essay3 [21]
be sold and bought so often. It is doubtless the origin of these capitals or money deposited in the Bank and drawn out only on rare occasions, such as when an owner of capital engages in some transaction or needs cash for small purchases, which explains why the Bank keeps in reserve only the fourth or sixth part of the silver against which it issues notes. If the Bank had not the funds of many of these capitals it wonld in the ordinary course of circulation find itself would in the ordinary course of circulation find itself compelled like private banks to keep half its deposits in hand to be solvent. It is true that the Bank books and its dealings do not distinguish those capitals which pass through several hands in the sales and purchases made in Change Alley. These notes are often renewed at the Bank and changed against others in purchases. But the experience of purchases and sales of stock show clearly that the total of them is considerable, and without these purchases and sales the sums deposited at the Bank would be certainly smaller. This means that when a State is not in debt and has no need of purchases and sales of stock the help of a Bank will be less necessary and less important. In 1720 the capital of public stock and of bubbles which were snares and enterprises of private companies at London, rose to the value of 800 millions sterling, yet the purchases and sales of such pestilential stock were carried on without difficulty through the quantity of notes of all kinds which were issued, while the same paper money was accepted in payment of interest. But as soon as the idea of great fortunes induced many individuals to increase their expenses, to buy carriages, foreign linen and silk, cash was needed for all that, I mean for the expenditure of the interest, and this broke up all the systems, This example shows that the paper and credit of public and private Banks may cause surprising results in everything which does not concern ordinary expenditure for drink and food, clothing, and other family requirements, but that in the regular course of the circulation the help of Banks and credit of this kind is much smaller and less solid than is generally supposed. Silver alone is the true sinews of circulation.
Chapter VIII
Of the Refinements of Credit of General Banks
The national Bank of London is composed of a large number of shareholders who make choice of Directors to govern its operations. Their primitive advantage consisted in making a yearly distribution of the profits made by interest on the money lent out of the Bank deposits. Later the public debt was incorporated with it, on which the State pays an annual interest. In spite of such a solid foundation when the Bank had made large advances to the State and the holders of notes were apprehensive that the Bank was in difficulties, a run on the Bank has been seen and holders of notes went in crowds to the Bank to draw out money. The same thing happened on the collapse of the South Sea Company in 1720. The refinements introduced to support the Bank and moderate its discredit were first to set up a number of clerks to count out the money to those bringing notes, to pay out large amounts in sixpences and shillings to gain time, to pay some part to individual holders who had been waiting whole days to take their turn; but the most considerable sums were paid to friends who took them away and brought them back secretly to the Bank to repeat the same manoeuvre the next day. In this way the Bank saved its appearance and gained time until the panic should abate. But when that did not suffice the Bank opened a subscription engaging trusty and solvent people to join as guarantors of large amounts to maintain the credit and circulation of the Bank notes. It was by this last refinement that the credit of the Bank was maintained in 1720 when the South Sea Company collapsed. As soon as it was publicly known that the subscription list was filled by wealthy and powerful people, the run on the Bank ceased and deposits were brought in as
Chapter VIII
Of the Refinements of Credit of General Banks
The national Bank of London is composed of a large number of shareholders who make choice of Directors to govern its operations. Their primitive advantage consisted in making a yearly distribution of the profits made by interest on the money lent out of the Bank deposits. Later the public debt was incorporated with it, on which the State pays an annual interest. In spite of such a solid foundation when the Bank had made large advances to the State and the holders of notes were apprehensive that the Bank was in difficulties, a run on the Bank has been seen and holders of notes went in crowds to the Bank to draw out money. The same thing happened on the collapse of the South Sea Company in 1720. The refinements introduced to support the Bank and moderate its discredit were first to set up a number of clerks to count out the money to those bringing notes, to pay out large amounts in sixpences and shillings to gain time, to pay some part to individual holders who had been waiting whole days to take their turn; but the most considerable sums were paid to friends who took them away and brought them back secretly to the Bank to repeat the same manoeuvre the next day. In this way the Bank saved its appearance and gained time until the panic should abate. But when that did not suffice the Bank opened a subscription engaging trusty and solvent people to join as guarantors of large amounts to maintain the credit and circulation of the Bank notes. It was by this last refinement that the credit of the Bank was maintained in 1720 when the South Sea Company collapsed. As soon as it was publicly known that the subscription list was filled by wealthy and powerful people, the run on the Bank ceased and deposits were brought in as