in the manner we have already suggested. The remaining five millions must, however, be provided for, in some other way. One obvious way would be, to send this remainder in specie. But, it will be asked, how is this five millions of specie to be provided? We answer, by sending the five millions of products, which would otherwise have been sent to New York, to some other place, where specie can be had at the cheapest rate; and thus paying for what we have purchased at New York, by two exchanges instead of one. This is one method. Another method would be, for Boston to send five millions of her domestic products to some other market, say to the West Indies, and exchange it for some other product, say coffee, or sugar; and remit these to New York, to pay the balance of her debt. This would be sold, the proceeds deposited in New York, and he who owed the New York merchant would purchase a draft in Boston, of him who had imported the coffee or sugar; and thus the debt would be liquidated.

Now, it is manifest, that it is, to Boston, of no consequence in which way she pays this debt; whether by sending directly to New York ten millions of her products; by sending five millions to New York and five millions to South America in exchange for specie; or by sending five millions to New York and five millions to Cuba in exchange for coffee and sugar. In either case, she pays but ten millions; and the way in which it is paid is a matter of indifference. And it is, also, obvious in which manner Boston will choose to pay her debt. Every one who has a debt to pay, will pay it in that which will liquidate it at the least expense to himself. five millions of specie can be procured by four and a half millions of other products, it will be best to pay the debt in specie. If sugar and coffee worth five millions in New York, can be purchased by four and a half millions' worth in Boston, she will choose to import coffee and sugar in payment. And thus, the account will be adjusted, in every case, accord

If

ing to the interests and conveniences of the respective parties; that is, of the whole community.

This is the case, if we take into consideration two trading places in the same country. But the case is the same with the trading cities over the whole world. And by thus allowing every thing to regulate itself, the whole business of exchange is adjusted.

Suppose, for instance, that Great Britain has purchased of us more than we receive in return. There will then be a portion of her debt unpaid; and there will then be a demand for something wherewith to pay it. In this case, drafts on America will rise; that is, those who have payments to make will overbid each other, and drafts will rise in price. In this case, a French merchant, who has sent a cargo of silks to America, will find that he can get more for it, by selling in London drafts on his correspondent in New York, than by importing American produce. In this case, he will sell to the London merchant drafts to the whole amount of his cargo; that is, England pays France, for sending to America sufficient produce to pay the deficiency which she is unable, profitably, to supply from her own productions. In this manner, the deficiency of the exports of the first country to the second, is made up by the excesses of a third; and, as every one receives as much as he pays out, and imports, on the whole, as much as he exports, by free communication among themselves, the balance is speedily adjusted.

Hence, bills of exchange, or orders of payment for goods already delivered at any particular place, become an article of merchandise, as much as any thing else. This being the case, it is of importance that some persons should devote themselves to this branch of labor. By these means, both parties know how they can be best accommodated. The sellers know where to sell, and the buyers where to purchase. For the transaction of this business banks have great facilities, and hence, they are frequently thus employed. Almost all our domestic, and much

of our foreign exchange is negotiated at present by means of banks. They act as brokers by bringing buyers and sellers together, and by reason of their communication with each other, they are enabled to transact the business of exchange of drafts with great security and at little expense.

Such, I suppose to be some of the principal functions of banks, as offices of deposit. They, by means of division of labor, diminish the amount of the circulating medium necessary to carry on the exchanges of a country; they greatly diminish the labor of transportation and of counting money in the same place, and almost remove the necessity of transporting it between different places.

The Bank of Amsterdam was purely a bank of deposit. It received the specie of the merchants of the city, and gave them acknowledgements, which were transferable, like specie; and by the transfer of these, on the books of the bank, all large payments were universally made. And so great was the confidence in the management of the bank, that certificates of these deposits were current throughout Europe. Adam Smith attributes the origin of this bank, to the desire of the Dutch to prevent their coin from migrating into the surrounding states, and being replaced by the inferior and debased coin, with which they were liable to be inundated. That this might have been the idea, from which the first conception of such a bank originated, is very possible. But, whoever will observe the advantages of such an institution, as they have been stated above, must be aware, that when the transactions of a commercial city became numerous, and the exchanges became active, merchants could not long fail of falling upon some instrument which their necessities so imperatively required, and which all their habits of thought would be so likely to suggest.

From what has been said, it is obvious that when all other methods fail of adjusting the differences of exchange between two places, specie must be procured,

and remitted from the one to the other. This will always pay the debt, and equalize the exchange. Hence, the highest rate of exchange, which, under natural conditions, is possible between two countries, is that which is sufficient to procure the specie, and to remit it to the place of payment.

OF BANKS OF DISCOUNT, OR LOAN.

We have already seen, that all production is the result of the application of industry to capital. But we also see, that the capital and the industry are frequently in the hands of different persons. One has capital, but does not wish to labor with it himself. Another has industry and skill, but has no capital, with which to create products. It will be at once seen, that it will be a great advantage to both parties, if the capitalist can loan his capital to the laborer, and receive from him a fair compensation; while the laborer by uniting capital with his industry, will be able, after paying this compensation, to retain a handsome remuneration for himself.

For the accomplishment of this result, the introduction of a circulating medium presents great facilities. A flour merchant might have more flour than he wanted, and would be willing to loan it to another person, who wished to establish himself in business; but, perhaps, the person who applies to him for the loan, understands nothing but the trade in iron. The capital of the one, therefore, in this case, could be of no service to the other. But let the flour merchant convert his flour into money, and then he can loan it to any one who needs it, no matter what may be the occupation in which he hopes to be the most successful.

As men accumulate capital, they are enabled thus to loan. There are always multitudes of persons who wish to borrow. But he who is willing to loan,

is also frequently engaged in active business, and can rarely take pains to ascertain the character of the borrower; neither may he have any means of so observing his affairs, as to secure himself in season, against the results of dishonesty. Hence, his risk of loss would be great; the rate of interest high; the time requisite to effect and to watch over loans, great; and there would be on the part of the capitalist, but little disposition to part with the immediate control of his means.

Thus, also, if a mechanic or merchant wished to borrow of a private capitalist, he would not know to whom to apply; much time would be lost in finding a capitalist; and, if the capitalist were timid and suspicious, it might be utterly impossible to satisfy him that the security was sufficient, unless it were in property with which he was acquainted; or, unless the money were to be employed in operations with which he happened to be conversant. Thus, a great inconvenience would be suffered, both by those who were willing to lend, and by those who wished to borrow money; that is, capital.

Now, it is obvious, that these inconveniences would be greatly relieved, if, by a division of labor, some persons were set apart for the express purpose of loaning money. In this case, those who had more capital than they wished to employ, would exchange it for money, and place it in the hands of the money lender; and those who wished to borrow would go to him for such accommodations as they needed. He would attend to the whole business of loaning, and collecting both the principal and the interest, thus acting as the agent of the capitalist, and receiving for himself a fair compensation for his expenses, labor and skill.

In this manner, banks perform the service of bringing together the lenders and borrowers, so that he who has anything to lend, can lend it, if there be any one who wishes to borrow; and, so that he who wishes to borrow, can borrow, provided there be any