and to render it, upon that account, as difficult
as possible to distinguish between a real
and a fictitious bill of exchange, between a
bill drawn by a real creditor upon a real debtor,
and a bill for which there was properly no
real creditor but the bank which discounted
it, nor any real debtor but the projector who
made use of the money. When a banker had
even made this discovery, he might sometimes
make it too late, and might find that he had
already discounted the bills of those projectors
to so great an extent, that, by refusing to
discount any more, he would necessarily make
them all bankrupts; and thus by ruining them,
might perhaps ruin himself. For his own interest
and safety, therefore, he might find it
necessary, in this very perilous situation, to
go on for some time, endeavouring, however,
to withdraw gradually, and, upon that account,
making every day greater and greater difficulties
about discounting, in order to force
these projectors by degrees to have recourse,
either to other bankers, or to other methods
of raising money: so as that he himself might,
as soon as possible, get out of the circle. The
difficulties, accordingly, which the Bank of
England, which the principal bankers in London,
and which even the more prudent Scotch
banks began, after a certain time, and when
all of them had already gone too far, to make
about discounting, not only alarmed, but enraged,
in the highest degree, those projectors.
Their own distress, of which this prudent and
necessary reserve of the banks was, no doubt,
the immediate occasion, they called the distress
of the country; and this distress of the country,
they said, was altogether owing to the ignorance,
pusillanimity, and bad conduct of
the banks, which did not give a sufficiently-liberal
aid to the spirited undertakings of those
who exerted themselves in order to beautify,
improve, and enrich the country. It was the
duty of the banks, they seemed to think, to
lend for as long a time, and to as great an extent,
as they might wish to borrow. The
banks, however, by refusing in this manner to
give more credit to those to whom they had
already given a great deal too much, took the
only method by which it was now possible to
save either their own credit, or the public credit
of the country.
In the midst of this clamour and distress, a
new bank was established in Scotland, for the
express purpose of relieving the distress of the
country. The design was generous; but the
execution was imprudent, and the nature and
causes of the distress which it meant to relieve,
were not, perhaps, well understood. This bank
was more liberal then any other had ever been,
both in granting cash-accounts, and in discounting
bills of exchange. With regard to
the latter, it seems to have made scarce any
distinction between real and circulating bills,
but to have discounted all equally. It was the
avowed principle of this bank to advance upon
any reasonable security, the whole capita,
which was to be employed in those improvements
of which the returns are the most slow
and distant, such as the improvements of land.
To promote such improvements was even said
to be the chief or the public-spirited purposes
for which it was instituted. By its liberality
in granting cash-accounts, and in discounting
bills of exchange, it, no doubt, issued great
quantities of its bank notes. But those bank
notes being, the greater part of them, over
and above what the circulation of the country
could easily absorb and employ, returned upon
it, in order to be exchanged for gold and silver,
as fast as they were issued. Its coffers were
never well filled. The capital which had been
subscribed to this bank, at two different subscriptions,
amounted to one hundred and sixty
thousand pounds, of which eighty per cent.
only was paid up. This sum ought to have
been paid in at several different instalments.
A great part of the proprietors, when they paid
in their first instalment, opened a cash-account
with the bank; and the directors, thinking
themselves obliged to treat their own proprietors
with the same liberality with which they
treated all other man, allowed many of them
to borrow upon this cash-account what they
paid in upon all their subsequent instalments.
Such payments, therefore, only put into one
coffer what had the moment before been taken
out of another. But had the coffers of this
bank been filled ever so well, its excessive circulation
must have emptied them faster than
they could have been replenished by any other
expedient but the ruinous one of drawing upon
London; and when the bill became due,
paying it, together with interest and commission,
by another draught upon the same place.
Its coffers having been filled so very ill, it is
said to have been driven to this resource within
a very few months after it began to do business.
The estates of the proprietors of this
bank were worth several millions, and, by
their subscription to the original bond or contract
of the bank, were really pledged for answering
all its engagements. By means of
the great credit which so great a pledge necessarily
gave it, it was, notwithstanding its
too liberal conduct, enabled to entry on business
for more than two years. When it was
obliged to stop, it had in the circulation about
two hundred thousand pounds in bank notes.
In order to support the circulation of those
notes, which were continually returning upon
it as fast as they were issued, it had been constantly
in the practice of drawing bills of exchange
upon London, of which the number
and value were continually increasing, and,
when it stopt, amounted to upwards of six
hundred thousand pounds. This bank, therefore,
had, in little more than the course of two
years, advanced to different people upwards of
eight hundred thousand pounds at five per
cent. Upon the two hundred thousand pounds