398 



THE POPULAR EDUCATOR. 



indeed remediable, but a great inconvenience. It did not back 

 its notes by a sufficient amount of gold or silver. But the 

 originators of the Bank of England were not acquainted with 

 some of those conditions of banking which are now matters of 

 scientific certainty. 



I have already stated that it is the object of individuals and 

 of the community at large to make the precious metals, in the 

 shape of coin, as useful as possible. The individual does so by 

 getting rid of all the money which he knows by experience to 

 be in excess of his current necessities. The community does 

 so by diminishing the amount of the metals which it employs 

 as a means of exchange, and this in two ways, by making them 

 circulate as rapidly as possible, and by discovering and em- 

 ploying some substitute for them, which will act as an equiva- 

 lent for them. Thus, though it may seem strange at first, the 

 vifficiency with which stocks of the precious metals may be 

 made to perform the work of exchange, is frequently relative to 

 the facility by which means are devised under which they will 

 not move at all. Let me illustrate this fact in the simplest 

 manner. Let us suppose that Smith of London owes Black of 

 Edinburgh ,100, and Black of Edinburgh owes Brown of 

 London ,100. If some expedient can bs adopted and it is 

 adopted on a prodigious scale in practice by which Smith's 

 debt may be made to pay Black's debt, the circle will be com- 

 pleted, and the transactions liquidated, without making use of 

 any single piece of gold or silver. And, again, even if notes 

 were issued in exchange for gold only, the community would 

 save something in the costly machinery of the precious metals, 

 for ib would prevent the loss which ensues from their wear, 

 when they are transferred from hand to hand, in the ordinary 

 process of buying and selling. Those operations, therefore, by 

 which cheques or bills are exchanged against each other, and 

 by which notes are employed instead of gold or silver, are 

 economies the one in saving the cost of carriage and risk, the 

 other in saving wear. 



But this is by no means the only advantage which ensues 

 from the issue of notes. It will be or should be plain to every 

 one, that no one takes a note willingly, except on the distinct 

 understanding that he can get what the note represents itself 

 to be worth, at his pleasure. A five-pound note will not buy 

 five pounds worth of food, unless the receiver is as certain as 

 man can be, that he can get five pounds for his piece of paper. 

 Neither State nor individual can create wealth or money, by 

 putting valueless bits of paper into circulation, as has been 

 found over and over again. The severest penalties, the most 

 despotic authority, will not give such pieces of paper any value 

 beyond that which their possessor finds the general public 

 assigns to them. When in the early days of the French Revolu- 

 tion the Government of that country strove to put paper into 

 circulation which was issued by its authority when it denounced 

 as traitors those who would not take these notes at their 

 nominal value, and actually punished persons with death who 

 declined to part with their property in exchange for such notes 

 the Government was utterly baffled. It is not hard to see the 

 reason. The whole community refused to submit to such a 

 command, and it was impossible to execute the whole com- 

 munity. 



Again, when a person takes a note, he expects to get gold or 

 silver, and not any 'other kind of property. Notes entitling the 

 bearer to be paid in a certain amount of public stock, or of 

 jland, or of tea, sugar, corn, or <>-nv other kind of food, will not 

 circulate. Such instruments properly, warrants to receive 

 goods are or may be very valuable kinds of property, but they 

 are not paper money. They are securities which may be bought 

 and sold, but they have to be reckoned in money, and turned 

 into money before they can be of avail to the holder. It is 

 impossible to circulate bank-notes on any other security than 

 that of gold and silver, however valuable the security may be ; 

 and attempts to effect such a circulation, though they have 

 been mads over and over again, are invariably failures, and 

 invariably end in bankruptcy. A bank-note to be capable of 

 circulation must be and remain an order to receive so much 

 money, and nothing but money will be its equivalent. 



It does not, hovrever, follow that everybody who holds a note is 

 determined to turn it as soon as he can into gold or silver. It 

 is enough for him to know that ho can do so when he pleases. 

 Hence, not one note in ten thousand is presented to the Bank 

 for cba.nge into gold or silver. If there were any doubt about 



the possibility of changing them at their full value, they would 

 be presented soon enough. But as long as people believe that 

 their notes could be and would be paid on demand, they do 

 not present them for payment, and for the simple reason that 

 to do so would be to abandon the advantages T/hich a nota 

 possesses. These are, that it is easily portable : that rt much, 

 facilitates the counting of money ; and that if it be lost, the 

 sum which it represents may be, under certain conditions, 

 recovered. The holder of notes is in some particulars more 

 safe from fraud, violence, or mischance than the holder of gold 

 or silver. 



Long experience enables bankers to calculate the likelihood 

 of persons presenting their notes for payment, and therefore 

 instructs them as to the quantity of gold and silver which they 

 must keep in order to cover the contingency of these notes 

 being presented. Let us suppose that this is one-third of the 

 amount of notes in circulation. It will be plain, then, that in 

 case the banker has sufficient property to warrant him in cir- 

 culating the other two-thirds (and he is a swindler if he has not 

 sufficient property), he can retain his property in his own 

 hands, and get such profit as comes from it, and lend the other 

 two-thirds to the public, and get a profit by them. Nor does 

 this practice go against what I have stated above. It is true 

 that there is no gold or silver to back up two-thirds of the 

 notes, but there is property which can be, or ought to be, on an 

 emergency turned into gold or silver, and the proceeds of which 

 may be therefore devoted towards meeting these obligations, 

 should the necessity arise. A banker is bound to keep his pro- 

 perty in such a shape as to be able to obtain, as soon as he 

 requires it, the funds which are necessary towards cancelling 

 all the debts which he incurs by the issue of his notes. One 

 source, then, of a banker's profit is derived from the issue of 

 his notes. But it is by far the smallest part, and in the United 

 Kingdom very few bankers are allowed by law to obtain this 

 profit. 



The chief profit of a banker is derived from using the 

 amounts left in his hands by his customers. There is a great 

 convenience in keeping an account with a banker i.e., in de- 

 positing a sum of money with him, and in drawing it out by 

 cheques. The cheque is as convenient as notes are to the 

 debtor and creditor, and it has other advantages. By a little 

 precaution, the transmission of the cheque may be made abso- 

 lutely safe. A payment by cheque is virtually a receipt. The 

 aggregate of cheques drawn by a person in a year represent his 

 expenditure, and form a record of it. Now the banker, who 

 expects his customers always to have a certain sum with him, 

 is able by experience to calculate what will be the average 

 number of cheques drawn on him, and will keep such a sum by 

 him as will enable him to meet these liabilities. In a great 

 many cases, the person who draws and the person who receives 

 the cheque keep an account with the same banker, and then the 

 payment and receipt are only the writing down a set of figures 

 on one side of one account, and the same figures on the other side 

 of another account. Sometimes, however, the banker offers 

 his customer a share of the profits which are made by lending 

 money, and in this way some banks attract an enormous amount 

 of capital in the form of deposits, and get their profit for the 

 pains they are at in receiving and managing the sums left with 

 them, and for the risks they run. 



By these means a small sum of metallic money is made the 

 means for effecting a prodigious multitude of transactions. 

 Every bill of exchange, bank-note, cheque, is expressed in 

 money, and the person who undertakes the obligation stipu- 

 lates to provide the money expressed in the security. In the 

 great majority of instances no money is either used or needed. 

 The cheques which pass from hand to hand on a great day of 

 business in one room in London, are equal to all the gold in 

 all the banks in London. But these cheques are exchanged 

 without the use of a single piece of money. Nothing can 

 exceed the perfection with which this mechanism is carried on. 

 But I repeat, the presumption on the face of all these cheques 

 is that they will be paid in gold. If any risk arose that they 

 could not be, a demand would be made that they should be, and 

 what is called a panic follows. That such a risk does not arise 

 is due to the credit in which dealers stand, and this credit is a 

 trust in the merchant or dealer's honesty. The motive f 01-20 in 

 the great engine of commerce lies in the virtues of integrity 

 and good faith. 



