CHAP. III.
Of the different measures which have been used to preserve and increase money. and of banks.
Of the different measures which have been used to preserve and increase money. and of banks.
The measures have been used to preserve and increase money, have in some countries been opposite to what has been used in others: and opposite measures have been used in the same countries, without any differing circumstances to occasion them.
Some countries have raised money in the denomination, when others have lowered it; some have allay’d it, when others who had allay’d it have rectified it; some have prohibited the export of money under severest penalties, when others have by law allowed it to be exported; some thinking to add to the money, have obliged traders to bring home bullion, in proportionto the goods they imported. most countries have tryed some or all of these measures, and others of the same nature, and have tryed contrary measures at one time, from what they used immediately before, from the opinion, that since the method used had not the effect designed, a contrary would: yet it has not been found, that any of them have preserved or increased money; but on the contrair.
The use of banks has been the best method yet practised for the increase of money. banks have been long used in Italy, but as I am informed, the invention of them was owing to Sweedland. their money was copper, which was inconvenient, by reason of its weight and bulk; to remedy this inconveniency, a bank was set upwhere the money might be pledged, and credit given to the value, which past in payments, and facilitate trade.
The Dutch for the same reason set up the bank of Amsterdam. their money was silver, but their trade was so great as to find payments even in silver inconvenient. this bank like that of Sweedland, is a secure place, where merchants may give in money, and have credit to trade with. besides the convenience of easier and quicker payments, these banks save the expence of casheers, the expence of bags and carriage, losses by bad money, and the money is safer than in the merchants houses, for ’tis less lyable to fire or robbery, the necessary measures being taken to prevent them.
Merchants who have money inthe bank of Amsterdam, and people of other countries who deal with them, are not lyable to the changes in the money, by its being allay’d or altered in the denomination: for, the bank receives no money but what’s of value, and is therefore called bank-money; and tho’ raised in current payments, it goes for the value it was pledged for in bank-payments. theag oof the bank changes a quarter or a half p. cent, as current money is more or less scarce.
Banks where the money is pledg’d equal to the credit given, are sure; for, tho’ demands are made of the whole, the bank does not fail in payment.
By the constitution of this bank, the whole sum for which credit is given,ought to remain there, to be ready at demand; yet a sum is lent by the managers for a stock to the lumbar, and ’tis thought they lend great sums on other occasions. so far as they lend they add to the money, which brings a profit to the country, by imploying more people, and extending trade; they add to the money to be lent, whereby it is easier borrowed, and at less use; and the bank has a benefit: but the bank is less sure, and tho’ none suffer by it, or are apprehensive of danger, its credit being good; yet if the whole demands were made, or demands greater than the remaining money, they could not all be satisfied, till the bank had called in what sums were lent.
The certain good it does, will morethan ballance the hazard, tho’ once in two or three years it failed in payment; providing the sums lent be well secured: merchants who had money there, might be disappointed of it at demand, but the security being good, and interest allowed; money would be had on a small discount, perhaps at the par.
Last war, England set up a bank to have the conveniencies of that at Amsterdam, and by their constitution to increase money. this bank was made up of subscribers, who lent the King 1200000 lib. at 8 and a third per cent, for 11 years, on a parliamentary fund; and were priviledged bankers for that time. the sum due by the government was a security to the people, to make good any losses the bank might suffer.
This bank was safer than the gold-smiths notes in use before. it made a great addition to the money, having a much greater sum of notes out, than money in bank. and the sum lent the King, which was the fund belonged to the subscribers, was negotiated at profit, and had the same effect in trade as money. I don’t know how their notes came to be at discount, whether from the circumstances of the nation, or from ill management.
The fund of the bank of Scotland was a 100000 l. of which a tenth was payed in. this bank was safer than that of England, there being a register whereby most sums lent were secured. its notes went for 4 or 5 times the value of the money in bank, and by so much as these notes went formore than the money in bank; so much was added to the money of the nation.
This bank was more useful than that of Amsterdam, or England; its notes passing in most payments, and through the whole country: the bank of Amsterdam being only for that town, and that of England of little use but at London.
The stop of payments which happened to the bank of Scotland, was foreseen, and might have been prevented. the consumption of foreign goods, and expence in England, being more than the export of goods did pay; the ballance sent out in money lessened the credit of the bank. for as credit is voluntary, it depends on the quantity of money in thecountry, and increases or decreases with it. coyning notes of one pound supported the bank, by furnishing paper for small payments, and thereby preventing a part of the demand for money: by these notes the bank might have kept its credit, till other methods had been taken to supply the country with money; had not a report of raising the money occasioned an extraordinary demand, which in few days exhausted the money in bank, and put a stop to payments.
It would not have been easie in that scarcity of money to have got enough to support the bank, tho’ men of the best credit had undertaken it; that report of raising the money having only occasioned a demand from the people in Edinburgh. in a shorttime notes would have come in so fast from the country, that what money could have been got, would not have answered the demand.
If the privy council had lowered the money, the English crown to 5s. and the other money in proportion, to take place 2 pence p. crown in 3 days, and the other 3 pence in a month; the occasion of the demand being removed, in all appearance money would have been returned to the bank.
If the state of the bank had been known, or suspected by the people; such a proclamation would have had the same effect, tho’ the stop of payment had then happen’d. in that case, the support of the bank might have been the narrative of the proclamation;the security being good, few or none would have kept their money to loss, rather than return it to the bank. and if in 3 days money had not come in so fast as expected, their lordships by a 2d. proclamation might have lowered the crown to 5 sh. to take place then, and 6 pence more in 3 days. when the credit of the bank had been re-established, the money might have been cryed up, if that had been necessary, the crown to 5 sh. and 5 pence, and the other money in proportion as it was before.
Some are against all banks where the money does not lie pledged equal to the credit. 1. they say the demand may be greater than the money in bank. secondly, if we are declining in our trade, or money, we are not atall, or are less sensible of it: and if the bank fail, we are in a worse condition than before.
To the first it’s answered, Tho’ the nation had no benefit by the addition the bank makes to the money; nor the people by being supply’d with money when otherwise they could not, and at less interest; and tho’ the proprietors had no gain by it: the other conveniencies, as quicker and easier payments, &c. are more than equal to that hazard; or bank notes, gold-smiths and bankers notes, would not be preferred to money, every body knowing such a stop may happen to the bank, and that gold-smiths and bankers may fail.
The other objection is the same as to say, a merchant who had a smallstock, and was capable of imploying a greater; if a sum were offered him without interest, equal to what he had, and more as his own increased, should refuse it, because he might fancy himself richer than he was, and if his own stock decreased, that sum lent would be taken from him.
If 15000 is supposed the money in bank, and 75000 lib. of notes out; 60000 lib. is added to the money of the nation, without interest: for what is payed by the borrowers, is got by the proprietors. as the money of the nation increases, the credit of the bank increases, and the sum of notes out is greater; and so far from making the people less sensible of the condition of the country, a surer judgment of the state of trade and money may bemade from the books of the bank, than any other way.
If trade can be carried on with a 100000 lib. and a ballance then due by foreigners; the same measures, and a greater quantity of money, would make the ballance greater. nor is that additional money the bank furnishes, to be supposed will be lost, if by a ballance due from trade the silver money increases: that credit may fail from an accident when money is plentiful, and would soon be recover’d; ’tis only lost by a scarcity of money. such a credit may support trade, in cases where without it trade would sink, but cannot do prejudice.
Another objection is made against the bank. that it encouraged the exportation of money, by furnishingsums in such species as were of most value abroad. to answer this objection, I shall make a supposition. A. B. merchant has occasion for a 1000 lib. in Holland, and desires C. D. banker to give him a bill for that value; there is no money due in Holland to Scots merchants, so C. D. must export the money to pay the bill he draws: but, there being no bank, nor any possibility of getting a 1000 lib. in 40 pence pieces, he sends out money of different species. this does not hinder the money to go out, but makes the exchange dearer by 2 or 3 per cent, than it would have been if 40 pence pieces could have been got. and tho’ no other money were left, but old marks, if a ballance is due, these will go out, tho’ not worth 10 pence:the exchange will be so much higher, the profit of exporting is the same; and so far from doing hurt to the country, the bank by furnishing such pieces as could be exported to least loss, kept the exchange 2 or 3 per cent lower than otherwise it would have been, and saved yearly the sending out a considerable sum to pay a greater ballance, the higher exchange would have occasioned.