the whole circulation may thus be conducted
with a fifth part only of the gold and
silver which would otherwise have been requisite.
Let us suppose, for example, that the whole
circulating money of some particular country
amounted, at a particular time, to one million
sterling, that sum being then sufficient for
circulating the whole annual produce of their
land and labour; let us suppose, too, that
some time thereafter, different banks and
bankers issued promissory notes payable to
the bearer, to the extent of one million, reserving
in their different coffers two hundred
thousand pounds for answering occasional demands;
there would remain, therefore, in circulation,
eight hundred thousand pounds in
gold and silver, and a million of bank notes,
or eighteen hundred thousand pounds of paper
and money together. But the annual produce
of the land and labour of the country
had before required only one million to circulate
and distribute it to its proper consumers,
and that annual produce cannot be immediately
augmented by those operations of
banking. One million, therefore, will be sufficient
to circulate it after them. The goods
to be bought and sold being precisely the same
as before, the same quantity of money will be
sufficient for buying and selling them. The
channel of circulation, if I may be allowed
such an expression, will remain precisely the
same as before. One million we have supposed
sufficient to fill that channel. Whatever,
therefore, is poured into it beyond this
sum, cannot run into it, but must overflow.
One million eight hundred thousand pounds
are poured into it. Eight hundred thousand
pounds, therefore, must overflow, that sum
being over and above what can be employed
in the circulation of the country. But though
this sum cannot be employed at home, it is
too valuable to be allowed to lie idle. It will,
therefore, be sent abroad, in order to seek that
profitable employment which it cannot find at
home. But the paper cannot go abroad; because
at a distance from the banks which issue
it, and from the country in which payment of
it can be exacted by law, it will not be received
in common payments. Gold and silver,
therefore, to the amount of eight hundred
thousand pounds, will be sent abroad,
and the channel of home circulation will remain
filled with a million of paper instead of
a million of those metals which filled it before.
But though so great a quantity of gold and
silver is thus sent abroad, we must not imagine
that it is sent abroad for nothing, or that
its proprietors make a present of it to foreign
nations. They will exchange it for foreign
goods of some kind or another, in order to
supply the consumption either of some other
foreign country, or of their own.
If they employ it in purchasing goods in
one foreign country, in order to supply the
consumption of another, or in what is called
the carrying trade, whatever profit they make
will be in addition to the neat revenue of their
own country. It is like a new fund, created
for carrying on a new trade; domestic business
being now transacted by paper, and the
gold and silver being converted into a fund
for this new trade.
If they employ it in purchasing foreign
goods for home consumption, they may either,
first, purchase such goods as are likely to be
consumed by idle people, who produce nothing,
such as foreign wines, foreign silks,
&c.; or, secondly, they may purchase an additional
stock of materials, tools, and provisions,
in order to maintain and employ an additional
number of industrious people, who
reproduce, with a profit, the value of their
annual consumption.
So far as it is employed in the first way, is
promotes prodigality, increases expense and
consumption, without increasing production,
or establishing any permanent fund for supporting
that expense, and is in every respect
hurtful to the society.
So far as it is employed in the second way,
it promotes industry; and though it increases
the consumption of the society, it provides a
permanent fund for supporting that consumption;
the people who consume reproducing,
with a profit, the whole value of their annual
consumption. The gross revenue of the society,
the annual produce of their land and
labour, is increased by the whole value which
the labour of these workmen adds to the materials
upon which they are employed, and
their neat revenue by what remains of this value,
after deducting what is necessary for
supporting the tools and instruments of their
trade.
That the greater part of the gold and silver
which being forced abroad by those operations
of banking, is employed in purchasing
foreign goods for home consumption, is, and
must be, employed in purchasing those of this
second kind, seems not only probable, but almost
unavoidable. Though some particular
men may sometimes increase their expense
very considerably, though their revenue does
not increase at all, we may be assured that
no class or order of men ever does so; because,
though the principles of common prudence
do not always govern the conduct of
every individual, they always influence that of
the majority of every class or order. But the
revenue of idle people, considered as a class
or order, cannot, in the smallest degree, be
increased by those operations of banking.
Their expense in general, therefore, cannot
be much increased by them, though that of a
few individuals among them may, and in
reality sometimes is. The demand of idle
people, therefore, for foreign goods, being the
same, or very nearly the same as before, a