One great inducement to establish a bank for the circulation of paper in place of specie is, that it pro vides a cheap instrument of exchange in place of a more expensive one, and from the obvious advantage of such an operation, both to the individual and to piper, after it is once introduced, is gradually found to limit, and at last entirely to supersede, the use of specie in the circulation of a country. Such has been the progress of paper in the currency of Britain. Specie is now entirely ex cluded from circulation ; all that portion of our currency which formerly consisted of the precious metals has either been exported, or is stored up by the bankers, by whom it is kept in reserve, to an swer occasional demands. The establishment of one great bank in the capital of the country would faci litate the introduction into other parts of similar establishments, on a smaller scale. Such a bank is naturally a general reservoir of specie for the whole kingdom. Its transactions are of so much greater an extent than those of any other establishment of the same kind, that all the specie which it could collect at home would be insufficient to supply its wants. When its coffers are exhausted, therefore, they must be replenished from abroad. Bullion must be purchased in the great market of the civilized world, and the supply thus imported is gradually distributed, in the general course of circulation and commerce, among the lesser banks. The wants of those smaller establishments can always be supplied, to any extent, from the store of specie collected in the great bank ; for they have only to convert a certain portion of their property into its promis sory-notes, in order to procure the supply necessary to replenish their exhausted coffers.
Since the establishment of the Bank of England, banks on a smaller scale have accordingly been be: gun in almost all the provincial towns of Great Bri tain. They seem to have increased with great rapi dity in the course of that short interval of prosperity and peace which followed the American war. Du ring this period, all the great branches of national industry were extremely flourishing—the capital of the country was daily augmenting--the principle of mercantile confidence, the natural effect of such a state of things, was in full vigour,—and spirited indi viduals, in every quarter, taking advantage of these favourable circumstances, proceeded to establish banks ; and having thus created a currency on the foundation of credit, the precious metals were no longer required to carry on the circulation of the country. According to an estimate made by Mr Thornton,• which is rather moderate than otherwise, the number of country banks in Great Britain a mounted, in the year 1797, to 353. In 1799, they had increased to 866, and, in 1800, to 386. About this period, they appear to have increased rapidly, for we find the number of licences granted in 1809, for the issue of promissory-notes in Great Britain, to have amounted to 735. In 1812, they amounted to 878 ; and, in 1814 and 1815, to about 1000. Of these, there are in London, besides the Bank of England, about 70 private banking-houses, and the remaining 930 are dispersed throughout the kingdom. To the management of these various money-dealers, the whole circulation of the country is committed. Their business consists in settling the cash transactions of distant places, and in issuing their notes, for the ac commodation of trade, by discounting mercantile bills ; and the arrangements which they adopt for this purpose are eminently calculated to promote the dispatch of business, and the economy of cash.
We have already, in part, explained in what man ner the establishment of accredited banks tends to simplify the cash transactions of distant parts, and it is obvious that a community abounding in bankers of established character and credit, whose promis sory-notes and bills of exchange circulate, to the ex clusion of specie, must possess ample means for car rying into effect all the refinements of money-deal ing. In Great Britain, accordingly, the general
progress of trade and manufactures—the known wealth of banking establishments—the security de rived from the long continuance of domestic peace— the high state of commercial confidence—the facili ties of communication, joined to other advantages peculiar to such an advanced state of society, have brought the system to perfection. By means of bills of exchange, circulated among the different bankers, remittances are made to the most distant parts with the most perfect security, and at an inconsiderable expense. The respective debts and credits of the great commercial towns, in place of being settled in detail, or by remittances in specie, are, by the agen cy of the money-dealers, collected into one general account, which is brought to a common balance, and in this way the most extensive transactions may be settled with a comparatively small quantity of specie. If we suppose, for example, one of the two trading towns of Glasgow and Manchester to export, to the other, goods to the amount of L.2,000,000 annually, and to receive a return to the value of L.1,900,000, those transactions being, through the medium of the bankers, brought into one general account, there re mains only an undischarged balance of L.100,000. But the tendency of the system being to make the whole complicated transactions of an extensive coun try centre in one common account, it may not be necessary, even for this balance of L.100,000, to send a remittance of specie, seeing that it may be transferred, by a draft on some third place, to a more general fund of debt and credit, where it may be fi nally met and liquidated by opposite balances to the same amount. Thus, we may suppose the balance of L.100,000, due from Manchester to Glasgow, to be discharged by a draft on London. In this case, Lon don comes in the place of Glasgow, as the creditor of Manchester, the transaction being substantially to transfer the debt to the general cash account of those two places. But Manchester, in consequence of a favourable balance of trade, may be the creditor of other towns, as well as the debtor ; and London being credited with the money to be received, as it was formerly charged with the money to be paid, all these insulated transactions are brought into one general account, on which the balance is struck, and it is only for this last and final balance that cash must be provided. In this highly artificial and cu rious system, the wealthy and populous towns natu rally draw, as to a common centre, all the cash trans actions of the neighbourhood ; the insulated balan ces, arising on the commerce of the surrounding country, are formed into new accounts by the money dealers of these towns, who, by a simple transfer of debt and credit in their books, bring them to a ge neral balance. This balance they afterwards carry to a still more general account ; and thus, at length, all the scattered debts of the country are collected into one common account by the bankers of the metro polis, which is then brought to a final balance. The metropolis, the centre of intercourse and trade, is the centre, also, of this vast system of money-deal ing. Here, as to a point, all the cash transactions of the country naturally converge, and here the ac count is finally closed by payments in cash.