munity, as well as of the bank, that every one should transact his business by means of a bank; that is, that he should receive and pay money through means of its agency. But, no one will employ this agency, unless he is certain that his money will be appropriated as he directs, and that nothing shall be lost, either by carelessness or by dishonesty.

But banks, as institutions of deposit, are designed also to facilitate the payments of money in different places.

Thus, if two banks, the one in Boston and the other in New York, had perfect confidence in each other's resources, by drawing upon each other they might be of great service to the commercial community. In such a case, the Boston merchant who wished to pay a debt in New York might pay his money to the bank in Boston and send by mail the draft of that bank in payment of his debt. This draft would be paid at sight by the bank in New York, and thus the debt would be cancelled. A merchant in New York having money to pay in Boston, would take the same course, and thus the one draft would pay for the other. The same result would be accomplished if the bank at either place purchased drafts of individuals known to be solvent, and sent them to the bank in the other city for collection. By charging a slight percentage for the labor and risk, in addition to the regular rate of exchange, as it might happen to exist between the two places, the banks would earn a handsome profit and at the same time accommodate their customers. If a merchant in New York have one thousand dollars to pay in Boston, he again purchases of the same bank, the draft on Boston, which it may have bought, perhaps, the day before. This is now sent to his creditor, who presents it at the Boston bank, and receives his payment accordingly. The same result would be accomplished if the bank at either place, bought drafts known to be good, but payable by other persons besides the banks. And still further, if two banks

were well acquainted with the resources of each other, and were each confident that all the debts of the other would be paid, they might give orders on each other, for the facilitating of exchange. Thus, if A wished to pay money in New York, and a bank in Boston were authorised to draw on New York, it might furnish him with a draft which would be paid in New York, and receive the difference of exchange; and the same operation being performed by the bank in New York, each would receive, at every transaction, a moderate per centage, and yet add greatly to the convenience of the community.

On this account, I suppose it would be much better, to have several banks nearly connected, as the branches of a large bank; than to have them isolated, and independent of each other. When banks are, in some measure, responsible for each other, they must become acquainted with the standing of each other, and will, of course, be disposed to check each other's excessive transactions. Hence, they will also be more likely to give to each other every reasonable credit. When, on the contrary, each one is entirely isolated from all the rest, and no one bank either knows, or has a right to know the condition of the other; each is naturally fearful of the solvency of the rest; and thus, may not be willing to afford those facilities of exchange, which the transactions of commerce require. Hence, the price of exchange is liable to rise unnecessarily high; and, of course, an unnecessary expense is imposed upon the trading community. It is by means of its system of branches, and the supervision which it thus exerted over them, that the late United States Bank was en abled to carry on, so extensively, the business of exchange, with great profit to itself, and with great benefit to the community. Were banks, in general, constructed more upon this plan, I think it would greatly facilitate the business of exchange.

While, however, it is granted that banks possess great facilities for conducting the exchanges which

must be effected between different countries and between different parts of the same country, it is not to be denied that substantial objections may be urged against entrusting them with this agency. Inasmuch as they have the power of rendering money plenty or scarce at any particular time and place, they have it in their power to render the rate of exchange high or low at their will. This may be the more easily done, where a central bank is connected with numerous branches. Besides, banks are so powerful bidders that individuals dare not come into competition with them in the market. Hence they are likely to monopolise the whole business of exchange, and can regulate it almost at their pleasure. This is of course a serious disadvantage, specially, as the rate of exchange should be left under all circumstances to regulate itself. Taking these circumstances into account perhaps it may be fairly doubted whether the business of exchange might not as well be left to individual competition. See Raguet on Currency and Banking, Book 2d, Chap. 10.

II. The advantages of banks, as institutions of

DISCOUNT AND LOAN.

1. It may be proper to suggest, at the beginning of our remarks on this head, that banks add nothing to the capital of a country. Capital has been already defined. It is either the material on which industry operates, the instruments with which it operates, or the means of sustentation, by which it is supported during the operation. The capital of any country, at any one moment, consists of the amount of these which it then possesses. Now, it is evident, that the collecting this in one place, rather than in another; the loaning of it to one, rather than to another; or the loaning of it, instead of not loaning it at all; or the manufacture of printed or of written promises to pay money or any thing else; can never increase the capital, that is, the wealth, or the amount of objects of desire, possessed by any country. A man is surely no richer, because he verbally promises to pay me

one hundred dollars; nor am I any the richer for his promise. And, if neither he nor I be the richer, I see not who else can be the richer for it. And, if he actually lend me one hundred dollars, and I return it, at the end of the week, if I have used it profitably, the capital of the country has taken a different direction from that which it would have taken; that is, it has been in my hands, instead of being in the hands of some one else, but this is all. The capital is the same, except that my industry may have added somewhat to it. Could a nation, or an individual, become rich by the issue of promissory notes, no one who could write a promissory note, ever need be poor. But it is manifest that this is not one of the methods by which the capital, that is, the objects of desire, is, in our present state, to be increased. This subject is so obvious, that it seems really almost unworthy of serious consideration. The above remarks, however, have been made, because the contrary notion has been so frequently maintained, and even so frequently acted upon, to the great detriment of the commercial interests of the community. No one, who has the least practical acquaintance with the functions of capital and of money, can candidly reflect upon the subject for a moment, without coming to a correct conclusion.

2. But whilst it is allowed that banks add nothing to the existing capital of a country, it is also true that they are capable of rendering the existing capital much more productive. In this manner, the practical result may, to some extent, be the same as though they actually increased the capital of a country. If one million of capital be capable, under ordinary circumstances, of producing two hundred thousand dollars of annual revenue; and if, by means of any improvement in the manner of its distribution, it can be made to produce three hundred thousand dollars, the annual result is the same as if, under the previous circumstances, the capital had been increased to a million and a half. And, it is

because banks have frequently thus increased the productiveness of capital, that the notion has arisen, that they increase the capital of a country itself.

The manner in which banks may increase the productiveness of capital, will then be the subject for our present consideration.

Banks increase the productiveness of capital, chiefly, by the facilities which they afford for the extension of credit. The nature of credit is, however, first to be considered.

"Credit is the term used to express the trust or confidence placed by one individual in another, when he assigns him money or other property in loan, or without stipulating for its immediate payment. The party who lends, is said to give credit, and the party who borrows, to obtain credit." *

That the extension of credit, in every manner which can be rendered consistent with the safety of the lender, must increase the productiveness of capital, may be seen from the following considerations:

1. It is manifest, that the labor of man, without tools, must be, in the smallest degree, productive. What man, by the mere labor of his hands, without tools, could ever maintain a family, or even maintain himself? Without an axe, he could neither cut nor cleave wood; without a hod, he could not even carry mortar. He could add but very little to productiveness, and hence, his revenue must be reduced to the lowest limit. But give him tools; that is, capital; and the productiveness of his labor, is at once greatly increased. As he receives an equitable share of this productiveness, his wealth is also increased. Thus, by the use of a small portion of capital, both he, and the community; that is, every individual; are rendered richer.

2. But this is not all. A man may have skill and instruments, but he may not have the material, on which to exert his industry. In this case, his in

* M'Culloch.