the amount of all the promissory notes in circulation issued by the different banks, that would not indicate the quantity of coin supplanted by paper. Of such paper, the bank notes form but a part, perhaps but a small part. Most mercantile transactions of magnitude are conducted by bills, and every time these bills pass from hand to hand in payment, they save the employment of a like amount in money. Even when ultimately discharged, they are most frequently paid by cheque on a banker. Thus, not only bank notes, but the promissory notes and bills of private individuals, whether payable at sight or after date, and bankers' checks, supply the place of money, and lessen the number of payments that must otherwise be made in coin. Now the whole produce of the land, labour, and capital of the country, (excepting that small portion of it which is consumed by the immediate producers,) must be paid for in a medium of some kind or other every time that it changes hands, from its original state of raw materials or produce, through every stage of its progress in preparation for use to its ultimate supply to the consumer, increasing in value in every successive sale, in proportion to what has been previously expended upon it, nearly equaling, in its last sale to the consumer, the whole annual public and private revenues of the country. It is true, a circulating medium may perform payments in rapid succession one after another, but when the whole annual revenue is to be paid for several times over, we may be assured that the quantity of circulating medium of some kind or other necessary to effect these payments must be very considerable. If it were attempted to carry on all dealings by payments in cash only, all the precious metals in the world would be insufficient to make more than a very small part of the necessary payments, and direct barter would in many cases be found the more convenient method. Now, the amount of capital saved and turned to direct production, by supplanting in great part with paper and credit the gold and silver money which would be necessary to effect all these payments, must be incalculable. The saving of expense, too, which the maintenance of so much coin in an undiminished state would involve, must be very considerable.

When bank paper is substituted for coin, it is an essential

requisite that it be always convertible into the money which it represents, at the option of the holder. Without this, it cannot be expected to continue long in an undepreciated state. However, so long as the public have confidence in the security it presents, an inconvertible paper currency, if properly limited in quantity, may maintain such a value in circulation that it shall seldom be the interest of the holder to demand payment, and as long as this is the case, little inconvenience can result from its inconvertibility. The limitation need not be to a uniform amount under all circumstances, but may be extended and contracted from time to time as the wants of circulation call for a smaller or larger quantity.

SECTION IV.

On Banks

THE banking business is one of the occupations into which the division of employment distributes the members of an opulent commercial community. It contributes its full share of valuable services to the general welfare. These may be considered as of three distinct kinds. First, it saves labour which must otherwise be expended; and therefore makes labour more productive by the amount so saved and rendered applicable to other purposes. Secondly, it economizes money, by rendering a smaller quantity capable of making the same amount of payments, thus leaving the remainder applicable to other uses; and in economizing money, it sets free a portion of capital from investment in the precious metals, and renders it available to other productive purposes. Thirdly, it extends credit and confidence. In these different ways, its effect, as far as every beneficial object is concerned, is the same as though it multiplied the money and capital, increased the industry, and extended the credit of the country, by all the amounts thus saved and rendered applicable to other uses.

It has been computed, that the labour of counting a million sterling in sovereigns, at the rate of one every second, and for

ten hours a day, would employ one person a month. In conducting the mercantile transactions of such a place as London, the sums of money which are daily received and paid must be very numerous as well as large in amount. To take an exampleIn the year 1830, a computation was made of the number of bills and cheques and their amount paid by four of the banking houses in London; when it appeared that in three days, viz. the 13th, 14th, and 15th of May, the number was 45,800, and their total amount £10,950,000. It was estimated, likewise, that these four houses together paid on the average £500,000,000 a year. At the bankers' clearing house in London transactions are daily settled to the amount of £5,000,000,- on some days of £13,000,000. If there were no banks, the money necessary to pay all the sums required in conducting business must be kept by the merchants and others in their own houses; and if there were no paper money, which at present the banks supply, these sums must be kept in coin. Now the labour of counting such large sums, of ascertaining the goodness of the money, of conveying it from place to place, and the danger of keeping and transmitting it, would be so considerable, and require so much care and watchfulness, that a great deal of the industry of the country must be withdrawn from productive occupations to undertake these duties. But by the operation of banking, this labour and care are taken off the hands of the merchants and others, and are performed for them by the bankers, free of expense, and in a more satisfactory manner than they could perform them for themselves; while through the use of bank paper instead of coin, and the methods of conducting business adopted by the banks, the labour is reduced to almost nothing in comparison. Each merchant, instead of keeping a large sum of money in his house, keeps it at his banker's, giving drafts on him for the sums of any magnitude he pays, and receiving drafts on bankers for the sums he receives. By writing the name of the banker who is to receive the money across the face of the drafts, they are paid to no one else, and therefore, if lost or stolen, are useless to any other person. The drafts received by the merchants and others are taken to the different banking houses to be received by the bankers. At the end of

the day each banking house sends a clerk to the clearing house, where they all meet and exchange the drafts on their respective firms, balancing the sums against each other. The balances are transferred from one banking house to another, and the several balances are finally wound up by each clerk into one balance. The difference between the whole sum which each banker has to pay to all other city bankers, and the whole sum which he has to receive from all other city bankers, is, therefore, all that is discharged in bank notes or money, and this is paid next morning. Thus the receipt and payment of a multitude of sums of money by a great many individuals between themselves, is reduced to the payment of only one sum between one banker and another; and, instead of the receipt and payment of the gross amounts on both sides, it is only the payment on one side, of the difference between them.* Accordingly, with this reduction in the number and amount of payments, in which money must otherwise be employed and counted out, the trouble and risk are diminished in the same proportion.

Again, the banks undertake the business of transmitting money from one part of the country to another. If money is to be sent from London to some place in the country, as most of the country bankers have correspondents in London, the money, if paid in to the correspondent in London, will be paid by the bank at the place required; while the different sums paid in and received at the two places about the same time, leave only a balance to be occasionally remitted from one to the other, as the case requires; enabling the banker to perform the business for a trifling per centage, if prompt payment is required; or without charge, if time be allowed him. Thus the debts and credits of different places being set off against each other, the expense and risk of sending money is greatly diminished.

As the bankers hold the cash which a great number of persons, engaged in dissimilar pursuits, keep ready to answer

In the year 1810, it was estimated, that the drafts exchanged at the clearing house amounted to from £5,000,000 to £15,000,000 daily; the balances of which paid in notes on the following day amounted to from £250,000 to £500,000.

current demands, and as it does not happen that all of them at the same time are drawing out the whole of their money; but, while some are drawing out, others, at the same time, are paying in, leaving always a large balance in the banker's hands; the bankers are enabled to apply a portion of this balance to useful purposes, which would otherwise lie idle and unproductive in the hands of their customers, and this without inconvenience to the customers themselves, each of whom can still command all his money at any moment that he requires. The bankers employ the available cash in their hands in discounting mercantile bills, in advancing money to such persons of credit as are in want of temporary assistance, or in some other way to produce an interest or profit; thus reimbursing themselves for the expense of keeping the money and cash accounts of their customers, and realizing a profit for their trouble. By the performance of these several duties, the bankers' profits are as fairly earned by the valuable services which they render to industry, as is the profit or earning of any other class. Competition amongst themselves effectually prevents their charges exceeding what is reasonably due for the employment of their time and capital; and the excess is a clear gain to the public.

Bankers at first discounted bills in the current coin of their respective countries; and afterwards, as confidence increased, they adopted the practice of discounting in their own promissory notes, payable on demand. When the public confidence in a bank is such that people believe it is able to answer all the demands which can be made upon it, these notes acquire the same currency as money, from the expectation that the money which they represent may always be procured for them. Now though some of these notes are daily returned upon the bank for payment, yet a considerable part of them continue in circulation for months or years. Five thousand pounds in money may be sufficient to answer the casual demands occasioned by the issue of twenty thousand pounds in notes. In such case, therefore, five thousand pounds in the precious metals may perform all the functions which would otherwise have required twenty thousand to perform; and a power of discounting bills and of extending credit is acquired to the extent of the difference. Thus money and capital are economized, and the saving applied