less the rate of interest in the country where it is invested, is higher than in that from which it is sent. In this case, the former country derives the advantage from the difference. If money can be borrowed in London, at four per cent., and be loaned here, for six per cent., we have the benefit of the use of the money, and of two per cent., in addition. In this manner, money is constantly borrowed by a new country from an old, with great advantage to both, but specially to the new country.

If such be the utility of banks, in this point of view, it is of importance that their arrangements should be so made, as to loan, on the most convenient terms, to those who are able to give proper security. The mode, in this country, is by receiving a note of hand, with approved endorsers, and made payable at a specified time, say at sixty or ninety days. The bank, however, allows no interest on deposits made by the drawer of the note. This mode of transacting business, answers a very valuable purpose; but, it may be questioned, whether its convenience might not be very considerably increased.

Judging by these principles, it would seem that the Scottish banks were conducted more correctly, as well as more beneficially to the public, than any institutions of the kind at present known.

1. As offices of deposit, they receive all sums, not less than £10 sterling; and, for such deposits, allow interest. Less sums than this are placed in the savings banks, until they become sufficiently large to be deposited in a bank. These deposits are, generally, made by persons who labor in agriculture or manufactures. The whole amount thus deposited, is equal to about twenty-four millions pounds sterling, or not far short of one hundred and twenty millions dollars. This large sum is thus redeemed from idleness, and added to the productive capital of the country.

2. They discount notes, as our banks do, but they have another mode of loaning, which is called cash credits.

When a man wishes a cash credit, he finds a bondsman, who promises to indemnify the bank for all that it may lose, by loaning to him within a certain sum; or else he places real estate in the power of the bank, to a sufficient amount to render it secure within the sum which he wishes to borrow. The bank then opens with him a cash account, or allows him to draw for any sum within the specified amount. He is charged interest only for the amount which he borrows. As fast as he is in funds, he deposits all he can spare, in the bank, and for every thing thus deposited, he is allowed interest; so that his interest on deposits always diminishes the interest on his debt. Thus he borrows and pays, successively; and, at stated seasons, the accounts are adjusted.

The advantages of this system, are: 1st. That it enables an industrious man to procure credit to the amount of his real estate, and, hence, to do more business with the same capital, than any where else. 2d. That by rendering every deposit valuable, it stimulates him to frugality. 3d. It enables the bank to understand, more correctly, the state of his affairs, and, hence, to know how deserving he is of confidence. 4th. That this may be done with greater safety, than in any other mode, is evident from the fact, that while the Scottish banks have been liberal in their accommodations, and have, by the acknowledgement of all, been of the most important service to that country, only one of them has ever been known to fail. These are, surely, the best evidences of the wisdom of any practical system.

Such, I suppose, to be the advantages of banks, as institutions of discount or loan.

III. On the utility of Banks, as institutions of

CIRCULATION.

I have already shown, in what manner it is possible for banks to issue notes for a larger amount than they at any moment actually possess in specie, and

that they may do so, to a certain extent, with entire safety to the community. Should banks be generally established, and all of them adopt this system, as they would naturally do, it is evident that there would be in circulation, more paper than specie; that is, that the actual circulation would, to a great extent, become paper, instead of the precious metals.

But I have already shown, that a community, in any given condition of exchanges, requires no more than a given value of the circulating medium, for its exchanges. If the amount be increased, its value will diminish, and vice versa. If it need an amount equal to a million bushels of wheat, no more than this can be employed, and if more be introduced, its value will fall, till it become equal to a million bushels of wheat.

Now, by issuing paper money, the whole amount of money is increased, and, hence, its price falls. But, as every paper dollar is redeemable in silver, its value is still equal to that of a silver dollar. Hence, the whole amount of currency, silver and paper together, falls in price, so that money becomes cheap, and you can buy more abroad with a silver dollar, than you can buy with a silver dollar, at home. Now, in this state of things, if the paper and coin were equally valuable in foreign countries, either would be exported, at pleasure. But, inasmuch as only the metal is valuable abroad, this, exclusively, is sent out of the country, in the purchase of other articles. And, it will be sent out, until the price of the circulating medium at home, is reduced to its ordinary price in other countries.

Suppose that two-thirds could be thus sent away without impairing the soundness of the currency at home. Business would then go on as securely, and as well, as it did before. But, these two-thirds would procure in exchange an equal amount of other capital, by which the wealth of the country is by so much increased. In the mean time, all the exchanges of the country are carried on by means of

the remaining one-third, plus the expense of the manufacture and management of the cheaper commodity, paper; that is, the given operation, exchange, is carried on by means of an instrument, which costs only about one-third of the expense, which the former instrument cost.

This, then, is the advantage of banks of circulation. They furnish to the community a cheaper article of exchange. And the extent of the benefit is easily estimated. If the whole of the metallic circulating medium were exchanged for paper, we should have the benefit of the interest of this whole amount. If twenty millions of specie were wanted to carry on the exchanges of this country, and the whole were exchanged for paper, we should be benefitted to the amount of the annual interest of twenty millions, or, at six per cent., of one million two hundred thousand dollars per annum. If three-fourths of it were sent away, our benefit would be equal to nine hundred thousand dollars per annum. This is the whole pecuniary advantage of a paper currency, over a metallic. It consists in substituting a cheaper for a dearer circulating medium. And, our annual advantage, supposing the cheaper to be equally good, is precisely equal to the interest of the difference. This deserves to be seriously considered. Banks do not create capital. The issuing of paper money, does not render money abundant. If it be issued to such an extent, that its soundness is doubted, it produces an effect precisely the reverse. If, while it is perfectly sound, it be issued to an amount beyond the wants of the community, specie will be exported, until the equilibrium is restored. If but twenty millions of value be needed in exchange, you can employ but the value of twenty millions. The only benefit of a paper currency, supposing it to be perfectly sound, over a metallic currency, is first, its greater convenience in exchange; and, secondly, that

it enables us to use a cheaper instrument instead of a dearer, and to employ the amount of the difference in the various operations of human industry.

SECTION III.

ADVANTAGES AND DISADVANTAGES OF A PAPER

CIRCULATION.

Having thus endeavored to illustrate the nature of a paper circulation, it may be of some importance to explain, in as simple a form as possible, the advantages and disadvantages which appertain to it.

1. The advantages of a paper circulation. These are two, economy and convenience.

I. Economy.

1. The material in use, in a paper circulation, as we have shown, is of much less value than that in a specie circulation. A bill worth one thousand ounces of silver, may not cost more than two or three cents. Now, in just so far as a paper circulation accomplishes the same result as specie, and accomplishes it at a less price, the community is the gainer by the difference.

2. The wear and tear of paper money, as well as the original cost, is less expensive than that of silver and gold. Were silver and gold transported, as paper money now is, the friction would reduce the weight of coin so rapidly, that new emissions would be much more frequently necessary.

3. But, specially, as the introduction of paper money renders a considerable part of the specie formerly employed, useless, it may be exchanged for other capital. Specie is, in itself, incapable of production. If a part of it will answer the purposes of exchange, all the remainder may be changed for productive cap