very small part of the money which, being
forced abroad by those operations of banking,
is employed in purchasing foreign goods for
home consumption, is likely to be employed in
purchasing those for their use. The greater
part of it will naturally be destined for the
employment of industry, and not for the maintenance
of idleness.
When we compute the quantity of industry
which the circulating capital of any society
can employ, we must always have regard to
those parts of it only which consist in provisions,
materials, and finished work; the other,
which consists in money, and which serves
only to circulate those three, must always be
deducted. In order to put industry into motion,
three things are requisite; materials to
work upon, tools to work with, and the wages
or recompence for the sake of which the work
is done. Money is neither a material to work
upon, nor a tool to work with; and though
the wages of the workman are commonly paid
to him in money, his real revenue, like
that of all other men, consists, not in the money,
but in the money's worth; not in the
metal pieces, but in what can be got for
them.
The quantity of industry which any capital
can employ, must evidently be equal to the
number of workmen whom it can supply with
materials, tools, and a maintenance suitable to
the nature of the work. Money may be requisite
for purchasing the materials and tools
of the work, as well as the maintenance of the
workmen; but the quantity of industry which
the whole capital can employ, is certainly not
equal both to the money which purchases, and
to the materials, tools, and maintenance, which
are purchased with it, but only to one or other
of those two values, and to the latter more
properly than to the former.
When paper is substituted in the room of
gold and silver money, the quantity of the materials,
tools, and maintenance, which the whole
circulating capital can supply, may be increased
by the whole value of gold and silver which
used to be employed in purchasing them. The
whole value of the great wheel of circulation
and distribution is added to the goods which
are circulated and distributed by means of it.
The operation, in some measure, resembles
that of the undertaker of some great work,
who, in consequence of some improvement in
mechanics, takes down his old machinery, and
adds the difference between its price and that
of the new to his circulating capital, to the
fund from which he furnishes materials and
wages to his workmen.
What is the proportion which the circulating
money of any country bears to the whole
value of the annual produce circulated by
means of it, it is perhaps impossible to determine.
It has been computed by different authors
at a fifth, at a tenth, at a twentieth, and
at a thirtieth, part of that value. But how
small soever the proportion which the circulating
money may bear to the whole value of
the annual produce, as but a part, and frequently
but a small part, of that produce, is
ever destined for the maintenance of industry,
it must always bear a very considerable
proportion to that part. When, therefore, by
the substitution of paper, the gold and silver
necessary for circulation is reduced to, perhaps,
a fifth part of the former quantity, if
the value of only the greater part of the
other four-fifths be added to the funds which
are destined for the maintenance of industry,
it must make a very considerable addition
to the quantity of that industry, and,
consequently, to the value of the annual produce
of land and labour.
An operation of this kind has, within these
five-and-twenty or thirty years, been performed
in Scotland, by the erection of new banking
companies in almost every considerable
town, and even in some country villages.
The effects of it have been precisely those
above described. The business of the country
is almost entirely carried on by means of the
paper of those different banking companies,
with which purchases and payments of all
kinds are commonly made. Silver very seldom
appears, except in the change of a twenty
shilling bank note, and gold still seldomer.
But though the conduct of all those different
companies has not been unexceptionable, and
has accordingly required an act of parliament
to regulate it, the country, notwithstanding,
has evidently derived great benefit from their
trade. I have heard it asserted, that the trade
of the city of Glasgow doubled in about fifteen
years after the first erection of the banks
there; and that the trade of Scotland has
more than quadrupled since the first erection
of the two public banks at Edinburgh; of
which the one, called the Bank of Scotland,
was established by act of parliament in 1695,
and the other, called the Royal Bank, by royal
charter in 1727. Whether the trade, either
of Scotland in general, or of the city of Glasgow
in particular, has really increased in so
great a proportion, during so short a period, I
do not pretend to know. If either of them has
increased in this proportion, it seems to be an
effect too great to be accounted for by the sole
operation of this cause. That the trade and
industry of Scotland, however, have increased
very considerably during this period, and that
the banks have contributed a good deal to this
increase, cannot be doubted.
The value of the silver money which circulated
in Scotland before the Union in 1707, and
which, immediately after it, was brought into
the Bank of Scotland, in order to be recoined,
amounted to £411,117 : 10 : 9 sterling. No
account has been got of the gold coin; but it
appears from the ancient accounts of the mint
of Scotland, that the value of the gold annually
coined somewhat exceeded that of the silver[27].