mark. Whether a bill be a good and safe bill, has no reference to whether it represents a past or a future transaction, but whether it is a safe and judicious one itself, and the parties to it respectJable and of sufficient means to meet their liabilities. The whole Cash Credit system of Scotland, which has conduced so eminently to the prosperity of that country, is a system of accommodation paper, which is sufficient to disprove, in the mind of any dispassionate person, that the system is in itself necessarily dangerous and pernicious, but is proof enough that, if it is judiciously managed, it may be of great advantage.

The true objection to accommodation paper is of a different nature. When the credit system is carried on duly and properly, and within legitimate limits, it is the most ingenious method ever devised for promoting commerce, and where it has been cautiously used, has marvellously succeeded in so doing. But it is a very trite remark, that the best things when corrupted become the worst. This is eminently true of Paper Credit. Universal experience proves that there is nothing so dangerous and pernicious as for individuals to have an undue facility for obtaining credit. When capital is to be had on too easy terms, it fosters, to an extravagant extent, the fatal propensity for embarking in all sorts of wild speculations, and pushing trade far beyond the possibility of being remunerative.

The considerations we presented shewed the exaggerated ideas of the security of real bills. But there is at least this security in real bills, that as they only arise out of real transfers of property, their number must be limited, in the very nature of things. However bad or worthless they may be individually, they cannot be multiplied beyond a certain extent. There is therefore, a limit to the calamities they cause. But with accommodation paper there is no limit. A beggar may write upon Tbits of paper a million of promises to pay" as easily as a Rothschild; and it is far more probable that he will do so; a man without a farthing is proverbially the most reckless, because when the bubble bursts, it is a matter of no consequence to him, he has nothing to lose, the misery and the ruin fall upon his unfortunate dupes. A man of real capital will be cautious in his operations. A loss to him will be real, but a man who is not worth a sixpence is indifferent whether he loses a £1,000 or a £1,000,000.

This system of Accommodation Paper of different descriptions, is one of immense importance in modern commerce, and its abuse has led to some of the most terrible mercantile catastrophes on record. It is, however, so intimately interwoven with banking, that we shall defer any more mention of it till the next section, which treats of the operations of Banking.

We have observed that so far as regards production, which, in a scientific sense, includes the formation and transfer of products, Credit, whenever it is applied, performs exactly the same function as money. As in this section we wish to avoid all controversy, and merely to state facts, we will only say that all commercial transactions on credit are SALES. The absolute property of the article passes from the vendor to the purchaser, just exactly as if the price had been paid in money. The only difference to the purchaser is, that his profits are less, because the credit price is higher than the money price. So long as matters proceed smoothly, and transactions are profitable, the bills generated by commerce are equivalent to so much money. The difference arises when the sales are unprofitable, and losses ensue. If the wholesale dealer buys from the manufacturer for ready money, and the speculation is unfortunate, the whole loss falls upon the dealer, the manufacturer does not lose; he has got his money. But if the speculation is unfortunate, and a loss ensues, or if the wholesale dealer fails from other reasons, the

loss may fall upon him. When he has sold on credit to the

dealer, his power over the goods is absolutely gone; and if the bill is unpaid he cannot reclaim the goods, even if they are still in the possession of the purchaser, he has no more claim to them. than any other creditor. Consequently, if the dealer has not sufficient funds to pay his debts, the loss falls upon the original manufacturer. In this, then, consists the whole difference between sales on credit and sales for money, that if losses ensue, they may be differently distributed. No doubt the manufacturer finds that a bill of exchange is not so negotiable as a bank note or money, but it is of the same nature, and must be placed in the same category. The money is nothing but a bill on the whole community. Good bills of exchange do, to a certain extent, circulate in commerce like money; but the manufacturer generally finds it more convenient to sell the bill to his banker, and how the banker buys it will be explained in the next section.

Capital!

apical t

Credit

Now, we have shewn' that capital, in its most general sense, is not any particular thing, but simply an Economic Quantity, be it currency or anything else, employed in reproductive operations. In its general sense, it is the purchasing power of the merchant, or it is the moving power at his command to generate a circulation of commodities, out of which he reaps his profits; it is the power which draws the goods out of the possession of the manufacturer into the possession of the dealer, for him to make a profit. The money he has is the fruit of the services he has formerly done to the community. Credit is also the power he has of drawing the goods from the possession of the manufacturer, and is the pledge of his skill in rendering future services to the community, by discerning their wants and supplying them. The effect upon the markets and upon the prices is exactly the same, whether purchases, i. e., circulation of commodities, be generated by credit or real capital, and the profits and losses are exactly the same to the community, whether the operation be effected by credit, or by real capital. Hence, we arrive at this conclusion, that MERCANTILE CREDIT IS MERCANTILE CAPITAL.

It has frequently been observed that all great inventions have an equalizing tendency; the invention of gunpowder equalized the condition of the poorest foot soldier and the wealthiest knight, and it destroyed the supremacy of the knights; the invention of printing opened up the paths of knowledge to the

gill auf poorest as well as to the rich, and destroyed the supremacy of

wealth in the acquisition of science; the invention of steam and railroads has equalized the means of locomotion to the humble and the wealthy; so the invention of Credit has destroyed the supremacy of capital or money, and has provided the means for the most humble to place his foot on the first step of the ladder of opulence. It is a matter of common observation that nothing is so difficult as the first step to wealth; that many men could get on if they had only a beginning. Now, credit supplies the means of attaining that first step to all. Credit is a mighty power, and no doubt like other great engines, is liable to be abused; but it is entitled to take rank with gunpowder, printing, and steam, among the marvels of human ingenuity, and it has been the chief cause of the magnitude of modern commerce.

Chap. iv., s. 27.

SECTION V.

THE THEORY OF BANKING.

INVENTION OF BANKING BY THE ROMANS-ON THE MEANING OF THE WORD BANK-DEFINITION OF A BANKER-ON THE MECHANISM OF BANKING-ON CASH CREDITS-OPEN CREDITS-ON ACCOMMODATION BILLS-ON THE CONVERSION OF TEMPORARY CREDIT INTO PERMANENT CAPITAL-ON THE CLEARING HOUSE-BANKING AUGMENTS CAPITAL.

60. The business which is technically called Banking, seems, as far as we can ascertain, to have been invented by the Romans. It is true that there were abundance of money dealers and money lenders at Athens, and other places, but their business seems, as far as we can discover, to have been more analogous to that of those persons we call money scriveners and bill discounters, than of those whom we call bankers. For the business of banking consists in creating credits in favour of the persons who deposit money with the banker, and in paying debts by transferring credits from one account to another, as well as by making all advances in the first instance by creating a credit. This mode of doing business essentially distinguishes a banker from a money scrivener, or bill discounter, who actually advances the money. itself. This seems to have been the business of the Athenian TраTÉŽITαι, and, if so-though we speak on the subject with great doubt, in the absence of information-they were technically bill discounters, and not bankers.

The Romans, on the contrary, practised the business, which is technically called banking, nor do we know when it was invented. The earliest notice we have of these banks, or argentariæ, is in Livy ix., 40, B.C. 308, where they are spoken of as being already placed in the Forum, where they always continued. But he gives no account of the method in which the bankers transacted their business. The comedies of Plautus (B.C. 224-184) contain several allusions to bankers and their business. He calls them trapezitæ, argentarii and danista.

Though we cannot tell the exact period when banking was first invented at Rome, we can point out how it arose. We have

seen that in the early ages the borrowing of money was a very solemn affair. It was effected by means of the sale per æs et libram, and the solemn form of words, which created the jus, or legal bond, the nexus. In process of time however, the formality of the weight and scales was dispensed with; it was taken as performed, and the obligation was created by the form of words;' this was called obligatio verbis.

2

In process of time the art of writing became gradually general among the Romans, and then a very strict custom grew up. Every dominus, or head of a family kept a family Ledger, in which every incident of his life was daily recorded; his revenues and profits, his outgoings, losses and expenses of every sort. It seems that every occurrence was first noted down in adversaria, note books, or waste books, and then formally recorded at the end of the month, in the family Ledger, called the Tabulæ, or Codex. When these Ledgers were formally completed, they were intended to be preserved as heirlooms in the family, and were almost invested with a kind of sanctity, and they were legal evidence.

A great difference was made between the adversaria, or waste book, and the codex, or Ledger. This distinction is strongly insisted on by Cicero 3- "He confesses that he has not this entry in his Ledger (codex) of payments and receipts, but he insists that it is found in his note book (adversaria). Are you then so fond of yourself, and have such a magnificent notion of yourself as to sue for money not on the evidence of your Ledger, but of your note book? It is arrogant to bring forward your Ledger instead of witnesses; but is it not simple madness to produce your own scraps of writing and notes? If these notes have the same force, and weight, and authority as the Ledger, what use is it to make a formal Register? to make entries in it? to keep it in regular order? to make a permanent record of old writings? But if, because we put no trust in notes, we have an established custom to make a Ledger; is that which we ourselves consider weak and unreliable, to be considered of weight and approved of before a judge? Why is it that we write notes without much care, and we write the Ledger with great care? For what reason? because the one is to last only a month, the other 1 Ortolan, explicaton historique des Instituts, § 1192. 2 Ortolan, Ibid., § 1416.

3 Pro Roscio Comodo. § 2.