an ounce, losing in this manner between two and a half and three per cent upon the coinage of so very large a sum.Though the bank therefore paid no seignorage, though the government was properly at the expense of the coinage, this liberality of government did not prevent altogether the expense of the bank.
The Scotch banks, in consequence of an excess of the same kind, were all obliged to employ constantly agents at London to collect money for them, at an expense which was seldom below one and a half or two per cent.This money was sent down by the waggon, and insured by the carriers at an additional expense of three quarters per cent or fifteen shillings on the hundred pounds.Those agents were not always able to replenish the coffers of their employers so fast as they were emptied.In this case the resource of the banks was to draw upon their correspondents in London bills of exchange to the extent of the sum which they wanted.When those correspondents afterwards drew upon them for the payment of this sum, together with the interest and a commission, sonic of those banks, from the distress into which their excessive circulation had thrown them, had sometimes no other means of satisfying this draught but by drawing a second set of bills either upon the same, or upon some other correspondents in London; and the same sum, or rather bills for the same sum, would in this manner make sometimes more than two or three journeys, the debtor, bank, paying always the interest and commission upon the whole accumulated sum.Even those Scotch banks which never distinguished themselves by their extreme imprudence, were sometimes obliged to employ this ruinous resource.
The gold coin which was paid out either by the Bank of England, or by the Scotch banks, in exchange for that part of their paper which was over and above what could be employed in the circulation of the country, being likewise over and above what could be employed in that circulation, was sometimes sent abroad in the shape of coin, sometimes melted down and sent abroad in the shape of bullion, and sometimes melted down and sold to the Bank of England at the high price of four pounds an ounce.It was the newest, the heaviest, and the best pieces only which were carefully picked out of the whole coin, and either sent abroad or melted down.At home, and while they remained in the shape of coin, those heavy pieces were of no more value than the light.But they were of more value abroad, or when melted down into bullion, at home.The Bank of England, notwithstanding their great annual coinage, found to their astonishment that there was every year the same scarcity of coin as there had been the year before; and that notwithstanding the great quantity of good and new coin which was every year issued from the bank, the state of the coin, instead of growing better and better, became every year worse and worse.Every year they found themselves under the necessity of coining nearly the same quantity of gold as they had coined the year before, and from the continual rise in the price of gold bullion, in consequence of the continual wearing and clipping of the coin, the expense of this great annual coinage became every year greater and greater.The Bank of England, it is to be observed, by supplying its own coffers with coin, is indirectly obliged to supply the whole kingdom, into which coin is continually flowing from those coffers in a great variety of ways.Whatever coin therefore was wanted to support this excessive circulation both of Scotch and English paper money, whatever vacuities this excessive circulation occasioned in the necessary coin of the kingdom, the Bank of England was obliged to supply them.The Scotch banks, no doubt, paid all of them very dearly for their own imprudence and inattention.But the Bank of England paid very dearly, not only for its own imprudence, but for the much greater imprudence of almost all the Scotch banks.
The overtrading of some bold projectors in both parts of the United Kingdom was the original cause of this excessive circulation of paper money.
What a bank can with propriety advance to a merchant or undertaker of any kind, is not either the whole capital with which he trades, or even any considerable part of that capital;but that part of it only which he would otherwise be obliged to keep by him unemployed, and in ready money for answering occasional demands.If the paper money which the bank advances never exceeds this value, it can never exceed the value of the gold and silver which would necessarily circulate in the country if there was no paper money; it can never exceed the quantity which the circulation of the country can easily absorb and employ.
When a bank discounts to a merchant a real bill of exchange drawn by a real creditor upon a real debtor, and which, as soon as it becomes due, is really paid by that debtor, it only advances to him a part of the value which he would otherwise be obliged to keep by him unemployed and in ready money for answering occasional demands.The payment of the bill, when it becomes due, replaces to the bank the value of what it had advanced, together with the interest.The coffers of the bank, so far as its dealings are confined to such customers, resemble a water pond, from which, though a stream is continually running out, yet another is continually running in, fully equal to that which runs out; so that, without any further care or attention, the pond keeps always equally, or very near equally full.Little or no expense can ever be necessary for replenishing the coffers of such a bank.