In this case the banks, by the supposition, giving sovereigns out, and receiving them again, in the same manner as they had their own notes, the community in general would have been sensible of no other alteration but that of handling gold instead of paper, and they would have had the advantage of some additional security against the danger of the failure of the banks, and against disorders consequent on drains of gold from abroad.But this supposition, also, is inadmissible.The diminution of the paper money issued by the bankers, would have proportionably diminished their profits.The amount of one pound bank notes there circulating, being something over two millions, their circulation would probably have been curtailed by the measure by nearly two millions.This at five per cent is not much short of half of what they make by the whole funds deposited in their hands, which have been estimated at about twenty millions, and on which they gain one per cent, the difference between what they charge those who borrow from them, and which they give those who lend to them.Their profits must, therefore, have been greatly diminished by the measure, and unless we suppose that bankers in Scotland have more than the ordinary profits of stock, which, where there is so active a competition, cannot well be, capital would have been withdrawn from the business, (199) or the business would have undergone a change.It is probable that the latter circumstance would have happened.The banks would either have made more than one per cent.difference between what they allowed and what they charged for money, or, as is more likely, they would have changed the system of bank credits, The business of the small dealers, tradesmen and farmers, who have credit with the banks, is transacted mostly by one pound notes.
Bank bills exceeding five pounds rarely pass into their hands.Under the supposition, therefore, this class would have circulated but very little of the bankers paper; he, consequently, would have declined granting them credit, in this way, and confined his credits of this sort to merchants and others, whose transactions being large, made them the circulators of the paper to the issue of which he was confined, and whose business, consequently would have been more profitable to him.The facility of exchange among the small dealers would have been greatly abridged, and through it, that among the whole community would have been somewhat lessened.The real amount of loss that would have been in consequence sustained, it is not necessary to our purpose to attempt to fix.Almost all persons practically acquainted with the business of the country, believed that it would have been very considerable, and, in consequence of their urgent representation, the measure in contemplation was abandoned.
If I have succeeded in placing clearly before the reader my ideas concerning this somewhat intricate subject, he will, I think, perceive, that there exists an essential difference between the nature and operation of the money of the banker, and those of other money.
In communities where the art of banking has no existence, money may be defined to be a commodity, of which every person in the habit of making exchanges, keeps a supply by him, for the purpose of effecting them.
In a community, again, where the art of banking has been established, as in the instance of Scotland, if we confine our attention to those who have dealings with the banker, the money he issues may be fitly described as counters which he gives them for the purpose of arranging their transactions with one another, and which they return to him immediately they are arranged, that they may be rated on his books according to the place they occupy as borrowers of part, or as owners of part, of the general funds which he holds.An individual who has a deposit in a bank draws from it, we shall say, the sum of $1,000, and lessens by that amount the deposits in the bank, and for which it has to pay interest.But, of course, he intends to put it to some use, that is, to make some purchase or purchases with it, or pay for some before made.The person or persons to whom, for this purpose, he transfers it, by the supposition dealers with the bank, if they have no immediate use for it, will directly carry it to the bank, and then the general deposits and loans of the bank will be the same as before, but the bank accounts of the particular depositors and borrowers engaged in the transaction will have suffered an alteration.If, on the other hand, any of those individuals, among whom the £1,000 is distributed, or all of them, have use for the sums they receive, that can only be to make some immediate purchases, or to pay for some before made.In this way, after passing through a less or greater number of hands, the £1,000the banker had issued, finds its way back to him, and, as far as his business is concerned, he is exactly in the same situation as before he issued it.
