which they had advanced to him had not, at
any time, exceeded the quantity of gold and
silver which he would otherwise have been
obliged to keep by him for answering occasional
demands; and that, consequently, the
paper money, which they had circulated by
his means, had not at any time exceeded the
quantity of gold and silver which would have
circulated in the country, had there been no
paper money. The frequency, regularity, and
amount of his repayments, would sufficiently
demonstrate that the amount of their advances
had at no time exceeded that part of
his capital which he would otherwise have
been obliged to keep by him unemployed, and
in ready money, for answering occasional demands;
that is, for the purpose of keeping
the rest of his capital in constant employment.
It is this part of his capital only which, within
moderate periods of time, is continually returning
in every dealer in the shape of money,
whether paper or coin, and continually going
from him in the same shape. If the advances
of the bank had commonly exceeded this part
of his capital, the ordinary amount of his repayments
could not, within moderate periods
of time, have equalled the ordinary amount
of its advances. The stream which, by means
of his dealings, was continually running into
the coffers of the bank, could not have been
equal to the stream which, by means of the
same dealings was continually running out.
The advances of the bank paper, by exceeding
the quantity of gold and silver which, had
there been no such advances, he would have
been obliged to keep by him for answering occasional
demands, might soon come to exceed
the whole quantity of gold and silver which
(the commerce being supposed the same) would
have circulated in the country, had there been
no paper money; and, consequently, to exceed
the quantity which the circulation of the
country could easily absorb and employ; and
the excess of this paper money would immediately
have returned upon the bank, in order
to be exchanged for gold and silver. This
second advantage, though equally real, was
not, perhaps, so well understood by all the
different banking companies in Scotland as
the first.
When, partly by the conveniency of discounting
bills, and partly by that of cash accounts,
the creditable traders of any country
can be dispensed from the necessity of keeping
any part of their stock by them unemployed,
and in ready money, for answering
occasional demands, they can reasonably expect
no farther assistance from banks and
bankers, who, when they have gone thus far,
cannot, consistently with their own interest
and safety, go farther. A bank cannot, consistently
with its own interest, advance to a
trader the whole, or even the greater part
of the circulating capital with which he trades;
because, though that capital is continually returning
to him in the shape of money, and
going from him in the same shape, yet the
whole of the returns is too distant from the
whole of the outgoings, and the sum of his
the repayments could not equal the sum of his
advances within much moderate periods of time
as suit the conveniency of a bank. Still less
could a bank afford to advance him any considerable
part of his fixed capital; of the capital
which the undertaker of an iron forge,
for example, employs in erecting his forge and
smelting-houses, his work-houses, and warehouses,
the dwelling-houses of his workmen,
&c.; of the capital which the undertaker of a
mine employs in sinking his shafts, in erecting
engines for drawing out the water, in
making roads and waggon-ways, &c.; of the
capital which the person who undertakes to
improve land employs in clearing, draining,
inclosing, manuring, and ploughing waste
and uncultivated fields; in building farm-houses,
with all their necessary appendages
of stables, granaries, &c. The returns of
the fixed capital are, in almost all cases,
much slower than those of the circulating capital:
and such expenses, even when laid out
with the greatest prudence and judgment,
mean very seldom return to the undertaker till after
period of many years, a period by far too
distant to suit the conveniency of a bank.
Traders and other undertakers may, no doubt
with great propriety, carry on a very considerable
part of their projects with borrowed money.
In justice to their creditors, however, their
own capital ought in this case to be sufficient
to insure, if I may say so, the capital of those
creditors; or to render it extremely improbable
that those creditors should incur any
loss, even though the success of the project
should fall very much short of the expectation
of the projectors. Even with this precaution,
too, the money which is borrowed, and which
it is meant should not be repaid till after a
period of several years, ought not to be borrowed
of a bank, but ought to be borrowed
upon bond or mortgage, of such private people
as propose to live upon the interest of their
money, without taking the trouble themselves
to employ the capital, and who are, upon that
account, willing to lend that capital to such
people of good credit as are likely lo keep it
for several years. A bank, indeed, which lends
its money without the expense of stamped paper,
or of attorneys' fees for drawing bonds
and mortgages, and which accepts of repayment
upon the easy terms of the banking companies
of Scotland, would, no doubt, be a
very convenient creditor to such traders and
undertakers. But such traders and undertakers
would surely be most inconvenient debtors
to such a bank.
It is now more than five and twenty years
since the paper money issued by the different
banking companies of Scotland was fully
equal, or rather was somewhat more than fully