than he might otherwise have done. His annual
profits must be less by all that he could
have made by the sale of five hundred pounds
worth more goods; and the number of people
employed in preparing his goods for the market
must be less by all those that five hundred
pounds more stock could have employed.
The merchant in Edinburgh, on the other
hand, keeps no money unemployed for answering
such occasional demands. When
they actually come upon him, he satisfies them
from his cash account with the bank, and gradually
replaces the sum borrowed with the
money or paper which comes in from the occasional
sales of his goods. With the same
stock, therefore, he can, without imprudence,
have at all times in his warehouse a larger
quantity of goods than the London merchant;
and can thereby both make a greater profit
himself, and give constant employment to a
greater number of industrious people who prepare
those goods for the market. Hence the
great benefit which the country has derived
from this trade.
The facility of discounting bills of exchange,
it may be thought, indeed, gives the English
merchants a conveniency equivalent to the cash
accounts of the Scotch merchants. But the
Scotch merchants, it must be remembered,
can discount their bills of exchange as easily
as the English merchants; and have, besides,
the additional conveniency of their cash accounts.
The whole paper money of every kind which
can easily circulate in any country, never can
exceed the value of the gold and silver, of
which it supplies the place, or which (the commerce
being supposed the same) would circulate
there, if there was no paper money. If
twenty shilling notes, for example, are the
lowest paper money current in Scotland, the
whole of that currency which can easily circulate
there, cannot exceed the sum of gold and
silver which would be necessary for transacting
the annual exchanges of twenty shillings
value and upwards usually transacted within
that country. Should the circulating paper
at any time exceed that sum, as the excess
could neither be sent abroad nor be employed
in the circulation of the country, it must immediately
return upon the banks, to be exchanged
for gold and silver. Many people
would immediately perceive that they had
more of this paper than was necessary for
transacting their business at home; and as
they could not send it abroad, they would immediately
demand payment for it from the
banks. When this superfluous paper was
converted into gold and silver, they could easily
find a use for it, by sending it abroad;
but they could find none while it remained in
the shape of paper. There would immediately,
therefore, be a run upon the banks to the
whole extent of this superfluous paper, and if
they showed any difficulty or backwardness in
payment, to a much greater extent; the alarm
which this would occasion necessarily increasing
the run.
Over and above the expenses which are common
to every branch of trade, such as the expense
of house-rent, the wages of servants,
clerks, accountants, &c. the expenses peculiar
to a bank consist chiefly in two articles: first,
in the expense of keeping at all times in its
coffers, for answering the occasional demands
of the holders of its notes, a large sum of money,
of which it loses the interest; and, secondly,
in the expense of replenishing those
coffers as fast as they are emptied by answering
such occasional demands.
A banking company which issues more paper
than can be employed in the circulation
of the country, and of which the excess is continually
returning upon them for payment,
ought to increase the quantity of gold and silver
which they keep at all times in their coffers,
not only in proportion to this excessive
increase of their circulation, but in a much
greater proportion; their notes returning upon
them much faster than in proportion to the
excess of their quantity. Such a company,
therefore, ought to increase the first article of
their expense, not only in proportion to this
forced increase of their business, but in a much
greater proportion.
The coffers of such a company, too, though
they ought to be filled much fuller, yet must
empty themselves much faster than if their
business was confined within more reasonable
bounds, and must require not only a more violent,
but a more constant and uninterrupted
exertion of expense, in order to replenish them.
The coin, too, which is thus continually drawn
in such large quantities from their coffers,
cannot be employed in the circulation of the
country. It comes in place of a paper which
is over and above what can be employed in
that circulation, and is, therefore, over and above
what can be employed in it too. But as
that coin will not be allowed to lie idle, it
must, in one shape or another, be sent abroad,
in order to find that profitable employment
which it cannot find at home; and this continual
exportation of gold and silver, by enhancing
the difficulty, must necessarily enhance
still farther the expense of the bank, in
finding new gold and silver in order to replenish
those coffers, which empty themselves
so very rapidly. Such a company, therefore,
must in proportion to this forced increase of
their business, increase the second article of
their expense still more than the first.
Let us suppose that all the paper of a particular
bank, which the circulation of the country
can easily absorb and employ, amounts exactly
to forty thousand pounds, and that, for
answering occasional demands, this bank is
obliged to keep at all times in its coffers ten
thousand pounds in gold and silver. Should
this bank attempt to circulate forty-four thousand