There were a good many people, too,
upon this occasion, who, from a diffidence of
repayment, did not bring their silver into
the Bank of Scotland; and there was, besides,
some English coin, which was not called in.
The whole value of the gold and silver, therefore,
which circulated in Scotland before the
Union, cannot be estimated at less than a million
sterling. It seems to have constituted
almost the whole circulation of that country;
for though the circulation of the Bank of
Scotland, which had then no rival, was considerable,
it seems to have made but a very
small part of the whole. In the present times,
the whole circulation of Scotland cannot be
estimated at less than two millions, of which
that part which consists in gold and silver,
most probably, does not amount to half a million.
But though the circulating gold and
silver of Scotland have suffered so great a diminution
during this period, its real riches and
prosperity do not appear to have suffered any.
Its agriculture, manufactures, and trade, on
the contrary, the annual produce of its land
and labour, have evidently been augmented.
It is chiefly by discounting bills of exchange,
that is, by advancing money upon them
before they are due, that the greater part of
banks and bankers issue their promissory notes.
They deduct always, upon whatever sum they
advance, the legal interest till the bill shall
become due. The payment of the bill, when it
becomes due, replaces to the bank the value
of what had been advanced, together with a
clear profit of the interest. The banker, who
advances to the merchant whose bill he discounts,
not gold and silver, but his own promissory
notes, has the advantage of being able
to discount to a greater amount by the whole
value of his promissory notes, which he finds,
by experience, are commonly in circulation.
He is thereby enabled to make his clear gain
of interest on so much a larger sum.
The commerce of Scotland, which at present
is not very great, was still more inconsiderable
when the two first banking companies
were established; and those companies would
have had but little trade, had they confined
their business to the discounting of bills of exchange.
They invented, therefore, another
method of issuing their promissory notes; by
granting what they called cash accounts, that is,
by giving credit, to the extent of a certain sum
(two or three thousand pounds for example),
to any individual who could procure two persons
of undoubted credit and good landed estate
to become surety for him, that whatever
money should be advanced to him, within the
sum for which the credit had been given,
should be repaid upon demand, together with
the legal interest. Credits of this kind are, I
believe, commonly granted by banks and
bankers in all different parts of the world.
But the easy terms upon which the Scotch
banking companies accept of repayment are,
so far as I know, peculiar to them, and have,
perhaps, been the principal cause, both of the
great trade of those companies, and of the benefit
which the country has received from it.
Whoever has a credit of this kind with one
of those companies, and borrows a thousand
pounds upon it, for example, may repay this
sum piece-meal, by twenty and thirty pounds
at a time, the company discounting a proportionable
part of the interest of the great sum,
from the day on which each of those small
sums is paid in, till the whole be in this manner
repaid. All merchants, therefore, and almost
all men of business, find it convenient to
keep such cash accounts with them, and are
thereby interested to promote the trade of
those companies, by readily receiving their
notes in all payments, and by encouraging all
those with whom they have any influence to do
the same. The banks, when their customers
apply to them for money, generally advance it
to them in their own promissory notes. These
the merchants pay away to the manufacturers
for goods, the manufacturers to the farmers
for materials and provisions, the farmers to
their landlords for rent; the landlords repay
them to the merchants for the conveniencies
and luxuries with which they supply them,
and the merchants again return them to the
banks in order to balance their cash accounts,
or to replace what they may have borrowed of
them; and thus almost the whole money business
of the country is transacted by means of
them. Hence the great trade of those companies.
By means of those cash accounts, every merchant
can, without imprudence, carry on a
greater trade than he otherwise could do. If
there are two merchants, one in London and
the other in Edinburgh, who employ equal
stocks in the same branch of trade, the Edinburgh
merchant can, without imprudence,
carry on a greater trade, and give employment
to a greater number of people, than the London
merchant. The London merchant must
always keep by him a considerable sum of
money, either in his own coffers, or in those
of his banker, who gives him no interest for
it, in order to answer the demands continually
coming upon him for payment of the goods
which he purchases upon credit. Let the ordinary
amount of this sum be supposed five
hundred pounds; the value of the goods in his
warehouse must always be less, by five hundred
pounds, than it would have been, had he
not been obliged to keep such a sum unemployed.
Let us suppose that he generally disposes
of his whole stock upon hand, or of
goods to the value of his whole stock upon
hand, once in the year. By being obliged to
keep so great a sum unemployed, he must sell
in a year five hundred pounds worth less goods