At the first setting out of this bank, it was the opinion of some people that how fast soever its coffers might be emptied, it might easily replenish them by raising money upon the securities of those to whom it had advanced its paper.Experience, Ibelieve, soon convinced them that this method of raising money was by much too slow to answer their purpose; and that coffers which originally were so ill filled, and which emptied themselves so very fast, could be replenished by no other expedient but the ruinous one of drawing bills upon London, and when they became due, paying them by other drafts upon the same place with accumulated interest and commission.But though they had been able by this method to raise money as fast as they wanted it, yet, instead of ****** a profit, they must have suffered a loss by every such operation; so that in the long-run they must have ruined themselves as a mercantile company, though, perhaps, not so soon as by the more expensive practice of drawing and redrawing.They could still have made nothing by the interest of the paper, which, being over and above what the circulation of the country could absorb and employ, returned upon them, in order to be exchanged for gold and silver, as fast as they issued it;and for the payment of which they were themselves continually obliged to borrow money.On the contrary, the whole expense of this borrowing, of employing agents to look out for people who had money to lend, of negotiating with those people, and of drawing the proper bond or assignment, must have fallen upon them, and have been so much clear loss upon the balance of their accounts.The project of replenishing their coffers in this manner may be compared to that of a man who had a water-pond from which a stream was continually running out, and into which no stream was continually running, but who proposed to 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 from 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 re-drawers 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 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.