and other dealers of whom he buys goods. He
has no occasion to keep any by him for the
circulation between himself and the consumers,
who are his customers, and who bring
ready money to him, instead of taking any
from him. Though no paper money, therefore,
was allowed to be issued, but for such
sums as would confine it pretty much to the
circulation between dealers and dealers; yet
partly by discounting real bills of exchange,
and partly by lending upon cash-accounts,
banks and bankers might still be able to relieve
the greater part of those dealers from the
necessity of keeping any considerable part of
their stock by them unemployed, and in ready
money, for answering occasional demands.
They might still be able to give the utmost
assistance which banks and bankers can with
propriety give to traders of every kind.
To restrain private people, it may be said,
from receiving in payment the promissory
notes of a banker for any sum, whether great
or small, when they themselves are willing to
receive them; or, to restrain a banker from
issuing such notes, when all his neighbours
are willing to accept of them, is a manifest
violation of that natural liberty, which it is
the proper business of law not to infringe, but
to support. Such regulations may, no doubt,
be considered as in some respect a violation of
natural liberty. But those exertions of the
natural liberty of a few individuals, which
might endanger the security of the whole society,
are, and ought to be, restrained by the
laws of all governments; of the most free, as
well as of the most despotical. The obligation
of building party walls, in order to prevent
the communication of fire, is a violation
of natural liberty, exactly of the same kind
with the regulations of the banking trade which
are here proposed.
A paper money, consisting in bank notes,
issued by people of undoubted credit, payable
upon demand, without any condition,
and, in fact, always readily paid as soon as
presented, is, in every respect, equal in value
to gold and silver money, since gold and silver
money can at any time be had for it.
Whatever is either bought or sold for such
paper, must necessarily be bought or sold as
cheap as it could have been for gold and silver.
The increase of paper money, it has been
said, by augmenting the quantity, and consequently
diminishing the value, of the whole
currency, necessarily augments the money
price of commodities. But as the quantity of
gold and silver, which is taken from the currency,
is always equal to the quantity of paper
which is added to it, paper money does
not necessarily increase the quantity of the
whole currency. From the beginning of the
last century to the present time, provisions
never were cheaper in Scotland than in 1759,
though, from the circulation of ten and five
shilling bank notes, there was then more paper
money in the country than at present.
The proportion between the price of provisions
in Scotland and that in England is the
same now as before the great multiplication
of banking companies in Scotland. Corn is,
upon most occasions, fully as cheap in England
as in France, though there is a great deal
of paper money in England, and scarce any
in France. In 1751 and 1752, when Mr
Hume published his Political Discourses, and
soon after the great multiplication of paper
money in Scotland, there was a very sensible
rise in the price of provisions, owing, probably,
to the badness of the seasons, and not
to the multiplication of paper money.
It would be otherwise, indeed, with a paper
money, consisting in promissory notes, of
which the immediate payment depended, in
any respect, either upon the good will of those
who issued them, or upon a condition which
the holder of the notes might not always have
it in his power to fulfil, or of which the payment
was not exigible till after a certain
number of years, and which, in the meantime,
bore no interest. Such a paper money
would, no doubt, fall more or less below the
value of gold and silver, according as the difficulty
or uncertainty of obtaining immediate
payment was supposed to be greater or less,
or according to the greater or less distance of
time at which payment was exigible.
Some years ago the different banking companies
of Scotland were in the practice of inserting
into their bank notes, what they called
an optional clause; by which they promised
payment to the bearer, either as soon as the
note should be presented, or, in the option of
the directors, six months after such presentment,
together with the legal interest for the
said six months. The directors of some of those
banks sometimes took advantage of this optional
clause, and sometimes threatened those
who demanded gold and silver in exchange
for a considerable number of their notes, that
they would take advantage of it, unless such
demanders would content themselves with a
part of what they demanded. The promissory
notes of those banking companies constituted,
at that time, the far greater part of the currency
of Scotland, which this uncertainty of
payment necessarily degraded below the value
of gold and silver money. During the
continuance of this abuse (which prevailed
chiefly in 1762, 1763, and 1764), while the
exchange between London and Carlisle was at
par, that between London and Dumfries would
sometimes be four per cent. against Dumfries,
though this town is not thirty miles distant
from Carlisle. But at Carlisle, bills were
paid in gold and silver; whereas at Dumfries
they were paid in Scotch bank notes; and the
uncertainty of getting those bank notes exchanged
for gold and silver coin, had thus degraded
them four per cent. below the value of