Were the country dealer always to have a supply of every article in demand in the settlement, at a reasonable rate, and were all contracts for the delivery of produce to him to be regularly executed, almost all the requisite exchanges might be conveniently effected through his books.
But in this sort of traffic, as the merchant always has commodities to sell, and his customers have not always produce to return, it inevitably happens that they get into his debt.As his object is to sell as many goods as possible, he is very apt to allow many to run in his debt, who do not fulfil their engagements.He suffers from the dishonesty, or the imprudence and miscalculations of those who deal with him.Very many of his customers are much longer of paying him than they have promised, or they do not pay at all.Aware of the risk be runs, he is obliged to balance it by charging an additional sum, over and above what he would otherwise demand, on all commodities that pass through his hands.In some cases, this advance amounts to at least 30 per cent.In this way he makes, or endeavors to make, the prudent and honest persons who deal with him, pay for the imprudent and dishonest, who also deal with him.The former class, in consequence, keep out of the circle of all such transactions, as much as possible, and store-pay, as it is called, is depreciated.
The business of banking, seems to owe its foundation and extension, to its capacity for giving room for the development of the benefits, and for restraining and remedying the evils of the system of credit.The operations which the banker executes in a great society, have more than the advantages of those performed by the system of viremens in France, or Russia, and by the petty store-keeper in a remote American settlement, and avoid many of the inconveniences of both.He is the instrument, through which the mass of the exchanges, taking place in the community, is performed.It is his business to furnish the means of transacting all exchanges that the condition of the society requires, and it is the business of all individuals having many such exchanges to effect, to make application to him for the means of transacting them.
In a great society, a person extensively engaged in business, may, in a short time, have transactions with twenty, thirty, or a hundred individuals;his circumstances can be known but to a few of them, nor is it possible for him to produce to each satisfactory evidence of his own capacity to discharge his engagements, or to give him the security of others for their performance, and even could be do this, it would be insufficient for the pup poses of the greater part of them.If such a person, however, really possessed funds in trade and manufacture, if he really owned a stock of instruments requiring a constant change and transfer with those in the hands of others, he might find means to satisfy one individual, the banker, of his capacity to execute these exchanges in reasonable time, or procure others to be responsible for his doing it.It is then the business of the banker to give him the means of doing so, and he accordingly lends him money when he requires to add to his stock of instruments, that is to buy, and receives money from him again, when he transfers instruments to others, that is, when he effects sales.Every person engaged in business doing the same, the banker is the general lender, and receiver of the society.
The mechanism of banking is managed in two ways.The one is by discounting bills, that is by giving money immediately, for the obligations by which one man contracts to pay money to another, at some future time, deducting a part, the proportion of which is determined by the order in which instruments stand in the society, and by the length of the period.This method is analogous to that of viremens, but far preferable.Thus, an individual who holds an obligation by which another binds himself to pay him the sum of two thousand pounds in six months, were he in some parts of Russia, would be justifiable, were he confident of the solvency of his debtor, to contract obligations to that amount, and payable at the same time.Were he then desirous of having something transferred to him, of the value of two thousand pounds, his granting an obligation to that amount, and payable at six months, might help to make the two transactions of easy arrangement.But, supposing that he were desirous of having a number of small transfers made to him, that he were to grant a proportional number of obligations, that the persons to whom he granted them were again to grant others, still smaller and more numerous, and that these were again to be subdivided and reunited, it is evident that the mass of affairs, would become so complicated, and the number of individuals concerned in them so large, that the trouble of arranging them would be excessive.This system is of consequence, as has been already observed, of limited application.But when an individual gets a bill discounted, the transfers he effects with the bank bills he receives, occasion no future trouble to himself or others.
The system of bank credits is the second mode, in which the business of banking is managed.It is somewhat analogous to that carried on, through the aid of the books of the North American store-keeper.The banker gives the means of effecting any purchases which those dealing with him are desirous of making, and, when they sell, gives them immediate credit for the amount they receive.He is not, however, like the store-keeper, urged on, by the dread of a stock of goods lying on his hands too long, to allow people to run accounts with him, whose credit is in any means doubtful.He is a dealer simply in credit, and it is his business, before giving credit, to demand such security as may satisfy him that he can sustain no loss, and this being granted, to afford the requisite accommodation on reasonable terms.
