But all mutual debts arc not equal, and bankruptcies occasion difficulties, and sometimes errors in the assign ments. The invention of banks has supplied this defi ciency. The Bank of Amsterdam is a kind of open bar, where assignments may constantly be Every tra der pays or receives, by a line which is written down in the bank's books, on the debtor or creditor side of his ac count, without any money being disbursed. Among merchants, who have all an open credit with the bank, the operation of the book-keeper supplies with the utmost ease that of cashier; and no difference of amount, or day of payment, prevents sums from being reciprocally balanced.
A bank like that of Amsterdam, however, is of use only to such as have a current account in it. Many traders may have no account; and few or none who are not traders ever have any, though called, as well as others, to pay and to receive. To extend the advantage of assignments also to the business of such persons, those note-banks were in vented which have since become so common in all parts of Europe. Their notes are assignments on the bank, payable to the bearer on demand. Each, by combining se veral notes, may make his odd payments himself ; and hence it is generally most convenient for him to transmit them to others, as he received them, without having drawn any money ; and even though each may require payment at his pleasure, no one thinks of it, just because each feel ing that he may do it any time, feels always that it will be soon enough afterwards.
Up to that period, banks had done nothing but simplify payments, and save the employment of money, and render circulation easy with a smaller sum than would otherwise have been required. But some one must profit by this saving. In arranging the assignments at Lyons, each profited according to his share in trade ; each needed to have money in his coffers only four times yearly, for three days. He, of course, gained interest for the remaining 353 days; and as those assignments simplified all his ope rations, a smaller sum performed for him the office of a greater. When banks were established, it was they that profited by this saving of money. They received interest, not for the money really given by them, but for the money which every bearer of notes had it in his power to demand from them, at a moment's notice. This interest of notes, reckoned equal to gold, was a pure advantage for bankers; since the money promised, far from being drawn, had not even remained at the bank, where it would have been bar ren. Bankers, reckoning on the confidence of the public, had caused it to labour, and recalled it for their payments only as they needed it.
It was by discount on such of the proceeds of trade as were payable at long dates, that banks pushed their notes into circulation. They required an interest for exchang ing their paper against that of trade, because theirs was exigible at sight, though it was not really paid before the other. The discount required by the bank served to intro duce the interest of money, and to regulate it in the place. Bankers, in virtue of their credit alone, seemed to have capitals of almost immense extent, to offer in the service of merchants. Credit soon appeared to have a creative power, and speculators, persuaded that by emitting a bank one, they added as much to the public wealth as by im porting an equal sum of money, delivered their minds to dreams dangerous for themselves, and for the states that gave ear to them. They proposed the establishment of banks to multiply the funds of trade, to provide for the en agriculture, to set labour every where in mo tion, to increase the general capital, and redouble the activity of industry.
Governments, on their side, imagined that in banks they had found an open mine, from which they might draw at discretion. At each new season of need, they struck new bank-notes. But they soon perceived, with astonish ment, that notes were no longer received with the same confidence, and were speedily carried back to the bank for payment; and next, as their custom generally is, they substituted their authority for the nature of things. They refused payment on demand, but they ordered each citizen to receive as ready coin, those notes which had thus be come paper money ; and they authorised every debtor to pay his accounts Mth it, The circulation of paper money became, in a short time, nothing less than a general bankruptcy. Notwith standing all the orders of government, paper fell every day in its proportion to silver or to goods. The bearers of it, feeling that they had no pledge for the values, the sign of which they were always presenting, dreaded lest the pa per should undergo a new deterioration in their hands, and made haste to get rid of it. Each lost and caused loss, each having no longer any common measure of value, be came unable to distinguish the gain from the loss of his bargain, and always selling with advantage, he ended in ruin. Miring this time, coin disappeared, goods them selves were exported from the country, without giving any return ; and the expedient, which promised to create immense wealth, produced nothing but ruin and confusion.