnecessaryforcirculatingthepaperfordomesticuses；andifthosenotesreturnofthemselves，withoutbeingcalledin，thisphaenomenonwouldbeaproofthatcirculationisdiminishingofitself:butsupposingsuchacasetohappen，itisplainthatsuchreturncanproducenocallforcoin；becausewhenthenotesreturnitisnotforcoin，butforacquittinganobligationormortgage，ashasbeenoftenrepeated。
Notesarepaidin，Isay，becausecirculationhasthrownthemout。Nowifcirculationhasthrownthemoutassuperfluous，itnevercanhaveoccasionforcoinintheirstead；becausecoinanswersthesamepurpose。
Butthenitisurgedthattheydonotreturn，becausecirculationhasthrownthemout，butbecausecoiniswanted:beitso。Thenwemustsay，thatcirculationisnotdiminished，asweatfirstsupposed；butthatthereturnofanotheryear’sbalance，makesanewdemandforcoinnecessary。
NowIask，howthewithholdingofthis200，000l。fromcirculation，afterthefirstyear’sdrain，canpreventthebalancefromreturning？Therearebythesuppositionstill800，000l。ofnotesinthecountry；willnotexchangersgetholdoftwohundredthousandoutofthisfund，aswellasoutofthemillion？Forhewhoowes，mustpay，thatis，mustcirculate。Itisthecirculationoftheindustriousonly，andoftherich；inshort，itisbuying，thatistosay，voluntarycirculation，whichisstoppedforwantofcurrency:paying，thatis，involuntarycirculation，nevercanbestopped；debtorsmustfindmoney，aslongasthereisanyinthecountry，weretheytogiveanacreforashilling，orahouseforhalfacrown。Nowthosewhoowethisforeignbalancearedebtors；consequently，theymustdraw200，000l。outofcirculation，thesecondyearaswellasthefirst，whetherthestandardmillionbefilledupornot。Thewithholding，therefore，thecreditsdemandeduponthefirstdiminution，hasnottheleasteffectinpreventingthedemandforcointheyearfollowing:itonlydistressesthecountry，raisingexchange，andtheinterestofmoney，byrenderingmoneyscarce；
and，whatisthemostabsurdofall，itdeprivesthebankof10，000l。ayearinterest，at5percentupon200，000l。whichitmayissueanew。
Supposeagain，thatasecondyear’sdemandforabalanceof200，000l。comesuponthebank:ifthecoinisout，aswemaysupposethatafterthefirstyear’sdrainitwillnotbeingreatplenty，expedientsmustbefallenupon。Insuchacase，ifthebankdonotatoncefairlyborrowatLondonwithoutanyobligationtorepaythecapitalasumof200，000l。andpayforitaregularinterest，accordingtotherateofmoney，asgovernmentdoes，halfyearly，onthechangeofLondon，itwillbeinvolvedinexpedientswhichwillcreateamonstrouscirculationofcoininthebank，perhapsdoubleofthesumrequired，andalltheseoperationswillendastothebankinpayingthissumoutofthemassofitssecuritiesorstock。Ifthebankshouldborrowthis200，000l。inLondon，inthemannerwehavesaid，thecirculatingfundofcoinwillbenoisediminished；therewillbenocallextra-ordinaryforcoin，norisingofexchange；thebankwillhavethisinitshands；andifitrise，itwillbethebank，nottheexchangerswhowillprofitbyit。
Butletussupposethatinsteadofthis，itshouldhaverecoursetotemporarycreditsuponwhichthecapitalisconstantlydemandable，ortootherexpedientsstilllesseffectualforansweringthecallwhichistocomeuponitforthesecondyear’sbalance；whatwillbetheconsequence？TothisI
answer，thatthosemerchants，orotherswhoowethebalance，willapplytoexchangersforbills，forwhichtheymustpayahighexchange:thesebillswillbeboughtfromtheexchangerswithnotestakenoutofcirculation，andwillreducethisto600，000
l。theexchangersillcarrythesetothebankanddemandcoin。Ifthebankshouldmakeuseofanoptionalclause，topayinsixmonths，withinterestat5percenttheexchangersillobtainsixmonths’creditatLondon，andinconsequenceofthis，theirbillswillbehonouredandpaid。Thiscredit，however，coststhemmoney，whichisaddedtotheexchange:thebank，attheendofsixmonths，mustpay200，000l。sterlingincoin，whichintheintervalitmustprovidefromLondon。Itmustpayalsosixmonths，interestuponthepaperformerlypresentedbytheexchanger:addtotheaccount，thatbringingdownthecoinmustcostthebankatleast12shillingsperhundredpounds，andasmuchmoretotheexchangerwhoreceivesitinordertosenditbackagain；andafteralltheseintricateoperationswhichhavecostsomuchtrouble，illblood，stagnationanddiminutionofcirculation，expenceinexchangetothedebtorsofthebalance，stressofcredituponexchangersforprocuringsolargeadvanceswithcommission，etc。expencetothebankinprovidingcoin，expencetotheexchangersinreturningit:afterall，Isay，theoperationendsinthis；that200，000l。ofnotes，takenoutofthecirculationofScotlandreturnstothebank，whomusthaveprovidedatlast，eithercoin，orcreditatLondonforthem。Thisreturnof200，000l。ofnotesdoesnotdiminishthemassofthoseobligationslodgedinthebank，invirtueofwhichtheyarecreditorsupontheproprietorsofScotland:consequentlythebankhasconstituteditselfdebtortoEnglandforthosefundswhichhavebeentornfromitinthemannerabovedescribed:
consequently，hadit，byapermanentloan，constituteditselfvoluntarilydebtortoEnglandfromthebeginning，itwouldhavepaidnomore，naylessthanithasbeenobligedtopay；
circulationwouldnothavelost200，000l。andthebankwouldhavehadtheinterestof200，000l。addedtoitsformersecurities，whichwouldcompensateprotantoatleasttheexpenceofborrowingthissuminEnglanduponapermanentfund。
Insteadofwhichitcompensatestheinteresttakenoutinterestofatemporaryloan，withthesamesumofofthesecuritiesinitshand。If，therefore，fromanill-groundedfearofissuingasmuchpaperasisdemanded，itshallwithholdit，therewillresulttoitselfalossequaltotheinterestofwhatitrefusestolend；thatistosay，therewillbealucrumcessanstothebankoftheinterestofthis200，000l。at5percentor10，000
l。ayear；whichotherbankingcompanieswillfillup，andtherebyextendtheircirculation。
If，besidesrefusingcredits，itshouldcallinanypartofthosecreditsalreadygiven，itwillstillmorediminishcirculation:butthenbythisoperationitwilldiminishthemassofitssecurities，andsodiminishthesumoftheinterestannuallypaidtoitself。Ifitgofartherandborrowmoneyathome，suchloanswillbemadeinitsownpaper，whichwilldiminishfartherthemassofcirculation；andifitgoonrecallingitscreditsandmortgages，itwillsoondraweverybitofitspaperoutofcirculation，andremaincreditoruponScotlandforthebalanceonlyithaspaidtoEnglandonheraccount。Sucharetheconsequences，whenabankwhichlendsuponprivatesecuritywithholdscredit，atatimewhenanationalbalanceisdue，andwhenapplicationsaremadetoitfornewcredits，tofillupthevoidofcirculationoccasionedbytheoperationsusedforthepaymentofthebalance:suchalsoaretheadditionalfatalconsequences，whentothisitaddssoinconsistentanoperationasthatofborrowingitsownnotes，orrecallingthecreditsithadformerlygiven。
Bythefirststep，namely，byrefusingcredit，itappearspassiveonlyinallowingnaturalcausestodestroyboththebankandthenation，asIthinkhasbeenproved。
Bythesecond，namely，byborrowingitsownnotes，itisactiveindestroyingbothitselfandthecountry。
Whatbenefitcaneverabankwhichlendsuponprivatesecurityreapbyborrowingwithinthecountryofwhichitisthecentreofcirculation；nay，whatbenefitcaniteverreapfromwithholdingitsnotesfromthosewhocangivegoodsecurityforthem！
Everypennyitborrows，orcallsin，circumscribesitsownprofits，whileitdistressesthecountry。Afterconsideringallcircumstances，Icandiscoverbutonemotivewhichthroughafalselightmayengageabanktothisstep，towit，jealousyofotherbanks。
Asthisspeculationisdesignedtoillustratetheprinciplesofcirculation，fromcircumstancesrelativetothepresentstateoftheScotchbanks，letuscallthingsbytheirnames。
ThebanksofEdinburghresemble，morethananyotherinScotland，anationalbank。Letmethensupposeallthatcanbesupposed，viz。thattheabundanceoftheirpaperhasgivenoccasiontosmallerbankstopickupfromthemeveryshillingofcoinwhichthesesmallerbankshaveeverhad；andthatthesehavehadtheaddressalsotothrowthewholeloadofthebalanceuponthoseofEdinburgh:letthisbesupposed，morecannot，andletusallowfarther，thatthismustevercontinuetobethecase。Inthesecircumstances，whatmotivecanthebanksofEdinburghhaveforwithholdingcreditfromthosewhoareabletogivesecurity？
Whatmotivecantheyhaveforborrowingtheirownnotes？
IndeedIcanaccountforthisplanofmanagementinnootherwaythanbysupposing，that，disgustedatthelongcontinuanceofanunfavourablebalanceoftradeagainsttheircountry，andvexedtofindthewholeloadofitthrownuponthemselves，theyhavetakentheresolutiontoabandonthetrade，andaretakingthismethodtorecalltheirpaperaltogether。
Letmesupposethecontrary，andIshallnotbeabletodiscoverhowitispossiblethatsuchaconductcanturntotheirownadvantage，throwingoutallconsiderationforthepublicgood，whichforsometime，nodoubt，mustbegreatlyhurtbyit。
Aslongasanyconsiderablequantityoftheirnotesisincirculation，andwhiletheprincipalexchangersresideatEdinburgh，theynevercanavoidthelossofpayingthebalance；
consequently，byrefusingtofillupthevoidoccasionedbythereturnoftheirnotes，theydeliverthewholeprofitofreplacingthemtotheotherbanks，theirrivals。
Letmenextestimatethelosstheysustainbyfurnishingcointotheotherbanksforthepaymentofthebalance；andthencomparethiswithwhattheylosebynotkeepingcirculationfull。
Ishallsupposethebalancetocostthemtwohundredthousandpoundsperannum；andIshallsupposethatallthesmallerbanksputtogetherhaveoccasionfortwohundredthousandpoundsintheirchests:Isnotthiscomputationfarabovewhatcanpossiblybesupposed？
WillitbeallowedthatifthebanksofEdinburghwillinglysubmittopaythewholeofthebillsofexchangedemandedonLondon，forthisbalance，theywillhaveatleastthepreferenceinreplacingthissumtocirculation？
Iftheypaythebalanceof200，000l。alikesumoftheirnotesmustcomeintothem，withoutdiminishingoneshillingoftheinterestpaiduponthesecuritieslodgedintheirbanks；
consequently，theonlylossincurredisthedifferencebetweentheinteresttheyreceive，whichis5percentandwhatitwouldcostthemtoborrowalikesuminLondon，andtoremittheinterestofthissumtwiceayear。
Nowthevalueofa4percentisatpresentabout96；soinpaying40s。halfyearlyonthechangeofLondon，theEdinburghbanksmayhaveatLondonacapitalof96l。Letmecallitonly94l。supposingtheircreditnottobequitesogoodasthatofthefunds。Ithinkitasgoodtothefull；andIamsureitisso。Atthisrate，the200，000l。willcostthemaninterestof8510l。insteadofthe10，000l。whichtheywillreceiveforthelikesumaddedtotheirformersecurities。Nowletmesupposethattheyshallhaverecoursetoexchangerstoremitthisinterest，andthattheyshallpayforit5percentwhichisanabsurdsupposition，astheywillhavetheexchangeentirelyintheirownhandsandthattheygiveallthebillsforthe200，000
l。atparalsoaridiculoussupposition；the5percenton8510
l。is425l。10s。whichaddedtotheinterest，makes8935l。10
s。sothatafterall，theywillhaveuponthewholetransaction1064l。10s。ofprofit。
Next，astothelossincurredinfurnishing200，000l。totheotherbanks:Ifthiscoinbedemandedofthembythosebanks，thedemandersmust，forthispurpose，draw200，000l。ofEdinburghnotesoutofthecirculationofScotland；whichIhavesupposedmaybereplacedinsomelittletimebytheEdinburgh-banks；
consequently，ifthissumalsobeborrowedatLondon，therewillresultuponthisoperation，aswellasuponthelast，aprofitof1064l。10s。Butthenindeedtheymustbeattheexpenceofbringingdownthecoinborrowed，at12s。per100l。becausethosebankswillinsistuponhavingcoin，andrefusebillsonLondon。Thiswillcost1200l。fromwhichdeducttheprofitof1064l。10s。gainedbythefirstoperation，remainsoflossuponthislasttransaction135l。10s。nogreatsum。4*Doesitnotfollowfromthisreasoning，thatthebanksofEdinburghwillhavethewholebusinessofexchangeintheirownhands？Whatexchangerthenwillenterintocompetitionwiththem？ThedomestictransactionswiththemerchantsandmanufacturersofScotlandwillbetheironlybusiness。Farther:
WhatpreventsthebanksofEdinburghtohaveofficesineverytradingtowninScotland，wheretheirnotesmayberegularlypaidonpresentation，andnewcreditsgivenascirculationdemandsthem？
TheonlyobjectionIcanfindtothisplanofbanking，isthedifficultyoffindingcreditatLondontoborrowsuchlargesums。
This，Ithink，mayalsoberemoved，fromtheplainprinciplesofcredit。IfthebanksofEdinburghenterintoafaircoalition，astheyoughttodo，Ithink，inordertoformreallyanationalbank，totallyindependentofthatofEngland；maytheynotopenasubscriptionatLondon，andestablisharegularfundoftheirown，aswellasanyothercompany，suchastheIndia，orSouthSea？Byborrowinginthebeginningatasmalladvanceofinterestabovethefunds，andpayingasregularlyasgovernmentdoes，willnotallthosewhomakeatradeofbuyingandsellingstockfilltheirloan，ratherthaninvestitinanyothercarryingalessinterest？Andifthewholelandsecurities，andstocksofthosebanksatEdinburghbepledgedforthisloan，willitnotstandonasgoodabottomasanyfunduponearth？Andcanitbedoubtedbutparliamentwillencouragesuchascheme，uponlayingtheaffairsofScotlandandthebanksproperlybeforethem？
Bythismeanstheywillreallybecomeanationalbank:
becauseEnglandseemsatpresenttobetoScotland，whatalltherestoftheworldistoEngland。Now，thebankofEnglandhasnosuchfundofcreditonthecontinent，thatIknow；andwerethatcountrytofallintoasgreatdistress，byaheavybalance，asScotlandhas，shewouldfindasmanydifficultiesinextricatingherselfbydomesticborrowings，bankcirculation，etc。asScotlandhasfoundbythelikedomesticexpedients。Shewouldthenbeobliged，forherrelief，tohaverecoursetoafundopenedinHolland，Spain，orPortugal，liketowhatIproposeforScotlandwithrespecttoEngland。
Ihavehearditalleged，thatthewholedistressoccasionedtothebanksandcirculationofScotland，wasoccasionedbyafalsesteptakenbythem，someyearsago；atthetimewhenthelownessoftheEnglishfunds，andaprospectofapeace，occasionedgreatremittancesfromScotland，andawithdrawingofthelargecapitalof，perhaps，500，000l。owinginScotlandtoEnglishpersonsofproperty。
Atthattime，itissaid，thebanksimprudentlylaunchedoutingivingextensivecreditstothedebtorsofthosecapitals，andtothosewhowantedtoremitthefundstheyhadsecuredinthehandsofpeoplewhocouldnotpaythem；thatthisthrewaloadofpaperintocirculation，whichitcouldnotvent，beingfarbeyondtheextentofit；andthat，consequently，thepapercamebackuponthebank，producedademandforcoin，whichsoonexhausted，inamanner，allthatwasinScotland；andthatthecountryhasneverbeenabletorecoveritselfsince。
Thisrepresentationisplausible，andhasanairofbeingfoundedonprinciples:inorderthereforetoserveasafurtherillustrationofthesubjectofcirculation，Ishallpointoutwherethefallacyofitlies。
Itissaidthebanksdidwrongingivingthosecredits。I
say，theydidright；buttheydidwronginnotprovidingagainsttheconsequences。
Hadtheyrefusedthecredits，theEnglishandothercreditorswouldhavefallendirectlyupontheirdebtors，andobligedthemtopay，byasaleoftheirlands，atanundervalue；which，I
think，wouldhavebeenaninfinitelosstoScotland。Inthiswaythepricewouldhavebeenpaidinbankpaper，takenoutofcirculation；forwehavesaid，thathewhoowesmustpay，betheconsequencewhatitwill。Thispaperwouldhavecomeuponthebanksatanyrate:andbeingabalanceduetostrangers，musthavebeenpaidbythebanks。Thebanksthereforedidrighttosupplythecreditsdemanded；butthentheymighthaveforeseenthatthewholeloadofpayingthosedebtswouldfalluponthem；
whichtheybeinginnocapacitytodo，shouldhaveimmediatelypledgedinEngland，theinterestofthecreditstheyhadgivenout，aftersupplyingthewantofScotscirculation，andwhenthenotescamein，theywouldhavehadatLondonthecapitalofthatinterestpreparedforpayingthemoff，andnoinconveniencewouldhavebeenfound。
Theonlythingthenthebanksseemtohavemisjudged，wasthegrantingthosecreditstoohastily，andtopeoplewhoperhapswouldnothaveinvestedtheirfundsinEngland，haditnotbeenfromtheirfacilityingivingcredit。
Banksthereforeshouldwellexaminethestateofcirculation，andofthegrandbalance，indifficulttimes，beforetheygivecredit。Ifcirculationbefull，theymay，withjustice，suspectthatthecreditsaredemandedwithaviewofexpediency，totransportpropertyoutofthecountry，whichotherwisemayremain。Butinfavourofcirculation，orinfavourofwhatmaybeexactedbyforeigncreditors，banksnevercanmisjudgeitingivingcredit；because，iftheyshouldrefusetodoit，theyinthefirstplaceincuralossthemselves；andinthesecondplace，theydiminishthefundofcirculation，andtherebyhurtthecountry。Nowwhen，atsuchtimes，acreditisaskedorgiven，thatdemandisawarningtobankstoprepare；andbypreparingtheyareready，andnOlossisincurred。
Uponthewhole，itisanunspeakableadvantagetoanationtohaveherforeigndebtspaidbyherbank，ratherthantoremainexposedtothedemandsofprivateforeigncreditors；because，whenabankpaysthem，Isupposehertodoituponaloaninthefundingway，wherethecapitalisnotdemandablebythecreditor；
whereaswhenprivatecitizensaredebtorstostrangers，thecapitalsarealwaysdemandable；andwhenacallcomessuddenlyandunexpectedly，thecountryisdistressed。WhatwouldbecomeofGreatBritain，wereallherdebtstostrangersdemandableatanytime？Itistheindividualswhoowe，ineffect，allthatisduetoforeigners；becausetheypaytheinterest:buttheypaythisinteresttothepublic；andthepublicappearsasthedebtortoallstrangers，whohavenorighttoexactthecapital，althoughthestatemaysetitselffreebymakingpaymentofitwheneveritisconvenient。
Ihavesaidabove，thatafterallmyreasonings，Icoulddiscoverbutonemotivetoinduceabanktowithholdcreditatatimewhenitwasdemandedfortheuseofdomesticcirculation，viz。jealousyofotherbanks。Whatmycombinationscouldnotthendiscover，myinquirieshavesinceunfolded。
Itissaid，thatthebanksfindingsogreatapropensityintheinhabitantsofScotlandtoconsumeforeignmanufacturesandproduce，felluponthisexpedientforcallingintheold，andforrefusingnewcredits，inordertocutoffsuchbranchesofhurtfulluxuryandexpence。
Couldtheexecutionofsuchaplanprovearemedyagainstthevicecomplainedof，thiscircumstancealonewouldmoreclearlydemonstratetheutilityofbanksuponmortgage，thanallIhavebeenabletosayinfavourofthisestablishment。
Letusthereforehaverecoursetoourprinciples，inordertodiscoverwhatinfluenceabankcanhaveinthisparticular。
Wehavedistinguishedbetweennecessaryandvoluntarycirculation:thenecessaryhasthepaymentofdebts；thevoluntaryhasbuyingforitsobject。
Wehavesaidthathewhoowesiseitherabankrupt，ormustpay，aslongasthereisashillinginthecountry。
Buthewhobuys，orinclinestobuy，musthavemoney，orhecanbuynothing；forifhebuysoncredit，hethenfallsimmediatelyintotheformercategory，andmustpay。
Bywithholdingmoneyfortheusesofcirculation，whichbanksmaydoforsometime，buyingmaybestopped；payingnevercan。
Nowifthemassofmoneyincirculationbebroughtsolow，asthatthehigherclassesofthepeople，whoconsumeforeignproductions，cannotfindmoneytobuywith，whatarewetosupposewillbethecasewithmanufacturers，andwiththemerchantswhobuyuptheirwork？Couldthisoperationofthebankaffectthehigherclassesonly，bycurbingtheiranti-patriotexpences，withoutaffectingthelowerclasses，bycurbingtheirindustry，Ishouldthinkitanadmirablediscovery。Ifitevencouldbemadetoaffectthosemerchantsandshopkeepersonly，whodealinforeigncommodities，soastodiscouragethemfromcarryingonthatbusiness，therewouldresultfromitanotableadvantage。
Butalas！whereinaretheyhurt？Theytradeinsuchcommodities，notbecausetheyarebadcitizens，butbecausetheyarefreemen，andseekforprofitwhereverthelawspermit。
Perhaps，theyfindmoredifficultythanotherpeopleinforcingcoinfromthebank，asmattersstand:perhaps，theyareloadedwithopprobriousappellationsforextortingsuchpaymentsfromthebank:perhaps，theircreditswiththebankarerecalled。
Butmustnotthosewhobuyfromthem，paythem？Andmustnotthebankgivecoin，orbills，forthenotestheyreceive，whenpresentedforpayment？Why，therefore，throwdifficultiesinthe。
way？Alltheworldknows，thatnohumanenginecanpreventamerchantfromlayingalltheexpencesofhistradeupontheconsumer。Correctthetasteoftheconsumers，andyoumaystopthetrade:nootherrestraintwillbeofanyconsequence。Butinordertocorrectthetasteofconsumers，donotdeprivethemabsolutelyofmoney；becausethemoneytheextravagantlandlordreceives，comesfromtheindustriousfarmer，forthepriceofhisgrain，etc。Woulditbeagoodschemeforpreventingsoldiersfromdrinkingbrandy，tocutofftheirsubsistence-money？Giveadrunkardbutapennyaday，itwillgoforliquor；andthosewhoarefondofforeignclothing，willtakethepriceofitfromtheirbellies，toputitontheirbacks。
Ifthisschemeofthebank’swithholdingcredit，prove，atpresent，anychecktothosedealersinEnglishgoods，itwillbebutforaveryshorttime。Theyhavebeentakenbysurprize；andperhaps，thrownintoinconveniencesfromanunexpectedchangeofbankmanagement；butaslongasthereisademandforsuchcommodities，therewillbeasupplyofthem；andwhenpeopleowe，theymustpay。Nooperationofabankcanpreventthis。
Imust，therefore，accordingtoprinciples，disapproveofthispublic-spiritedattemptinthebanksofEdinburgh；because，ifitshouldsucceed，itwillhavetheeffectofruiningallthetradeandindustryofScotland，inordertopreventthesaleofEnglishgoods:andifitdoesnotsucceed，whichismorethanprobable，fromtheassiduityofotherbanksinsupplyingcredit，itwillhavetheeffectofruiningthebanksofEdinburghthemselves。
Thisstep，ofcallinginthebankcredits，andopeningasubscriptionforaloan，isrepresentedbyothersinalightsomewhatdifferent。
Bytheseitisalleged，thatinthebeginningoftheyear1762，whentheEdinburghbankswithdrew1/4ofalltheircashaccompts，andopenedasubscriptionforborrowingtheirownnotes，ataninterestof4，andeven5percentthedemandformoney，tosendtoEngland，wasnotoccasionedbythegreatbalanceowingbyScotland，buttothehighpremiummoneythenboreatLondon；becausesaystheauthorofalettertoJ……
F……Esq；publishedatthattime，’ThisdemandarisesfromaprofitoncarryingmoneytoLondon，asacommodity，andnotasabalanceoftrade。’
ItisnoteasytocomprehendhowtherecouldbemuchprofitincarryingmoneytoLondonat3percentlossbyexchange，fromScotland，whereitbore5percentinterest。
Itistrue，thatatcertaintimes，therewereconsiderableprofitsmadeuponstock-jobbing；bywhichsomewon，andotherswereruined。Iagree，thatthecountrywasgreatlyhurtbythefollyofthosewhoplayedawaytheirownproperty，andbytherogueryofothers，whoborrowedthatoftheirneighbours，withanintentionofgamingattheirrisk。Butisthisavicewhichanybankcancorrect，whileithasanoteincirculation？
Haditthereforebeenasentimentofpatriotismwhichmovedthebankstosuchaplanofconduct，Isaytheytherebydidmorehurttoindustry，bycontractingcirculation，thangoodtoScotland，byattemptingathingwhichwasbeyondtheirpowertoaccomplish。
Iftheyweremovedtoitbyaprincipleofself-preservation，Isaytheylosttheiraim，bycuttingofftheirownprofits，whichwouldhavedonemuchmorethanindemnifythemforthelossofborrowingatLondon，atthetimewhenmoneytherewashardesttobegot:forwhateverexorbitantexpenceofexchangegamestersmayincur，toprocurereadymoneytoplaywith，therateofthestocksatthattimeneverwassolow，astoaffordaprofituponmoneyremittedat3percentlossbyexchange，whilethatmoneywasbearing5percentinterestathome。
ThelowestrateofstockswasinJanuary1762。Towardstheendofthatmonth3percentsfellto631/4:thismakesthevalueofmoneytobeabout4l。12s。percent。Inthesefunds，certainly，nobodycouldinvest，withprofit，moneysentfromScotland。
Afterthenewsubscriptionhadbeenopenforsometime，scripindeed，or4percentfellinthismonthsolowas741/2，thatis，moneyroseto5。4percentwhereashadscripstoodattheproportionofthe3percentsitshouldhavebeenworthabout84:
butatthebeginningofawarwithSpain，whenthemindsofmenweredepressed，andfilledwithapprehensions，andwhenanewloanwasperhapsexpectedatahigherinterestthanevergovernmenthadgiven，wasitnaturalforpeopletobefondofinvestingina4percentstock，whichwastofallto3percentinafewyears？
Besides，letusexaminetheprofittobemadebyinvestingeveninthisfund。100l。producedinScotland5l。interest，thiscapitalremittedtoLondonat3percentexchange，wasreducedto97l。nowif74。5l。produced4l。theproduceof97
l。wouldbeabout5l。4s。Wouldanymanforthesakeof1/5percentadvanceofinterestonmoneyremitted，everthinkofsendinglargesumstoLondontobeinvestedinafallingstock？
Iallowthat，uponopeningsubscriptions，greatprofitwassometimesmadebythosewhocontractedwithgovernment，andwhoreceivedthesubscriptionsatprimecost。Butthisprofitdependedentirelyuponthesubsequentriseofthesubscription，whentheoriginalsubscribersbroughtitfirsttomarket；asalsofromthesmallsumstheyhadadvanced:thisoperationwasoverbeforetheendofJanuary1762。Thesmallnessofthesumadvanced，uponwhichtheprofitwasmade，andtheministerialinterestwhichwasnecessarytoobtainashareinthosesubscriptions，rendereditextremelydifficultforpeopleinScotlandtoshareintheprofitbyremittinglargesumsintheproperpointoftime。
Farther，mightnotthebanks，intheshortperiodduringwhichsuchlargeprofitsweremade，hadtheyhadtheexchangeintheirhands，haveraiseditsohighastofrustratetheattemptsofourScotsgamesters？Ifitbesaid，thatexchangerswouldhavedisappointedthem，bygivingit，lower。Ianswerinthenegative:
becausewiththissetofmenexchangewillrise，ofitself，inproportiontothevalueofmoneyintheplacetowhichpeopleinclinetoremitit。Andcouldmoneyatanytimebringin，atLondon，20percentinterest，exchangeuponthatplacewouldriseuniversallyinproportion。
Theonlymotive，notalreadymentioned，forsendingmoneytoLondonatthistime，undersogreatdisadvantages，wastheprospectofagreatriseuponthestocks，intheeventofapeace。UponwhichIobserve，thatthevalueofthatprobabilitywasincludedinthethenpriceofstock；andhadtheprobabilityofapeace，inJanuary1762，beengreat，stockswouldhaveriseninproportion:he，therefore，whovestedhismoneyinstock，byremittingfromScotlandatthattime，uponanexpectationpeculiartohimself，Iconsiderasagamester，andasanignorantgamestertoo；becausehewasgivingoddsuponanequalbett。Thiseverymandoes，who，withoutanyprospectofaprofitpeculiartohimself，paysahighexchangetobringmoneytoamarket，wherehebuysatthesamepricewiththosewhopaynoexchangeatall。
Fromtheseconsiderations，IamledtodifferfromtheingeniousauthorofthelettertoJ。F。Esq；whosays，’Thatinthepresentcase’thecircumstancesoperatinginJanuary1762，
’thedemand’formoneytoremittoLondon’isunlimited，andnoprovisionthebankscanmakecanbeofuse；onthecontrary，couldtheyfindatreasure，supposeofamillion，itwouldonlyservetoincreaseit；becausethisdemandarisesonaprofitoncarryingmoneytoLondonasacommodity，andnotasthebalanceoftrade。’
Chap。XIV
OfoptionalClausescontainedinBankNotesAsweareexaminingtheprinciplesuponwhichbanksofcirculationuponmortgage，whichissuenotespayableincoin，areestablishedinScotland，itispropertotakenoticeofeverycircumstancewhichmayarisefromtheextensivecombinationoftheinterestsoftradeandcirculation，especiallywhenwefindsuchcircumstancesinfluencingthepoliticalwelfareofsociety。
Anoptionalclauseinabanknoteisaddedtopreventasuddenrunuponbanks，atatimewhenmorecoinmaybedemandedofthemthantheyareinacapacitytopay。
Banksnotregulatedbystatute，areprivateconventions，inwhichthepartiesmayincludewhatconditionstheythinkfit。
Banks，therefore，mayinsertintheirnotes，theconditionstheyjudgemostfortheirownadvantage。Thus，theymayeitherpromiseperemptorypaymentincoinupondemand，ortheymayputinanalternative，thatincasetheydonotchoosetopayincoin，theymaypayinbills，orintransferoftheirstock，orinothercirculatingpapernottheirown；ortheymaystipulatepaymentatacertaintimeafterthedemand，withinterestduringthedelay。
Allthesealternativesareinserted，inordertoavoidtheinconvenienceofrunningshortofcoin，andofbeingobligedtostoppaymentaltogether。
Wehavesaidabove，thattheprofitsofbanksconsistintheirenjoyingthesameinterestforthenotestheylend，asiftheloanhadbeenmadeingoldorsilver。Thisisaverygreatobject，nodoubt；butthepolicyofnationshasestablishedit，andthereforeweshallsupposeittobeanincontrovertedprinciple。
Inwhicheverway，therefore，anoptionalclauseisinserted，itshouldbesuchastocutoffallprofitfromthebank，uponallpaperpresentedforpayment，fromthetimeofpresentation；
andeveryartificeusedtosuspendtheliquidationofthepaper，totheadvantageofthebank，andprejudiceofthebearer，shouldbeconsideredasunfairdealinginthebank，andprohibitedbylaw。
Whentheoptionalclausehasnotendencytoprocureanadvantagetothebank，inprejudiceoftheholderofthepaperexceptasfarastheholderistherebydeprivedoftheuseofthecoin，whichoncertainoccasionscannotbesuppliedbythepaper，itbecomesthedutyofastatesmantoexaminehowfaritisexpedienttosuffersuchstipulationstobeinsertedinamoney，whichiscalculatedtocarryonthemercantileinterestofthenation。
Banks，wehavesaid，aretheservantsofthepublic，andtheyarewellpaidfortheirservices。Althoughthenotesissuedbythemarenotcommonlymadealegaltenderinpayment；yettheconsequenceofawellestablishedbank，istorenderthemsoessentialtocirculation，thatwhatisnotalegalobligationbecomesone，infact，fromtheforceofcustom。
Letusthereforeexaminetheadvantageswhichresulttobanksfromthisoptionalclause，andthelosswhichresultstoanationfromtheirusingit，andthencomparetheadvantageswiththeinconveniences，inordertodeterminewhetheritbeexpedienttopermitsuchobstructionsinthecirculationofpaper。
Theadvantagewhichbanksreapisconfinedtothatofgainingtime，attheexpenceofpayinginterest。Theinterestpaidbythemisanaukwardoperation。Theyreceiveinterestforthenote；
becausetheyhaveintheirpossessiontheoriginalsecuritygivenforthenoteswhentheywerefirstissued；andtheybegintorefundthisinteresttotheholderofthenotefromthetimetheyavailthemselvesoftheoptionalclare。Couldbanks，therefore，borrowcoininamoment，atthesameinterestwhichtheypaytotheholderofthenote，theywouldcertainlynevermakeuseofthisoptionalclause。Butthiscoincannotbefoundinamoment；
andthebanks，tosavethemselvesthetrouble，andtheexpenceofaugmentingtheirfundofcoin，orofprocuringafundinanothercountry，uponwhichtheymightdrawforthepaymentofthatnationalbalance，which，bybecomingbanks，theytacitlyengagetopayforthenation；renderthecreditofindividualsprecariouswithstrangers，andraiseageneraldistrustinthewholesocietywhichtheyoughttoserve。Herethenisaverygreatlossresultingtoanationfromtheestablishmentofbanks。
Werenobankestablished，nomerchantwouldcontractadebttostrangers，withoutforeseeingthereadymeansofdischargingitwiththecoincirculatinginthecountry。Inproportionasthiscoincametodiminish，sowouldforeigncontractsofdebtdiminishalso。Thuscredit，atleast，mightbekeptup，althoughtrademightbecircumscribed，andmanufacturesbediscouraged。
Nowwhen，inordertoadvancetradeandencouragemanufactures，astatesmanlendshishandtowardsthemeltingdownofsolidproperty，andcountenancesbankssofarastoleavethisoperationtothem，withtheemolumentofreceivinginterestforalltheirpaper；andwhen，inordertofacilitatethecirculationofthispaper，theveryinhabitantsconcurinthrowingalltheirspecieintoabank，isitreasonabletoindulgebankssofarastoallowthemtoaddanoptionalclause，whichdisappointsthewholescheme，whichstopstrade，ruinsmanufactures，raisestheinterestofmoney，andrenderstheoperationofmeltingdownpropertyquiteineffectualforthepurposeswhichitwasintendedtoanswer。Farther:
Thelossabankmaybeat，inprovidingcoin，issusceptibleofestimation，letitbebroughtfromeversodistantacountry；
becauseweknowthatthequantitytobeprovidednevercanexceedthevalueofthegrandbalance。Butwhocanestimatethelossanationsustains，whenaninterruptionisputtothecarryingonoftradeandmanufactures？Whentheindustriousclassesofinhabitantsareforcedtobeidleforashorttime，theconsequencesarehardlytoberepaired:theystarve，theydesert；
thespiritofindustryisextinguished:inshort，allgoestoruin。
Besides，whenbanksdonotlaydownawelldigestedplanforpayingregularly，andwithoutcomplaining，thisgrandbalanceduetostrangers，theyareforcedtohaverecoursetoexpedientsforpreservingtheircredit，moreburdensome，perhaps，thanwhatisrequiredofthem；andnotnearsoeffectualforremovingtheinconveniencescomplainedof……Thisbeingthecase，theshortestandthebestmethodforpreventingsuchabuses，istoobligebankstopayupondemand，incoinorbills，attheoptionoftheholdersofthenote。Thiswillforcethemintothemethodforprovidingthem；towit，fairlytoborrowmoneyfromnationstowhomweowe，andtopayaregularinterestforit，withoutanobligationtorefundthecapital，untilthegrandbalanceshalltakeafavourableturn；inwhichcase，thebankswillregorgewithcoindrawnfromstrangers；andthesestrangerswillthenfindasgreataninterestinbeingrepaid，asthebankfoundinborrowingfromthem，whilethebalancewasintheirfavour。
Chap。XXII
OftheBankofEnglandandoftheBanksofCirculationestablishedonMercantileCreditIhaveexamined，withallthecareIamcapableof，thenatureofbankscalculatingforthemeltingdownofsolidproperty，andtheconvertingofitintopaperfortheuseofcirculation。
Thenatureofsuchbanksisbutlittleknownincountrieswheretheyhavenotbeenestablished；thereforeadistinctaccountofthemmaysuggesthints，whichintimemayproveuseful。
Peoplewhodonotemploytheirthoughtsonthetheoryoftradeandcredit，areapttooverlookobjectsofrealutility；
andthosewhodo，haveseldomtheopportunityofbeinginformedofthecustomsofdifferentnations。Weremyexperiencegreater，orhadImoreopportunitiestodiveintotherecessesofthisgreatobject，theworkInowpresenttothepublicwouldbetterdeserveitsattention。
Inowproceedtoadeductionoftheprinciplesuponwhicharefoundedthosebankswhicharechieflycalculatedfortheuseofcommerce；andastheground-workofmyinquiry，IshalltracesomeoftheprincipaloperationsofthebankofEngland。
Theestablishmentofthisgreatcompanywasformedabouttheyear1694。Governmentatthattimehavinggreatoccasionformoney，asetofmenwasfoundwholenttoitabout1，200，000l。
sterling，at8percentfortheexclusiveprivilegeofbankingfor13years:withthisadditionalclause，that4000l。sterling，perannum，shouldbegiventhemtodefraytheexpenceoftheundertaking。Thissumof1，200，000l。sterling，wastheoriginalbankstock。Ithasbeensinceincreasedto11，000，000l。byfartherloanstogovernment，fortheprolongationoftheirprivileges；ashasbeentakennoticeofinthe16thchapterofthesecondpart。
Thisstock，asinbanksofcirculationuponmortgage，istobeconsideredonlyasasubsidiarysecuritytothepublicforthenotestheyissue:wereittheprincipalandonlysecurityfortheirpaper，thisbankwouldthenbefoundedontheprincipleofpublic，notofmercantilecredit；underwhichlastdenominationwearegoingtopointoutinwhatthenatureofitdiffersfromthosewehavealreadyexplained。
ItisarulewiththebankofEnglandtoissuenonotesuponmortgage，permanentloan，orpersonalsecurity。Theprincipalbranchesoftheirbusinessmaybecomprehendedunderfourarticles，viz。1。ThecirculationofthetradeofLondon:2。TheexchequerbusinessofGreatBritain:3。Thepayingoftheinterestofallthefundstransferableatthebank:4。Theirtradeingoldandsilver。Ishallnowshortlyexplainthenatureofthesefourgreatoperations；andfirstastothecirculationofthetradeofLondon。
Whenwespeakofthecirculationoftrade，weunderstandthecirculationofmoneypaidontheaccountoftrade。
ThegreatoccupationoftheLondonmerchantsengagesthemtosimplifytheirbusinessasmuchaspossible。Forthistheycommittobrokerseveryoperationwhichrequiresnopeculiartalentsoringenuityinthemerchanthimself；and，foralikereason，theycommittothebankandprivatebankersthecareoftheircash。
AScotsmerchantbeginsbydrawingmoneyfromthebank，orfromanexchanger，forwhichhepaysinterest:aLondonmerchantbeginsbyputtingmoneyintothebank，forwhichhedrawsnointerestatall。
ALondonmerchant，therefore，cangivenoorderuponthebank，unlessatatimewhenhehasmoneylodgedinit。
Ifhehasoccasionformoneyatanytime，hesendstothebankthebillshehasbeforetheybecomedue，andthebankdiscountsthematcertainrates，accordingtotheirnature。
Ifitbeaforeignbill，thebank，indiscountingit，retainsofthesum，attherateof4percentperannum，forthetimethebillhastorun；butifthebillbeatalongerdaythan6odaystheywillnotdiscountit。Sointhiscasethemerchantmustkeephisbilluntilitiswithin6odaysofthetermofpayment。
Thereasonforthisisevident:thesecurityuponwhichsuchbillsstand，ispurelymercantile。Thenearer，therefore，thepaymentis，thelessriskthebankincursfromthefailureofthosewhoareboundinit。
Theintentionofthisoperationofdiscountinghills，isplainlytoemploythecashofthebankinawaytodrawaninterestforit；butasmerchantsallowtheirmoneytoliedeadforasshortatimeastheypossiblycan，thebankmusthavequickreturnsforwhattheyadvanceupondiscount，inordertobeconstantlyreadytoansweralldemands。Thisisnolosstothebank，andaprodigiousadvantagetotrade，asIshallbrieflyexplain。
Thebankisconstantlyreceivingcashfromeverypersonwhokeepstheircashwithit。Thisoccasionsaconstantfluctuationofpayments，whichofcoursemustleaveatalltimesaconsiderablesumofotherpeople’smoneyinthebank；becauseitneverisinadvancetoanyone。
Bylongpracticeinthetrade，thissumofmoneybecomesdeterminate:letuscallittheaverage-moneyinthehandsofthebank。Itisthenwiththisaverage-moneyalone，thatthebankcandiscountbills。NowifthetradeofLondondoaffordbillstobediscountedatdifferentdateswithin60days，sufficienttoabsorbthewholeaverage-moneyofthebank，appropriatedfordiscounting；thisbranchofbusinesswouldnotgoforwardwiththecelerityrequiredforthetradeofLondon，didthebankindulgemerchantssofarastodiscountatalongerday。
FromthiswelearnanotherreasonwhythebankofEnglanddiscountsnobillwhichhasmorethan60daystorun。Thefirst，mentionedalready，isforthegreatersecurityofpayment；andthesecond，whichwenowdiscover，isinordertobeabletodiscountmorebillsthanotherwisetheycoulddo，didtheydiscountatalongerday。
AsIamhereuponthesubjectofdiscountingbillsofexchangebythebankofEngland，anoperationithasincommonwithalltheprivatebankersinthecapital，ImustansweraquestionIhavefrequentlyheardproposed。
Howdoesithappen，thatinacityofsogreattradeasLondon，itispossiblethatpeopleshouldbefoundevenamongmerchants，whoallowtheirmoneytoremaininthehandsofbankerswithoutinterest；wheninScotland，aplaceofsolittletrade，interestmayalwaysbegotformoneyfortheshortesttime？
Theanswertothisquestionistobegatheredfromtheveryprinciplesoftradeitself。
Themoneywhichmerchantshaveeitherinthehandsofthebank，orofbankers，thoughveryconsiderableatalltimes，isinperpetualfluctuation:itcannotthenbelenttoanybuttoabanker，whowouldconsenttopayinterestforthesumsinhand。
Butnosuchbankercanbefound，noreverwillbefound，untilallthebankersinLondonconsenttosucharegulation。Thereasonisplain。Oneprincipalusethebankersmakeoftheaverage-moneyintheirhands，isthediscountingofbills。Whothencouldpayinterestformoney，anddiscount，incompetitionwithothersofthesametrade，whohaveitfornothing？
Butsupposethebank，andallthebankersintown，shouldcometotheresolutionofgivinginterestforthemoneyintheirhands，whatwouldbetheconsequence？
Ianswer，thatuponsuchanalteration，discountwouldriseabovethepresentrates，tothegreatprejudiceofthetradeofthenation；andbankerswouldlendmoneyintheirhandsuponamoreprecarioussecurityforthesakeofahigherinterest。
AllthelandedmenwhoresideinLondon，andmanyotherwealthypeople，notconcernedintrade，constantlykeeptheirmoneyeitherinthebank，orinsomebanker’shandwithoutinterest:thisenablesbankersingeneraltodiscountforeignbillsat4percentashasbeensaid，evenwhentherateofinterestisratherabovethisstandard。Thisis，asitwere，acontributionfromtherichandidle，infavourofthetradeofthenation。
Let，therefore，gentlemenwhohavemuchidlemoney，thinkofanyotherexpedientthanthatofobtaininginterestforit，fromthosewhodiscountbillsinLondon。Notoneofthemcanaffordtodoit，andthrivebyhisbusiness；andthehurtwhichwouldresulttotradeingeneral，willconstantlybeasufficientbaragainstageneralresolutionforthatpurpose。
Whathasbeensaid，will，Ihope，provesatisfactoryastotheresolutionofthequestionaboveproposed，sofarasregardsLondon。Itremainstobeanswered，howthosewhosupplytheplaceofbankersinScotland，andeventhebanksthemselvescanaffordtopayinterestforanysumputintotheirhandsforashorttime。
Ianswer，thatastotheScotchexchangers，aswehavecalledthem，theprofitsontheirtradeadmitofborrowingmoneyatinterest，whichthatofthebankofEnglandandprivatebankerscannotdo。Iftheselastcangain4or5percentbydiscountingofbills，itisalltheycanhonestlyexpect:everyotheremploymentofthemoneyintheirhandsisprecarious，eitherastothesecurityorpromptitudeofcallingitin，toanswerthedemandswhicharemadeuponthem。
AstoScotland，wehaveseenhowdirectlycontrarytoallprinciplesitis，foritsbankstoborrowmoneywithinthesphereoftheirowncirculation。Howthisdiminishestheprofitsupontheirowntrade，andhurtsthecirculationofthecountry；butalthoughitdiminishtheirprofit，itcarriesalongwithitnopositivelosstothem，aswouldbethecase，wereaLondonbankertopayinterestforallthemoneyinhishands，whenhenevercandrawanyback，exceptforthatpartwhichwehavecalledtheaverage。
EveryLondonbankerisobligedtohaveacertainsumofcashconstantlyinhischest，theinterestofwhichwouldbealllost，didhepayforit:whereastheexchangersinScotlandneverhaveashillingbythem；andwhenanydemandismadeuponthem，theydrawthemoneyfromthebanks，inconsequenceoftheircreditbycashaccompts。
Besidesforeignbills，whichthebankofEnglanddiscountsat4percenttheyalsodiscountinlandbills，andnotesofhandbetweenmerchantsinLondon，at5percent。
TheinlandbillstobediscountedatthebankmustallbepayableinLondon。Thebankcallsinnomoneyfromanydistantquarterofthekingdom。
AsthediscountingofnotesofhandbetweenLondonmerchantsmightoperatethesameeffect，asifthebankshouldadvancethemmoneyuponpersonalsecurity，whichwouldbethecase，werethenotesofhanddrawnforobtainingcredit，insteadofpayingmoneyreallyduebetweenthemerchants，inthecourseofbusiness；theclerksofthebankkeepawatchfuleyeoverthisbranchofmanagement，and，byexaminingthereciprocaldraughtsofmerchantsbetweenthemselves，theyeasilyacquireaknowledgeofthestateoftheiraffairs，andaretherebyenabledtojudgehowfaritisexpedienttolaunchoutindiscountingeitherthenotesorbillswhereintheyareconcerned。
Ishallnotpretendtoassignareasonwhy，inthepriceofdiscount，thebankmakesadifferenceof1percentbetweenforeignandinlandbillsofexchange。Itmayeitherbeanindulgenceandencouragementtoforeigntrade；oritmaybeupontheconsiderationofthebettersecurityofforeignbills，whichcommonlypassthroughseveralindorsationsbeforetheyareofferedtobediscountedatthebank。
Icomenexttothecirculationbetweenthebankandtheexchequer。
ThebankofEnglandistotheexchequer，whataprivateperson’sbankeristohim。Itreceivesthecashoftheexchequer，andanswersitsdemands。
Cashcomestotheexchequerfromtheamountoftaxes。Thetwogreatbranchesofwhicharetheexciseandcustoms。Toexplainthisoperationwiththemoredistinctness，Ishalltaketheexampleoftheexcise。
TheexciseiscomputedtobringinannuallyfromLondon，andthefiftytwocollectionsoverallEngland，nettintotheexchequer，abovefourandahalfmillionssterling。
ThefiftytwocollectorssendtheamountoftheircollectionstoLondoneighttimesayear，almostentirelyinbills。Asthesamemaybesaidoftheremittancesofalltheothertaxes，wemayfromthiscircumstanceobservebytheway，thatLondonalonemustconstantlyowetothecountryofEnglandasumequaltoallthebillsdrawnuponit；thatistosay，toallthetaxeswhichthecountrypays:acircumstancenottobeoverlooked，fromwhichmanythingsmaybelearned，aswillbetakennoticeofintheproperplace。
Thebillssentbythefiftytwocollectors，aredrawnpayabletothecommissionersofexcise；theyindorsethemtothereceivergeneral；hecarriesthemtothebankastheyfalldue，andgetsareceiptfortheamount；thisreceipthecarriestotheexchequer，whochargeitintheiraccountwiththebank，anddelivertalliestothereceivergeneralfortheamountofhispayments；thesetallieshedeliverstothecommissionersofexcise，whoenterthemintheirbookoftallies。Thisoperationisperformedonceeveryweek，andservesasadischargefromthecommissionerstothereceivergeneral。
Thebank，again，keepsanaccountwiththeexchequer，whichissettledonceeveryday，bytwoclerks，whogofromthebanktotheexchequerforthispurpose。Whencoiniswantedbytheexchequer，forpaymentswherebanknoteswillnotanswer，thecoinisfurnishedbythebank；whenpaperwillservethepurpose，paperisissued。
Besidesthisoperationinthereceiptoftaxes，thebankadvancestogovernment，thatistotheexchequer，theamountofthelandorothertaxesimposed，whicharetobeleviedwithintheyear。Thisweseeisaloanupongovernmentsecurityforashortterm，quiteconsistentwiththeprinciplesuponwhichthebankisestablished。Thelargesumsthebankisconstantlyreceivingofpublicmoney，andthegreatassistanceitobtainsfromthenceincarryingontheotherbranchesofitstrade，enableitatpresenttomakeadvancesofmoneytogovernmentat3
percent。ItobservesthesamerulewithrespecttothegreatcompaniesoftheEastIndies，andSouthSea，forthesamereason；
butnoadvancesaremadetoprivatepeople；andinthediscountingofbillsandnotesofhand，theregulationsabovementionedareadheredto。
Thusthewholeamountoftaxesispouredintothebank，inthemannerwehavebeendescribing。
Thebankalsokeepsthetransferbooksofallthefundsnegotiatedatthebank；andoutofthepublicmoneyinitshand，itpaystheinterestofthesefundsforwhichgovernmentallowstothebankasumproportionatetotheexpenceofthisbranchofmanagement。
Whenthebank，asacompany，lendstogovernmentuponapermanentfund，thecapitalwhereofisnotdemandable，thisoperationisforeigntotheirbusinessasabank，andisconductedbythecompanyasanarticleofmanagementoftheirprivateproperty。
Letusnowexaminebywhatchannelstheirnotesenterintocirculation，andthesecurityuponwhichtheystand。
Whenissuedinthediscountofbills，theystandupontheprinciplesofmercantilecredit，anddependuponthegoodnessofthebillsdiscounted。Whenissueduponthefaithoftaxestobepaidwithintheyear，theystanduponthesecurityofthispayment，whichisofaverycomplexnature，asanyonemayperceive。AslongastheinhabitantsofEnglandconsumeexciseablegoods，theexcisewillbepaid:aslongastradegoeson，customswillbepaid:andaslongasgovernmentsubsists，thecollateralsecurityofthestatewillservetomakeupalldeficienciesintheamountoftaxes。Nosecurity，therefore，canbebetterthanthenotesofthebankofEngland，whilegovernmentsubsists。Thelossesthatgreatcompaniesmeetwithfrombaddebts，Iaminformed，areveryinconsiderable。
Thegreatestriskthebankruns，isindiscountingbadbills；
butbytheextentoftheirbusinessinthisbranch，andbycirculatingthecashofallthemerchantswhokeepaccountswiththem，theyacquiresoperfectaknowledgeofthestateoftheiraffairs，thatitrarelyhappensthatanyonecanbreakforveryconsiderablesums，withoutthebank’shavingapreviousnoticeofit。Asuddenlossmaynodoubthappen，withoutapossibilityofbeingforeseen；butthematteroffactprovingthattheirlossesuponbadbillsareinconsiderable，wemaythenceinfer，thatthereisbutlittlemysterytothebank，withregardtothecreditofLondonmerchants。
Icomenowtothelastbranchoftheirmanagement，towit，theirtradeingoldandsilver。
Forthecirculationofbanknotes，coinisnecessary。Wehaveseen，intreatingoftheScotchbanks，howcoinisbroughtit:towit，inconsequenceofallthepaymentsmadetothebank，inwhichtheremustbeaproportionofcoinequaltowhatisfoundincommoncirculation。Whatisnotpaidincoin，comesin，intheirownnotes，whicharetherebytakenoutofthecircle；andconsequentlymakeplaceforasubsequentsupply，whichissuesinthemannerwehavedescribed。
Intimesofpeace，andafavourablebalanceoftrade，thebanksufferslittlebytheobligationitisundertopayincoin，exceptasfarasthegreatconfusionofthepresentcurrencyaffordsanoccasiontomoney-jobberstomeltdownthenewguineas。TheextentofthistrafficIamnojudgeof，andthebanknodoubthasaninterestinpreventingitasfarasthelawshaveprovidedaremedyagainstit。
Butwhenlargepaymentsaretobemadeabroad，thedistressofthebankisnodoubtverygreat。
InScotland，thebanks，uponsuchoccasions，aretotallydrainedofcoin。Theyhavenomarketforthemetals；becausetheyhavenominttomanufacturethemintocoin。ItisdifferentwithrespecttothebankofEngland；theirdistressproceedsfromanothercause。
Theexportationoftheheavyguineasintimeofwar，andduringawrongbalanceuponthetradeofEngland，leavescirculationprovidedwithalightcurrencyonly，inwhichthebankisobligedtopaytheirnotes；andtheintrinsicvalueofthegoldinwhichtheypay，regulatesthepriceofthemetalstheyareobligedtobuyatmarket。Iftheyprovidethemthemselvesfromabroad，theymustpaythepriceoftheminbillsofexchange。Butthenthelightnessofthecurrencyathomesinksthevalueofthepoundsterling，asitraisesthevalueoftheounceofgoldandsilver。Sotheonlyconsiderablelosstheyincur，isinprovidingthemetals，whichmusteverbeconsiderable，aslongastheoldguineasremainincirculation。
Thelossuponcoiningsilverisstillgreaterthanupongold；
becausebesidesthelossincurredbyreasonofthelightnessofthegold，themetalsinthesilverandgoldcoinofGreatBritain，arenotproportionaltothevaluetheybearintheLondonmarket，wheretheyhavebeenbought；ashasbeensufficientlyexplainedalreadyinanotherplace。