Political Economy [46]
medium, is without foundation. By saving a part of their expenses, they, of course, in some degree, diminished consumption and re-production; by preserving some millions in their coffers, they in some degree diminished the circulating capital: but the money locked up by them was soon replaced by other moneys which the country purchased; and, besides, the whole circulating medium of a nation is so small, compared with its whole circulating capital, that such a void can never be considered as a national misfortune, or counterbalance the immense advantage of possessing a fund ready, without new sacrifices, at the moment of want. From confounding money with capital, has arisen the general mistake of attempting to increase the national capital by a fictitious capital, which, not having been created by an expensive labour, is not, like gold or silver, a pledge of the values it represents; and which, after having delighted nations with the illusions of wealth, has so frequently left them in ruin. It will be more easy to follow the operation, by which so many states in our time have endeavoured to replace their money by paper, if we previously direct our attention to the manner in which one of the most ancient trading cities of France made a few crowns perform the functions of a considerable circulating medium. At Lyons, it was agreed upon in trade, that all payments should take place only at four fixed periods, quarterly. During the three days which the payments took up, all the accounts of the city were settled at once. Each, at the same period, had much to receive and much to pay. But, on the days immediately preceding the payments, all the merchants used to meet on the exchange, to make what they called viremens; in other words, to assign, one to another, such sums as would settle their accounts. A owed B, who owed C, who owed D, who owed E, himself indebted to A; and the five accounts were settled without any payment. If E was not indebted to A, it was agreed that A should pay E, and the other four were acquitted by a single payment. Every merchant bought but to sell again; received, therefore, but to pay; and if those assignments were extended to their utmost limits, one single sum of ten thousand pounds would probably settle all the transactions of a city, though these amounted to several millions. But all mutual debts are not equal, and bankruptcies occasion difficulties, and sometimes errors in the assignments. The invention of banks has supplied this deficiency. The Bank of Amsterdam is a kind of open bar, where assignments may constantly be made. Every trader pays or receives, by a line which is written down in the bank's books, on the debtor or creditor side of his account, without any money being disbursed. Among merchants, who have all an open credit with the bank, the operation of the book-keeper supplies with the utmost ease that of cashier; and no difference of amount, or day of payment, prevents sums from being reciprocally balanced. A bank like that of Amsterdam, however, is of use only to such as have a current account in it. Many traders may have no account; and few or none who are not traders ever have any, though called, as well as others, to pay and to receive. To extend the advantage of assignments also to the business of such persons, those note-banks were invented which have since become so common in all parts of Europe. Their notes are assignments on the bank, payable to the bearer on demand. Each, by combining several notes, may make his odd payments himself; and hence it is generally most convenient for him to transmit them to others, as he received them, without having drawn any money; and even though each may require payment at his pleasure, no one thinks of it, just because each feeling that he may do it any time, feels always that it will be soon enough afterwards. Up to that period, banks had done nothing but simplify payments, and save the employment of money, and render circulation easy with a smaller sum than would otherwise have been required. But some one must profit by