Political Economy [47]
this saving. In arranging the assignments at Lyons, each profited according to his share in trade; each needed to have money in his coffers only four times yearly, for three days. He, of course, gained interest for the remaining 353 days; and as those assignments simplified all his operations, a smaller sum performed for him the office of a greater. When banks were established, it was they that profited by this saving of money. They received interest, not for the money really given by them, but for the money, which every bearer of notes had it in his power to demand from them, at a moment's notice. This interest of notes, reckoned equal to gold, was a pure advantage for bankers; since the money promised, far from being drawn, had not even remained at the bank, where it would have been barren. Bankers, reckoning on the confidence of the public, had caused it to labour, and recalled it for their payments only as they needed it. It was by discount on such of the proceeds of trade as were payable at long dates, that banks pushed their notes into circulation. They required an interest for exchanging their paper against that of trade, because theirs was exigible at sight, though it was not really paid before the other. The discount required by the bank served to introduce the interest of money, and to regulate it in the place. Bankers, in virtue of their credit alone, seemed to have capitals of almost immense extent, to offer in the service of merchants. Credit soon appeared to have a creative power, and speculators, persuaded that by emitting a bank one, they added as much to the public wealth as by importing an equal sum of money, delivered their minds to dreams dangerous for themselves, and for the states that gave ear to them. They proposed the establishment of banks to multiply the funds of trade, to provide for the enterprises of agriculture, to set labour every where in motion, to increase the general capital; and redouble the activity of industry. Governments, on their side, imagined that in banks they had found an open mine, from which they might draw at discretion. At each new season of need, they stuck new bank-notes. But they soon perceived, with astonishment, that notes were no longer received with the same confidence, and were speedily carried back to the bank for payment; and next, as their custom generally is, they substituted their authority for the nature of things. They refused payment on demand, but they ordered each citizen to receive as ready coin, those notes which had thus become paper money; and they authorised every debtor to pay his accounts with it. The circulation of paper money became, in a short time, nothing less than a general bankruptcy. Notwithstanding all the orders of government, paper fell every day in its proportion to silver or to goods. The bearers of it, feeling that they had no pledge for the values, the sign of which they were always presenting, dreaded lest the paper should undergo a new deterioration in their hands, and made haste to get rid of it. Each lost and caused loss, each having no longer any common measure of value, became unable to distinguish the gain from the loss of his bargain, and always selling with advantage, he ended in ruin. During this time, coin disappeared, goods themselves were exported from the country, without giving any return; and the expedient, which promised to create immense wealth, produced nothing but ruin and confusion. A fatal error had led to all these misfortunes. It was imagined that credit had the power of creating wealth; whilst, in fact, credit never creates any thing, but merely borrows with one hand to lend with the other, that wealth, which, to be of use, must have previously existed in the state. Paper money can be substituted only for the metallic money already in existence; it is the value of this which it borrows. The banker, who finds credit, acquires the power to dispose of a part of the currency equal to the paper he emits. If he in reality withdraw part of the currency from circulation, his paper will remain there;