CHAP. IV.

THE REMOVAL OF THE EXCLUSIVE PRIVILEGE.

Some

If this exclusive privilege were at an end, the personal liability of shareholders in joint stock companies, which ought not to be removed, would probably render slow the formation of such companies for the purposes of banking in England. But the fear of competition would immediately induce caution and circumspection on the part of the directors of the Bank. of the banking companies in the country would probably coalesce, and, having a head establishment in the most convenient situation, would have branches in the places where they now carry on business, and, in other places also. Coalitions, perhaps, would also be formed among the bankers of London and Westminster, who would have a head office for the issuing of notes, and preserve their present establishments for receiving deposits.

The receipt of deposits, which now constitute the chief source of the profit of bankers, was not contemplated at the formation of the Bank. Mr. Godfrey, who was the able assistant of Mr. Paterson in the institution of this great establishment, observes, in his "Brief Account

of the Bank of England."-"If the Bank can "circulate their foundation of 1,200,000l. with"out having more than 300,000l. lying dead at "one time with another, the Bank will be, in 66 effect, as 900,000l. fresh money brought into "the nation." But the Bank now receives deposits to a larger amount than its foundation or its now subscribed capital, not less than three fourth parts of which, perhaps, it may use in discounting bills of exchange (by doing which it best assists industry), or in the purchase of Exchequer bills, or in temporary advances to the

state.

If the deposits made with bankers in the cities of London and Westminster could be ascertained, the aggregate would be found much to exceed the amount of deposits made with the Bank of England. Deposits spring from Banking and form the most beneficial part of it. The sum of deposit which each person makes is as useful to him, and more safe, in the hands of his banker, than it would be in his own; while by means of these deposits a fund is created, which is rendered useful to the purposes of general industry, without in the least degree impairing the use of any part of it to the persons by whom it is made. But the security for such deposits is lessened by the exclusive privilege of the Bank.

CHAP. V.

THE NATURE OF COIN, AND OF BANK AND BANKERS'

NOTES.

COIN of gold or silver denotes the quantity of pure gold or pure silver contained in the coin, which may thus be taken, in exchange, without the trouble of weighing or assaying. Gold or silver having been assumed by civilised nations as the measure of exchangeable value, coin of gold and silver is thus rendered conveniently useful for the purpose of making exchanges, and in the employment of labour, which, as well as commodities, is measured by gold or silver.

Bills of exchange have been resorted to for the purpose of making payments, as between one country and another, and between one individual and another in the same country. The exchangeable value of the commodities for which they are granted is estimated in gold or silver; and the bills granted in exchange for commodities are payable in gold or silver, if required by the holder. Such bills of exchange are well known among merchants every where; but a banker's note, such as it exists in the United Kingdom, is hardly known in any other country in Europe, though approaches have been made

to it in America. Our standard being gold, a banker's note is in the nature of a receipt for so much gold: not that gold is always given for it; but no banker issues a note without receiving value for it, estimated in gold.

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The only part of the United Kingdom where banking has not been interfered with by the legislature (except that no note shall be issued for less than twenty shillings) is Scotland, and there the most perfect security has been the consequence of the most perfect freedom. The currency of Scotland has attained the perfection described by Mr. Ricardo, but which he was not aware actually existed: "A currency is in its "most perfect state, when it consists wholly of paper money, but of paper money of an equal "value with the gold which it professes to represent. The use of paper in place of gold, substitutes the cheapest, in place of the "most expensive, medium; and enables the country, without loss to any individual, to exchange all the gold which it before used for "this purpose for raw materials, utensils, and "food, by the use of which both its wealth and " and its enjoyments are increased.” He adds :"Experience shows that neither a state nor a "bank ever has had the unrestricted power of

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Principles of Political Economy, third edit. p. 432.

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issuing paper money, without abusing that power in all states, therefore, the issue of

paper money ought to be under some check "or control; and none seems so proper for "that purpose, as that of subjecting the issuers "of paper money to the obligation of paying "their notes either in gold coin or bullion.'

Silver is necessary for the purpose of making payments under twenty shillings; but gold is hardly ever seen in Scotland, where a banker's note is preferred to it. A banker's note in Scotland has every quality of the coin of the realm; for it is taken in exchange as money in every part of Scotland. A banker's note in Scotland is not only superior in that respect to a banker's note in England, which has only a limited circulation, in the neighbourhood of the place where it is issued; but it is even superior in this respect to a note of the Bank of England, which does not circulate generally in the country of England, where the note of a banker known in the neighbourhood is preferred to it.

Banking appears to have extended itself in Scotland sooner than it did in England, and to have made its commencement, as England did, by the issue of notes under twenty shillings, which were prohibited in Scotland ten years before they were prohibited in England.* For

* 5 G. 3. c. 49.