§ 7. The state of things above described it was, that led to the formation of the Bank of Amsterdam, the first institution of the kind, of any importance, established exclusively for the promotion of commerce. its predecessors of Venice and Genoa having been devoted more to the management of affairs of state than those of individuals. It, on the contrary, looked wholly to the faithful guardianship of the money deposited with it for safe-keeping - guaranteeing to its owners that equivalent quantities of the precious metals should always be at their command. For the faithful performance of its duties, the StatesGeneral of Holland became security to the world; as a consequence of which, the bank became at once the centre of the moneyed world-making of the city in which it was established, the chief European market for the precious metals. Money now

flowed out from private hoards, and thus was utilized; but, with augmentation of the quantity in market, its value tended necessarily to decline, to the great advantage of land and labor. Hamburg, Nuremburg, and Rotterdam speedily following the good example, there were thus provided for the countries watered by the Rhine, the Weser, and the Elbe, places of secure deposit for money, and facilities for exchanging it freed from the taxation of French or German sovereigns.

The whole proceeding was a measure of resistance to arbitrary power. For it, the world was indebted to the action of small and independent communities, in which was largely developed that spirit of association which always accompanies diversification of employments, and the development of individual faculty. In no part of Europe were the tendencies in that direction so strongly exhibited as in Holland and the adjacent countries, then the seats of manufacture for the world. Raw materials being high in price, while finished commodities were cheap, the former flowed steadily in as the latter flowed out. Labor being everywhere economized, capital grew with great rapidity-facilitating the cultivation of the richer soils, and enabling their occupants to draw from them tons of food, while in England the returns to labor still counted by bushels only. It was the fitting place in which to organize resistance to a system, that gave to kings and princes absolute power over the most important of all the machinery of society.

§ 8. As yet, however these being only simple deposit banks - any augmentation of the currency thence resulting, was merely that which was consequent upon increased security and increased facility of transfer. Once placed therein, money might remain for centuries as useless to the community as if deposited in a cave of the earth, unless the owner had the will to use it. At the next stage, we meet with banks of discount. To understand the effect of this upon the currency, let us suppose all who had money in the vaults at Amsterdam to have been moved to have the will to use it profitably to themselves, and, with that end in view to have accepted certificates of stock-being thus changed from creditors of the institution into proprietors of it. The instant effect of this would be that of diminishing the currency by the whole amount of capital, as all the depositors would have parted with the power to transfer their money, or to use it in any manner whatsoever. The bank, however, having acquired the power they had lost, the volume of the currency would be restored so soon as it had accepted from other persons their notes, or bills, to an equal amount, in exchange for similar sums placed to their credit on its books.

The apparent amount of currency would now be restored, but the real one would be materially increased, and for the reason, that the whole had passed into the hands of men of business, paying interest for its use, and anxious not only to obtain that interest, but also a profit thereon, as compensation for their services. Previously to this, much of it must have been owned by small and distant capitalists - persons whose position in society, or whose places of residence, unfitted them for judging of the character of the securities that might be offered; and who, therefore, preferred that it should remain idle and unproductive in the bank. Com bining now with men of various knowledge, residents of the city in which the money had been placed, they obtain security — each and every of the managers being required to take his share of any loss that may be suffered, and therefore directly interested in seeing that the money is safely placed. Another stage of progress being thus accomplished, its effects are seen in an increase in the utility of money, and a diminution of its value-with corresponding diminution in the proportion borne by it to the commerce that is maintained, and in the rate of interest.

9. Thus far, as will be perceived, the bank has traded upon its capital only, having merely passed to the credit of individuals the coin, or bullion, placed in its vaults by the various stockholders. Were it here to stop, the dividends on its stock would be less than the ordinary rate of interest — its only source of revenue being so far found in the discount received from those to whom its capital has been loaned, and the expenses of management being large. Experience, however, would teach the directors, that although all the persons who borrowed their money desired to use it, all did not so desire at the same moment A, B, and C having considerable sums at their credit on days when D, E, and F desired to borrow more, and the latter having money in excess when the former needed to borrow; and that, in point of fact, although all their capital was drawing interest, much of it remained constantly in their vaults. These things being seen, it would be clear to them that they might, with perfect safety to themselves and to those with whom they dealt, lend one-half of the sum ordinarily in their hands-extending their business to a fourth or a third beyond the actual capital, and thus obtaining an excess of interest sufficient for paying the expenses of the institution, and providing against losses that might occasionally be incurred. To their customers this would be advantageons, because it would enable the bank to dispense with the accustomed charge for keeping their money, transferring it, or paying it out. To the community it would be beneficial, because it would increase the utility of the stock of money and quicken the motion of society, with constant tendency to the further and more rapid increase in the supply of the precious metals, and decline in the rate of interest.

What, now, would constitute the currency? Every man would have it who had money in his pocket, or his desk; and so, too, would every one who had a credit on the books of the bank-the power of purchase with the one being as complete as it could be with the other. The currency would then consist of the money in circulation, and the debts of the bank to its customers, the latter generally known by the name of deposits its amount having been increased by the operation here described, to the precise extent that those debts exceeded the coin it was accustomed to

retain in its vaults, with a view to be prepared for the demands that might be made upon it by those to whom it was indebted.

§ 10. The closing years of the seventeenth century witnessed the origin of the most influential moneyed institution the world has yet seen, the Bank of England — authorized to receive deposits, to make discounts, and to issue circulating notes, by means of which the property of individuals in its hands could be transferred without even the ceremony of visiting the banking-house, or of drawing a check, as had been required in other banks having then been instituted. Here was a further great improvement, tending to increase the utility of money, to diminish its value, and greatly to lessen the proportion that could be demanded, as interest, for its use. Scarcely yet established, however, we find the proprietors obtaining the passage of a law by which it was provided, that all who desired to place their money on deposit should be limited to a choice between mere private individuals on the one hand, or their own great bank on the other. Like the Bank of Amsterdam, the last could furnish the highest security, and the object of the law was to prevent the application of the principle of association to the formation of any other by which it might be given-thus, in effect, requiring all who sought to have such security to look to the single bank. Centralization being thus established in regard to the trade in money, as it had already been in reference to that with the Levant, the East Indies, and other countries, a single corporation now assumed the entire control of a currency, that was to be managed for the benefit of the few persons interested in its stock.

Of working capital it had none-the whole amount, £1,200,000, having already been paid to, and expended by, the government, which allowed for its use a certain annual sum. All its trade was to be based on the property of others in its hands, placed there by those who might desire to have their funds securely kept, or by those who used its notes; and such is yet, to a great extent, the case.

The larger the amount of its debts, the greater being its power to make loans, and the larger becoming its dividends, there was thus at once produced an interest antagonistic to that of the so

ciety in which it operated. Whatever tended to diminish security elsewhere, tended to increase the necessity for resorting to the one great institution that allowed no interest to its creditors. Further, whatever tended to lessen the facility of association, tended equally to augment the difficulty of finding satisfactory modes of investment thus increasing the quantity of money lying, unproductive to its owners, in the vaults of the bank, to be used, or not, at the discretion of the directors, and for the profit of the bank alone. If they had the will to use it, they could thus augment the volume of the currency having done which, they could, by another exercise of will, withdraw it, and thus produce those changes with which in modern times we have become so well acquainted-financial crises having become so common, that they are expected to occur at certain and brief periods, and with a regularity approaching that of the changes of the

seasons.

§ 11. For the benefit of those who have not traced the operation of an expansion, it will be proper here to show the manner of its action. For that purpose, let us suppose, first, a state of affairs in which every thing is at par-money being easily obtained for good notes at a fair rate of discount, and for mortgages at the usual rate of interest; while those who have disposable means can readily obtain good securities, that will yield them the common rate of profit the daily supply of money and of securities being equal to each other. In this state of affairs, the directors of the bank-knowing that it would be profitable to increase their investments to the extent of another million-purchase that amount of exchequer bills, or other securities. At once the equilibrium is disturbed a demand for securities having been produced in excess of the ordinary supply. Prices rising, some unfortunate holder is tempted to sell - hoping that there will be less demand to-morrow, and that then prices will fall, permitting him to buy in again at a lower price. At the close of the day, his bills, or notes, have become the property of the bank-he and others who have united to furnish the desired million, having become creditors on its books for the whole amount. His money being now uninvested, he appears in the market on the next day as a purchaser; but, unfortunately for him, the bank, too, makes its ap