draught. This commission being repeated
more than six times in the year, whatever money
A might raise by this expedient might necessarily
have cost him something more than
eight per cent in the year and sometimes a
great deal more, when either the price of the
commission happened to rise, or when he was
obliged to pay compound interest upon the
interest and commission of former bills. This
practice was called raising money by circulation.
In a country where the ordinary profits of
stock, in the greater part of mercantile projects,
are supposed to run between six and ten per
cent. it must have been a very fortunate speculation,
of which the returns could not only
repay the enormous expense at which the money
was thus borrowed for carrying it on, but
afford, besides, a good surplus profit to the
projector. Many vast and extensive projects,
however, were undertaken, and for several
years carried on, without any other fund to
support them besides what was raised at this
enormous expense. The projectors, no doubt,
had in their golden dreams the most distinct
vision of this great profit. Upon their awakening,
however, either at the end of their projects,
or when they were no longer able to
carry them on, they very seldom, I believe,
had the good fortune to find it.[28]
The bills which A in Edinburgh drew upon
B in London, he regularly discounted two
months before they were due, with some bank
or banker in Edinburgh; and the bills which
B in London redrew upon A in Edinburgh,
he as regularly discounted, either with the
Bank of England, or with some other banker
in London. Whatever was advanced upon
such circulating bills was in Edinburgh advanced
in the paper of the Scotch banks; and
in London, when they were discounted at the
Bank of England in the paper of that bank.
Though the bills upon which this paper had
been advanced were all of them repaid in their
turn as soon as they became due, yet the value
which had been really advanced upon the last
bill was never really returned to the banks
which advanced it, because, before each bill
became due, another bill was always drawn
to somewhat a greater amount than the bill
which was soon to be paid: and the discounting
of this other bill was essentially necessary
towards the payment of that which was soon
to be due. This payment, therefore, was altogether
fictitious. The stream which, by means
of those circulating bills of exchange, had once
been made to run out from the coffers of the
banks, was never replaced by any stream which
really run into them.
The paper which was issued upon those circulating
bills of exchange amounted, upon
many occasions, to the whole fund destined
for carrying on some vast and extensive project
of agriculture, commerce, or manufactures;
and not merely to that part of it which,
had there been no paper money, the projector
would have been obliged to keep by him unemployed,
and in ready money, for answering
occasional demands. The greater part of this
paper was, consequently, over and above the
value of the gold and silver which would have
circulated in the country, had there been no
paper money. It was over and above, therefore,
what the circulation of the country could
easily absorb and employ, and upon that account,
immediately returned upon the banks,
in order to be exchanged for gold and silver,
which they were to find as they could. It
was a capital which those projectors had very
artfully contrived to draw from those banks,
not only without their knowledge or deliberate
consent, but for some time, perhaps, without
their having the most distant suspicion
that they had really advanced it.
When two people, who are continually
drawing and redrawing upon one another,
discount their bills always with the same banker,
he must immediately discover what they
are about, and see clearly that they are trading,
not with any capital of their own, but
with the capital which he advances to them.
But this discovery is not altogether so easy
when they discount their bills sometimes with
one banker, and sometimes with another, and
when the two same persons do not constantly
draw and redraw upon one another, but occasionally
run the round of a great circle of projectors,
who find it for their interest to assist
one another in this method of raising money