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keep it always equally full, by employing a number of

people to go continually with buckets to a well at some miles distance, in

order to bring water to replenish it.

 

But though this operation had proved not only practicable, but profitable to

the bank, as a mercantile company; yet the country could have derived no

benefit front it, but, on the contrary, must have suffered a very

considerable loss by it. This operation could not augment, in the smallest

degree, the quantity of money to be lent. It could only have erected this

bank into a sort of general loan office for the whole country. Those who

wanted to borrow must have applied to this bank, instead of applying to the

private persons who had lent it their money. But a bank which lends money,

perhaps to five hundred different people, the greater part of whom its

directors can know very little about, is not likely to be more judicious in

the choice of its debtors than a private person who lends out his money

among a few people whom he knows, and in whose sober and frugal conduct he

thinks he has good reason to confide. The debtors of such a bank as that

whose conduct I have been giving some account of were likely, the greater

part of them, to be chimerical projectors, the drawers and redrawers of

circulating bills of exchange, who would employ the money in extravagant

undertakings, which, with all the assistance that could be given them, they

would probably never be able to complete, and which, if they should be

completed, would never repay the expense which they had really cost, would

never afford a fund capable of maintaining a quantity of labour equal to

that which had been employed about them. The sober and frugal debtors of

private persons, on the contrary, would be more likely to employ the money

borrowed in sober undertakings which were proportioned to their capitals,

and which, though they might have less of the grand and the marvellous,

would have more of the solid and the profitable ; which would repay with a

large profit whatever had been laid out upon them, and which would thus

afford a fund capable of maintaining a much greater quantity of labour than

that which had been employed about them. The success of this operation,

therefore, without increasing in the smallest degree the capital of the

country, would only have transferred a great part of it from prudent and

profitable to imprudent and unprofitable undertakings.

 

That the industry of Scotland languished for want of money to employ it, was

the opinion of the famous Mr Law. By establishing a bank of a particular

kind, which he seems to have imagined might issue paper to the amount of the

whole value of all the lands in the country, he proposed to remedy this want

of money. The parliament of Scotland, when he first proposed his project,

did not think proper to adopt it. It was afterwards adopted, with some

variations, by the Duke of Orleans, at that time regent of France. The idea

of the possibility of multiplying paper money to almost any extent was the

real foundation of what is called the Mississippi scheme, the most

extravagant project, both of banking and stock-jobbing, that perhaps the

world ever saw. The different operations of this scheme are explained so

fully, so clearly, and with so much order and distinctness, by Mr Du Verney,

in his Examination of the Political Reflections upon commerce and finances

of Mr Du Tot, that I shall not give any account of them. The principles upon

which it was founded are explained by Mr Law himself, in a discourse

concerning money and trade, which he published in Scotland when he first

proposed his project. The splendid but visionary ideas which are set forth

in that and some other works upon the same principles, still continue to

make an impression upon many people, and have, perhaps, in part, contributed

to that excess of banking, which has of late been complained of, both in

Scotland and in other places.

 

The Bank of England is the greatest bank of circulation in Europe. It was

incorporated, in pursuance of an act of parliament, by a charter under the

great seal, dated the 27th of July 1694. It at that time advanced to

government the sum of �1,200,000 for an annuity of �100,000, or for �

96,000 a-year, interest at the rate of eight per cent. and �4,000 year for

the expense of management. The credit of the new government, established by

the Revolution, we may believe, must have been very low, when it was obliged

to borrow at so high an interest.

 

In 1697, the bank was allowed to enlarge its capital stock, by an

ingraftment of �1,001,171:10s. Its whole capital stock, therefore, amounted

at this time to �2,201,171: 10s. This ingraftment is said to have been for

the support of public credit. In 1696, tallies had been at forty, and fifty,

and sixty. per cent. discount, and bank notes at twenty per cent. {James

Postlethwaite’s History of the Public Revenue, p.301.} During the great

recoinage of the silver, which was going on at this time, the bank had

thought proper to discontinue the payment of its notes, which necessarily

occasioned their discredit.

 

In pursuance of the 7th Anne, c. 7, the bank advanced and paid into the

exchequer the sum of �400,000; making in all the sum of �1,600,000, which

it had advanced upon its original annuity of �96,000 interest, and �4,000

for expense of management. In 1708, therefore, the credit of government was

as good as that of private persons, since it could borrow at six per cent.

interest, the common legal and market rate of those times. In pursuance of

the same act, the bank cancelled exchequer bills to the amount of �

1,775,027: 17s: 10�d. at six per cent. interest, and was at the same time

allowed to take in subscriptions for doubling its capital. In 1703,

therefore, the capital of the bank amounted to �4,402,343 ; and it had

advanced to government the sum of �3,375,027:17:10�d.

 

By a call of fifteen per cent. in 1709, there was paid in, and made stock, �

656,204:1:9d.; and by another of ten per cent. in 1710, �501,448:12:11d. In

consequence of those two calls, therefore, the bank capital amounted to �

5,559,995:14:8d.

 

In pursuance of the 3rd George I. c.8, the bank delivered up two millions of

exchequer Bills to be cancelled. It had at this time, therefore, advanced to

government �5,375,027:17 10d. In pursuance of the 8th George I. c.21, the

bank purchased of the South-sea company, stock to the amount of �4,000,000:

and in 1722, in consequence of the subscriptions which it had taken in for

enabling it to make this purchase, its capital stock was increased by �

3,400,000. At this time, therefore, the bank had advanced to the public �

9,375,027 17s. 10�d.; and its capital stock amounted only to �

8,959,995:14:8d. It was upon this occasion that the sum which the bank had

advanced to the public, and for which it received interest, began first to

exceed its capital stock, or the sum for which it paid a dividend to the

proprietors of bank stock ; or, in other words, that the bank began to have

an undivided capital, over and above its divided one. It has continued to

have an undivided capital of the same kind ever since. In 1746, the bank

had, upon different occasions, advanced to the public �11,686,800, and its

divided capital had been raised by different calls and subscriptions to �

10,780,000. The state of those two sums has continued to be the same ever

since. In pursuance of the 4th of George III. c.25, the bank agreed to pay

to government for the renewal of its charter �110,000, without interest or

repayment. This sum, therefore did not increase either of those two other

sums.

 

The dividend of the bank has varied according to the variations in the rate

of the interest which it has, at different times, received for the money it

had advanced to the public, as well as according to other circumstances.

This rate of interest has gradually been reduced from eight to three per

cent. For some years past, the bank dividend has been at five and a half per

cent.

 

The stability of the bank of England is equal to that of the British

government. All that it has advanced to the public must be lost before its

creditors can sustain any loss. No other banking company in England can be

established by act of parliament, or can consist of more than six members.

It acts, not only as an ordinary bank, but as a great engine of state. It

receives and pays the greater part of the annuities which are due to the

creditors of the public ; it circulates exchequer bills ; and it advances to

government the annual amount of the land and malt taxes, which are

frequently not paid up till some years thereafter. In these different

operations, its duty to the public may sometimes have obliged it, without

any fault of its directors, to overstock the circulation with paper money.

It likewise discounts merchants’ bills, and has, upon several different

occasions, supported the credit of the principal houses, not only of

England, but of Hamburgh and Holland. Upon one occasion, in 1763, it is said

to have advanced for this purpose, in one week, about �1,600,000, a great

part of it in bullion. I do not, however, pretend to warrant either the

greatness of the sum, or the shortness of the time. Upon other occasions,

this great company has been reduced to the necessity of paying in sixpences.

 

It is not by augmenting the capital of the country, but by rendering a

greater part of that capital active and productive than would otherwise be

so, that the most judicious operations of banking can increase the industry

of the country. That part of his capital which a dealer is obliged to keep

by him unemployed and in ready money, for answering occasional demands, is

so much dead stock, which, so long as it remains in this situation, produces

nothing, either to him or to his country. The judicious operations of

banking enable him to convert this dead stock into active and productive

stock ; into materials to work upon ; into tools to work with ; and into

provisions and subsistence to work for ; into stock which produces something

both to himself and to his country. The gold and silver money which

circulates in any country, and by means of which, the produce of its land

and labour is annually circulated and distributed to the proper consumers,

is, in the same manner as the ready money of the dealer, all dead stock. It

is a very valuable part of the capital of the country, which produces

nothing to the country. The judicious operations of banking, by substituting

paper in the room of a great part of this gold and silver, enable the

country to convert a great part of this dead stock into active and

productive stock; into stock which produces something to the country. The

gold and silver money which circulates in any country may very properly be

compared to a highway, which, while it circulates and carries to market all

the grass and corn of the country, produces itself not a single pile of

either. The judicious operations of banking, by providing, if I may be

allowed so violent a metaphor, a sort of waggon-way through the air, enable

the country to convert, as it were, a great part of its highways into good

pastures, and corn fields, and thereby to increase, very considerably, the

annual produce of its land and labour. The commerce and industry of the

country,

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