We do not mean by this to insinuate that. there are no fictitious bills of exchange, or bills drawn on persons who are not really indebted to the drawer in the market. In every commercial country bills of this description are always to be met with; but they are only a device for obtaining loans, and do not and cannot transfer real debts. A merchant in London may form a connection with a merchant in Glasgow, and draw bills of exchange upon him pay able a certain number of days after date, which the latter may retire by selling in Glasgow an equal a mount of bills drawn upon his correspondent in Lon don. The merchants who purchase, or the bankers who discount these bills, really advance their value to the drawers, who, as long as they continue, by means of this system of drawing and redrawing, to provide funds for their payment, continue in fact to command a borrowed capital equal to the amount of the fictitious paper in circulation. It is clear, how ever, that the negociation of such bills can have no effect in the way of transferring and settling the real bona fele debts reciprocally due between any two or more places. Fictitious bills mutually balance each other. Those drawn by London on Glasgow are exactly equal to those drawn by Glasgow on Lon don, for the one set are drawn to pay the other— the second destroys the first, and the result is no thing.
The medical of raising money by the discount, or, which is the same thing, by the sale of fictitious bills, has been severely censured by Dr Smith, as entailing a ruinous expence on those engaged in it, and as being resorted to only by projectors, or per sons of suspicious credit. When fictitious bills are drawn at two months' date, there is, in addition to the ordinary interest of 5 per cent. a commission of about per cent., which must be paid every time the bill is discounted, or, at least, six times in the year. The total expence of money raised in this way could not, therefore, supposing the transaction to be al ways on account of the same individual, be estimated at less than 8 per cent. per annum ; and the payment of so high a rate of interest on borrowed capital, in a country where the ordinary rate of mercantile profit is only supposed to average from air to ten per cent., could not fail to be generally productive of ruin to the borrower. It seldom happens, however, that in transactions carried on by means of fictitious bills, the whole charge for commission falls on one indi vidual. Loans obtained in this way are almost al
ways on account of two or more persons. Thus, at one time a fictitious bill may be drawn by A of Lon on B of Glasgow ; and, in this case, the Glas gow merchant will, before the bill becomes due, draw upon his London correspondent for the pro ceeds of the bill, including interest and commission. At another time, however, the transaction will be on account of B of Glasgow, who will then have to pay commission to his friend in London ; so that each party may, on the whole, as Mr Thornton has ob served, gain about as much as be pays in the shape of commission.
It is often extremely difficult to distinguish be• tween a fictitious bill and one which has arisen out of a real mercantile transaction. Neither does it seem to be of any very material importance. The credit of the persons whose names are attached to the bills offered for discount, is the only real criterion by which either a private merchant or a banker can judge whether he ought to negotiate them. The cir cumstance of a merchant offering considerable quan tities of accommodation paper for discount, ought, unquestionably, if discovered, to excite a suspicion of his credit. But unless in so far as the drawing of fictitious bills may be held to be indicative of over trading, or of a deficiency of capital to carry on the business in which the party is engaged, there does not appear to be any good reason for refusing to dis count them.
These few observations will, perhaps, suffice to ex plain the manner in which transactions between dif ferent parts of the same country are settled by means of bills of exchange. They are, in general, extreme ly simple. The uniform value of the currency of a particular country renders all comparison between the value of money at the place where the bill is drawn and negociated with its value where it is to be paid unnecessary; while the constant intercourse maintained between the different commercial cities of the same kingdom, by preventing those derange ments to which the intercourse between distant and independent countries must always be subject, also prevents those sudden fluctuations which so frequent ly occur in the market price of foreign bills of ex change. We shall, therefore, leave this part of our subject, and proceed to investigate the circumstances which influence the course of exchange between dif ferent and independent countries.