BANKING.
Ix the Encyclopedia will be found some explana tion of the nature and origin of banking; and it now remains to describe the improvements which have been subsequently introduced into this important art of money-dealing, and to give some account also of the principal banks, which, in the progress of com merce and of wealth, have been established in this, and in other countries.
The chief purpose of the different banks which were established throughout Europe during the fif teenth and sixteenth centuries, such as the banks of Venice, Genoa, Amsterdam, Hamburgh, and Nu remberg, was to provide, for the convenience of com merce, a currency of a determinate and invariable standard. Before this period, the currency of those places was lost amid an inundation of the light and debased coins of every adjacent state ; and the busi ness of commercial exchange was in this manner ob structed by the want of some certain measure of value. By the establishment of banks of deposit, as they are generally called, which paid all demands on them in money of a known weight and fineness; and by ordaining, at the same time, that all payments above a certain sum should be made in bank money, the greatest possible degree of certainty was given to the value of the currency, while, by adopting the method of paying large sums, by means of a simple -transfer from one name' to another in the books of the bank, great facility and dispatch were obvi ously given to all cash transactions. Nor were those advantages confined to the particular places in which banks were established. It was soon found, that the same improvement which was so useful in the domestic transactions of a community could be employed with even greater advan ,in simplify ing the cash transactions of distant places. The in conveniences to which merchants residing in the same place must have been exposed in making pay ments to each other, previous to the establishment of banks, would necessarily consist in the want of some fixed and invariable measure of value; in the counting, weighing, and useless transportation of large sums from one hand to another ; and in the frauds and mistakes which would frequently occur in these cumbersome transactions. But in the com mercial intercourse of distant places, all those disad vantages would be greatly aggravated ; there would be more scope for frauds and mistakes ; they would be less easily corrected ; and, without some system of money-dealing, the commerce of distant places must be limited to mere barter, or to the instant ex change of specie for goods. The progress of wealth and industry_is, however, necessarily accompanied by the growth of confidence and credit. Upon this new principle, commercial dealing is gradually extended ; and in these circumstances, without the intervention of the money-dealer, there must be a continual and useless transportation of specie between all commer cial towns. No debt can be discharged without a remittance in cash, and each separate transaction will require a separate remittance. To obviate these useless payments in detail, the business is naturally transferred to a separate class of dealers, by whom the whole debts and credits of the community, in place of being settled individually, are brought to a general balance, and it is only for the discharge of this balance, that it is necessary to remit specie. The arrangements by which this result is produced are exceedingly simple and obvious, and are now be come so familiar, that they hardly require to be ex plained in detail.
When, in the progress of wealth and improvement, j certain individuals begin to acquire, from their in creased wealth and their extended trade, the general confidence of the community, it will naturally occur to inferior traders, who have remittances to make to other places, that the great merchant, by means of his credit and connections, may assist him in his transactions with those distant parts. If the one has money to remit, the other may have money to receive, and in this manner, by means of credit and con fidence, the engagements of the different parties may be duly discharged by a mere transfer of debt from one person to another. Thus, we may suppose A, the great merchant, has money to receive from the same place to which B, the inferior merchant, has money to remit. Ile receives the money from B, giving him, of course, an order on the debtor which be has in the same place in which B's creditor re sides. To this place the order being sent, the debt belonging to A is transferred to the creditor of B. And thus, by the mutual transfer of claims, without the intervention of specie, this account of debt and credit is finally settled. The credit and connections of the wealthy merchant, inducing others to deposit money with him for the purpose of being remitted to their respective creditors, the cash transactions of the town and neighbourhood gradually centre in his hands. All those who have money to remit, or money to receive, entrust the transaction to his management ; he receives their money, for which he gives them his drafts, or their bills, for which he either gives them money, or undertakes to procure payment, and, in this manner, the debts and credits of the different commercial towns, in place of being settled as formerly in detail, are, by the agency of the money-dealers,_ brought into one general ac count, and reduced at once to a common balance. The establishment of such public banks as those of Venice, Genoa, Amsterdam, Hamburgh, &c., on the solid security of large deposits of treasure, by in spiring general confidence, would tend to give life and activity to this improved system of money-deal ing. The credit of an individual, however respect able for wealth, integrity, and prudence, could hard ly be supposed in any case to be equal to that of those public establishments which were the general depositaries of all the floating capital of' the com munity, of which the management was committed to directors publicly chosen, and bound down in tbeie conduct to certain general rules, from which they have ' no discretionary power to depart. In the two great sources of mercantile confidence, therefore, namely, the reputation of wealth and prudent management, those institutions could not be exceeded. They were evidently beyond the reach of all the ordinary casualties of commerce, and it could only be by foreign invasion, or by some great internal convul sion, which would tend to the dissolution of all civil order, that their ruin could be accomplished. Their bills and drafts possessing a proportionably extensive circulation, formed a species of currency in universal credit, throughout the great mercantile community of Europe, and furnished a most convenient instru ment for settling, in the most easy and expeditious manner, the cash transactions between distant parts.