The advantages which the banker derives flora being the general lender of the community, arise chiefly, from the peculiar sort of money he lends.
It is not specie, but merely an obligation to pay in specie.But as all who engage in business have to return cash to him, it is equally good to them as specie, and through them is equally well received among the other members of the community.Thus the money of the banker comes to make a great part, or nearly the whole, of the circulating medium.
The benefits which the society receives from the system, when there are no defects in the conduct of it, seem to be threefold.
1st.As far as it extends, the expense of the circulating medium, the expense which men in business must otherwise be put to by being obliged to have a quantity of cash always lying by them to meet sudden emergencies, is done away with.When a man wants cash, he goes to the bank for it, when he has cash, he carries it to the bank.Money never lies idle.
2d.It does away with all deficiency in the circulating medium.When the system of instruments which belong to an individual is defective in any part, he can at once supply the defect, and when it is redundant, he has no difficulty in disposing of the superfluity where it may be usefully employed.
3d.It does both, without the evils otherwise attendant, on the substitution of credit for coin.The dealings of men of prudence and character, are not so mixed up with those of improvident and suspicious persons, as to make the one bear the burden of the losses sustained through the folly or dishonesty of the other.Every instrument, as its formation is pushed on by the industry of the members of the society, is moved directly to its proper station.It neither runs the risk of being subjected to remain useless, owing to the expense of moving it, nor of being misplaced or destroyed in the process of moving it.
The tendency of these three effects, flowing from the banking system properly conducted, is to carry the instruments subject to the operation of exchange, to orders of more quick return, than they would otherwise have occupied.The outlay expended on them is not so great, and they sooner make the expected returns.The accumulative principle receives in consequence, a stimulus, that enables it to embrace a larger compass of instruments, and the general stock of the society is soon proportionally increased.
Greater facility is also given to the division of employments, from there being no obstruction to the additional exchanges required, and new branches of business arise.From both these circumstances, the number and amount of exchanges increase.
The money of the banker, compared with gold and silver, as a medium of exchange, would thus seem to be not only less expensive, but more efficient.
When the circulating medium in any country is specie, probably far the larger portion of it lies idle.Every merchant, in such a country, has a quantity of gold or silver, proportioned in amount to the business he carries on, doing actually nothing, but only waiting to do whatever may offer.The strong boxes of all the merchants in the country, always hold, therefore, a large portion of its capital in inactivity.In a country, on the other hand, where the bills of the banker form the circulating medium, the quantity of money lying for any time idle is insignificant.No money is retained, but for a specific purpose.In Scotland, for example, every merchant places in the hands of the banker, all the cash for which he has not immediate use.
Were we, therefore, to confine the advantages derived from the institution of banks, in any community, to the substitution of a cheap medium, for a dear one, we should make an imperfect estimate of them.If, for instance, the circulating medium in any country be one million in coin, and if that be superseded by paper, should the quantity of paper in circulation be found to amount also, to one million, it would indicate a great increase in the transfers effected, and would show, either that a larger compass of materials had been brought within reach of the accumulative principle, or that employments had been more subdivided, or that both these circumstances had occurred.
From the same causes, the effects of a recurrence to a metallic currency, and the compulsory substitution of one million of specie, for one of paper, would be far from being limited to the expense of the bullion employed in the operation.It would, besides this, render impracticable a multitude of transfers, that might otherwise have taken place, disorganize the whole system of exchange, place the stock of the society in orders of slower return, and put a mass of materials, which the accumulative principle had before been able to grasp, beyond its reach.
The extent to which the banking system may, in any country be carried, seems to depend on four circumstances.
1st.The amount of the science, skill, and population existing in the country, to work up the materials it affords, and the abundance of these materials.
2nd.The strength of the accumulative principle, the opportunity it has had to operate, and consequent division of employments, approach of instruments to the more slowly returning orders, and accumulation of stock.
These two circumstances determine the amount of the possible exchanges, and, consequently, of the money that may be employed in effecting them.
3d.The general intelligence, sagacity, and integrity of the members of the community.A person greatly deficient in any of these respects, is one with whom a banker would not wish to deal.But, these qualities are of those giving strength to the effective desire of accumulation; this circumstance, therefore, may be considered as merging in the last, the general strength of the accumulative principle.
4th.The efficiency and security of the system of banking adopted.
