equal, to what the circulation of the country
could easily absorb and employ. Those companies,
therefore, had so long ago given all
the assistance to the traders and other undertakers
of Scotland which it is possible for
banks and bankers, consistently with their own
interest, to give. They had even done somewhat
more. They had over-traded a little,
and had brought upon themselves that loss,
or at least that diminution of profit, which, in
this particular business, never fails to attend the
smallest degree of over-trading. Those traders
and other undertakers, having got so much
assistance from banks and bankers, wished to
get still more. The banks, they seem to have
thought, could extend their credits to whatever
sum might be wanted, without incurring
any other expense besides that of a few reams
of paper. They complained of the contracted
views and dastardly spirit of the directors of
those banks, which did not, they said, extend
their credits in proportion to the extension of
the trade of the country; meaning, no doubt,
by the extension of that trade, the extension
of their own projects beyond what they could
carry on either with their own capital, or with
what they had credit to borrow of private
people in the usual way of bond or mortgage.
The banks, they seem to have thought,
were in honour bound to supply the deficiency,
and to provide them with all the capital
which they wanted to trade with. The
banks, however, were of a different opinion
and upon their refusing to extend their credits,
some of those traders had recourse to an
expedient which, for a time, served their
purpose, though at a much greater expense,
yet as effectually as the utmost extension of
bank credits could have done. This expedient
was no other than the well known shift of
drawing and redrawing; the shift to which
unfortunate traders have sometimes recourse,
when they are upon the brink of bankruptcy.
The practice of raising money in this manner
had been long known in England; and, during
the course of the late war, when the high
profits of trade afforded a great temptation to
over-trading, is said to have been carried on
to a very great extent. From England it was
brought into Scotland, where, in proportion
to the very limited commerce, and to the very
moderate capital of the country, it was soon
carried on to a much greater extent than it
ever had been in England.
The practice of drawing and redrawing is
so well known to all men of business, that it
may, perhaps, be thought unnecessary to give
any account of it. But as this book may come
into the hands of many people who are not
men of business, and as the effects of this
practice upon the banking trade are not, perhaps,
generally understood, even by men of
business themselves, I shall endeavour to explain
it as distinctly as I can.
The customs of merchants, which were established
when the barbarous laws of Europe
did not enforce the performance of their contracts,
and which, during the course of the
two last centuries, have been adopted into the
laws of all European nations, have given such
extraordinary privileges to bills of exchange,
that money is more readily advanced upon
them than upon any other species of obligation;
especially when they are made payable
within so short a period as two or three months
after their date. If, when the bill becomes
due, the acceptor does not pay it as soon as it
is presented, he becomes from that moment a
bankrupt. The bill is protested, and returns
upon the drawer, who, if he does not immediately
pay it, becomes likewise a bankrupt.
If, before it came to the person who presents
it to the acceptor for payment, it had passed
through the hands of several other persons,
who had successively advanced to one another
the contents of it, either in money or goods,
and who, to express that each of them had in
his turn received those contents, had all of
them in their order indorsed, that is, written
their names upon the back of the bill; each
indorser becomes in his turn liable to the
owner of the bill for those contents, and, if
he fails to pay, he becomes too, from that moment,
a bankrupt. Though the drawer, acceptor,
and indorsers of the bill, should all of
them be persons of doubtful credit; yet, still
the shortness of the date gives some security
to the owner of the bill. Though all of them
may be very likely to become bankrupts, it is
a chance if they all become so in so short a
time. The house is crazy, says a weary traveller
to himself, and will not stand very
long; but it is a chance if it falls to-night,
and I will venture, therefore, to sleep in it
to-night.
The trader A in Edinburgh, we shall suppose,
draws a bill upon B in London, payable
two months after date. In reality B in London
owes nothing to A in Edinburgh; but he
agrees to accept of A's bill, upon condition, that
before the term of payment he shall redraw upon
A in Edinburgh for the same sum, together
with the interest and a commission, another
bill, payable likewise two months after
date. B accordingly, before the expiration
of the first two months, redraws this bill upon
A in Edinburgh; who, again before the expiration
of the second two months, draws a second
bill upon B in London, payable likewise
two months after date; and before the expiration
of the third two months, B in London redraws
upon A in Edinburgh another bill payable
also two months after date. This practice
has sometimes gone on, not only for several
months, but for several years together, the
bill always returning upon A in Edinburgh
with the accumulated interest and commission
of all the former bills. The interest was five
per cent. in the year, and the commission was
never less than one half per cent. on each