Before the discovery of the use of money, as an •instrument for ascertaining the comparative value of .commodities, the exchange of the produce of one country with that of another, must have taken place, by the delivery of the commodities themselves ; and even after an imaginary value was attached to the precious metals, their conveyance from one quarter of the world to another, must have been attended with great inconveniency, risk, and danger. But when commerce became more general, in consequence of the progress of civilization, and embraced the pro ductions of countries remotely situated, a substitute for money, that could be easily carried, or if lost, speedily recovered, produced effects, that united the arts and ingenuity of nations the most distant. Bills of exchange, which were introduced into Europe to wards the close of the 12th century, have according ly effected every purpose that could have been accom plished by an abundance of gold and silver ; and they are now the only means of payment among commer cial men, excepting in cases, where the precious metals, from particular circumstances, are an article of profit able merchandize. To explain the principle on which depends the importance of a bill of exchange, it is only necessary to recur to daily experience. A trader in London, for example, can pay cargo of wheat to a merchant in Russia, by transmitting to him a bank of England bill, which would pass in that country for value, from the well' founded conviction that it may be ultimately resolved into gold, or into any commo dity that gold could purchase. The utility of banks, therefore, arises from their affording a circulating medium representing property, the quantity of which is only limited by the necessity that occasions it, or in other words, by the demand induced, by the di versified operations of commerce. As this substitute for money can be fabricated at little expense, it may be deemed an artificial and inexhaustible mine for supplying the deficiency of the precious in•tala, or al together supplanting them as a circulating medium. As gold and silver, however, have so long represented property, the habits of mankind have attached an idea of value to them, which is almost universal ; and it is only among polished nations that bank bills are etirrent ; but to civilized society, they are of the' highest importance, and the invention of the banking system introduced a new irra in the annals of com merce.
The establishment of banking companies in almost every capital city, or populous town in Europe, has produced the happiest effects, by affording the means I, of promoting and extending agriculture, manufactures, and commerce ; hut no where has the system been carried to such an extent as in Scotland, in proportion to the industry, riches, and population of the coun try. In Scotland, banks arc properly establishments for deposit, credit, and discount. They embrace a wide field, comprehending the borrowing and lending of money, buying and selling bills of exchange, dis counting the promissory notes of individuals, and cir culating their own. They advance money without any other security than a bond signed by two or three solvent men ; and this constitutes what is called a CAS/I ACCOUNT, which is merely a power to an indi vidual or a company to draw out a specilleersum at the rate of 5 per cent. to be again replaced by in stalment, for which the same rate of interest is allow ed. On this account, a man may operate for life, oc
casionally drawing and replacing as his circumstan ces, or the nature of his business, will admit. Such credits are peculiar to Scotland. In England, a banker pays the drafts of a customer to the extent only of the cash actually deposited in his hands. In this respect, he is-merely the keeper of the money of another, as lie does not even allow interest for the sums lodged with him.
• Scotch banks borrow money at 4 or 5 per cent. interest payable on demand, which enables them to extend their trade, and to occupy capital that might be otherwise unemployed. They discount drafts on London and other places at distant dates, and promis sory notes payable .any where in Scotland at 3 or 4 months to run, deducting only the legal interest. From this branch of the business, they derive consi derable advantage, as they receive interest for the notes they issue ; but the public are also benefited, for those who convert their bills into currency thus obtain command of their capital, and are again enabled to go to market. But the principal source of emo lument to all banks arises from circulation, that is to say, from the number of their notes constantly re maining in the hands of the public. For every month that a one pound note is kept in circulation, the bank gains one penny sterling, because it received the full value of that note at the moment it was issued, and that value bears interest at the rate of 5 per cent. Buying and selling bills of exchange on London, or elsewhere at a distance, form another source of profit to Scotch banks ; for they buy drafts in London at °O or 30 days premium, and sell at 40 or 50 days.
The expense of agency, no doubt, reduces the pro.
fits of Scotch banks ; but as they never keep gold or silver in their repositories equal to the amount of their , notes in circulation, an agent in Landon, to accept and pay their rafts, is indispensibly requisite ; for they must be able to give bills on London to all claimants who will not be otherwise satisfied, or to convert their own drafts into cash in case of urgent demands. Country banks generally establish an sagency in London, by investing their capital and bor rowed money in the public funds, under the controul of the agent, who is thus secured for the amount of Iris engagements on account of the bank. The ad vantage of this plan is, that the bank obtains interest for its capital and borrowed money, and at the same time, in cases of emergency, can convert the whole into cash by the sale of stock. By judicious manage ment, and especially by taking care to purchase a surplus of bills on London, a private bank may be conducted with very little capital in Scotland, where the facility of carrying on the business, has induced the erection of many of them ; but their operations are beneficial to society at large, and the advantages of an abundant currency are evident, from the grow ing wealth and prosperity of the country.
See Macpherson's Annals of Commerce, vol. i. p. 341, et seq. Ibid. vol. ii. p. 253, et seq. Smith's Wealth of Nations, vol. i. p. 480 ; • vol. ii. p. 220, et seq. Allardice's Address to the Proprietors of the Bank of England, p. 130, et seq. Fairman on the Funds, p. 43. Allardice, p. 7G. Ibid. p. 131. Life V Lazo. (r)