64 



POLITICAL ECONOMY. 



Political But all rKutual debts are not equal, and bankruptcies 

 Economy, 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 made. Every 

 trader pays or receives, by a line which is written 

 down in the Bank's books on the debtor or creditor side 

 of his account, 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 trad- 

 ers 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 as- 

 signments also to the business of such persons, those note- 

 banks were invented which have since become so com- 

 mon in all parts of Europe. Their notes are assignments 

 on the bank, payable to the bearer on demand, Each, by 

 combining several 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 feeling 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 sim- 

 plify 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 inter- 

 est for the remaining 353 days ; and as those assign- 

 ments simplified all his operations, a smaller sum per- 

 formed for him the office of a greater. When banks 

 were established, it was they that profited by this sav- 

 ing 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 barren. 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 requir- 

 ed an interest for exchanging 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 introduce 

 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 ser- 

 vice of merchants. Credit soon appeared to have a 

 creative power, and speculators, persuaded that by emit, 

 ting a bank one, they added as much to the public 

 wealth as, by importing an equal sum of money, deli- 

 vered their minds to dreams, dangerous for themselves, 

 and for the states that gave ear to them. They pro- 

 posed the establishment of banks to multiply the funds 



of trade, to provide for the enterprises of agriculture, Political 

 to set labour everywhere in motion, to increase the ge- Economy. 

 neral 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 ---f need, they 

 struck new bank-notes. But they soon perceived, with 

 astonishment, 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 gene- 

 rally 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 become paper money; and they 

 authorized every debtor to pay his accounts with it. 



The circulation of paper money became, in a short 

 time, nothing less than a general bankruptcy. Not- 

 withstanding 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 paper should undergo a new deteriora- 

 tion 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, became unable to distinguish 

 the gain from the loss of his bargain, and always selling 

 with advantage, he ended in ruin. During this time, 

 coin disappeared, goods themselves were exported from 

 the country without giving any return ; and the expe- 

 dient, which promised to create immense wealth, pro- 

 duced nothing but ruin and confusion. 



A fatal error had led to all these misfortunes. It 

 was imagined that credit had the power of creating 

 wealth ; whilst, in fact, credit never creates any thing, 

 but merely borrows with one hand to lend with the 

 other that wealth, which, to be of use, must have pre- 

 viously existed in the state. Paper money can be substi- 

 tuted only for the metallic money already in existence; it 

 is' the value of this which it borrows. The banker, who 

 finds credit, acquires the power to dispose of a part of 

 the currency equal to the paper he emits. If he in rea- 

 lity withdraw part of the currency from circulation, 

 his paper will remain there ; if he does not withdraw it, 

 others will withdraw it for him, the instant it becomes 

 superfluous. But, if this currency was not in cir- 

 culation at the moment when his bank-notes were emit- 

 ted, he could not borrow it. In that case, by giving 

 forced circulation to his paper, he depreciates not only 

 this paper, but all that was already in the hands of the 

 public. 



The money of a country has a determinate relation 

 to the wealth of that country, and to the activity with 

 which its wealth circulates. The same guineas serve, 

 in the course of a year, for a great number of different 

 bargains; yet still there is a necessary equation between 

 the mass of values sold, and the surn of guineas which 

 serves to pay them, multiplied by the rapidity of the 

 circulation. If too many guineas exist in the country for 

 the wants of the circulation, this is not a reason why 

 the person holding them in his coffers should keep 

 them longer than he has occasion so to do. All useless 

 stagnation would be so much interest lost for him ; and, 

 therefore, he continues still to give them circulation, 

 and some one is always at hand, who, not finding any 

 profitable use to make of -them in the country, takes 

 them out of it. If exportation is forbidden, a greater 

 mass of idle guineas will be kept within the country, 

 till the loss of those unable to employ them be great 

 enough to pay the risk of smuggling. If precautions 

 are so well taken that exportation is entirely impos- 



