to produce them. The invention of Cash Credits has advanced the wealth of Scotland by centuries. Thus we have an enormous mass of Exchangeable Property created out of Nothing by the mere will of the bank and its customers, which produces all the solid effects of gold and silver and, when it has done its work, it vanishes again into Nothing, at the will of the same persons who called it into existence. Hence we see that the mere will of man has created vast masses of Wealth out of Nothing: and then, having served their purpose, they were Decreated into Nothing: which are "Melted into air, into thin air" But their solid results have by no means faded "Like the baseless fabric of a vision, Leaving not a wreck behind " On the contrary, their solid results have been vast tracts of barren moor converted into fields of waving corn; the manufactures of Glasgow, Dundee, and Paisley; the unrivaled steamships of the Clyde; great public works, of all sorts; roads; canals; bridges ; harbours; docks; railroads: and poor young men converted into princely merchants What the Nile is to Egypt that has her Banking system been to Scotland: and it was fortunate for her that the foundations of her prosperity were laid broad and deep before the gigantic fallacy was dreamt of that the Issues of Banks should be inexorably restricted to the amount of gold they displace: that no increase of money can be of any use to a country: and before Mill had proclaimed to the world that to create Credit in excess of Specie is robbery ! On Banks of Credit Fongier or Land Banks 23. At the close of the seven years' war, in 1756, the proprietors in Silesia found themselves in a state of inextricable embarrassment. The ruin and destruction caused by the war, and the low price of corn, caused by the general distress, made them unable to meet their engagements. Interest and commission rose to thirteen per cent. They obtained a respite of three years to pay their debts. To alleviate the distress arising out of this state of matters, a Berlin merchant, named Büring, invented a system of Land Credit, which has been very extensively adopted in Germany, Russia, Poland, and, lastly, in France Proprietors of land can, no doubt, borrow money on mortgage: but, in every country, such transactions are attended with many inconveniences. They have many expensive formalities to undergo, such as investigation of title, &c. Moreover, the difficulties and expense of transfer are usually very great; as each purchaser has to undergo the same labour and expense. If the debtor fails to pay, the process of obtaining redress, or possession of the land, is usually very troublesome and expensive. The consequence of all these obstacles is, of course, to raise greatly the terms on which money can be borrowed on mortgage The system of Government Funds suggested to Büring the idea of creating a similar species of Land Stock. The Government could usually borrow much cheaper than the landlords, because the title was sure and indisputable, and there was no impediment to the negotiability of their Debts Büring, therefore, conceived the idea of substituting the joint guarantee of all the proprietors for that of individuals: and establishing a book in which this Land Stock should be registered, and be made transferable: and the dividends paid exactly in the same way as in the Public Funds. The Credit of the Association was, therefore, always interposed between the lenders and the borrowers. Those who bought the Stock looked only to the Association for the payment of their dividends; and the borrowers paid all interest to the Association, which took upon itself all questions of title and security. The whole of these Obligations are turned into Stock, transferable, in all respects, like the Public Funds. Such is the general design of these Associations: they avoid the rock of creating Paper Money: while they greatly facilitate the application of Capital to the land. They, in fact, do nothing more than turn Mortgages into Stock These Associations are divided into two classes. The first are private Associations: and these again are divided into Companies formed by borrowers and those formed by lenders. The second are founded by the State, or the provincial authorities : The system was introduced into Silesia in 1770; the March of Brandenburg in 1777; Pomerania in 1781; Hamburgh in 1782 ; West Prussia in 1787; East Prussia in 1788; Luneburg in 1791; Esthonia and Livonia in 1803; Schleswick Holstein in 1811; Mecklenburg in 1818; Posen in 1822; Poland in 1825; Kalonberg, Grubenhagen, and Hildesheim in 1826; Wurtemberg in 1827; Hesse Cassel in 1832; Westphalia in 1835; Gallicia in 1841; Hanover in 1842; Saxony in 1844 and France in 1852 The fullest information respecting these banks is to be found in a work by M. Josseau, from which these details are taken, and to which we may refer the reader who wants full information on the different constitutions of these Associations All these Land Banks make advances to about one-half the value of the land, in small bonds, chiefly varying from £5 to £100, bearing interest from three-and-a-half to four per cent. transferable by indorsement or delivery: together with a small sum to form a sinking fund to redeem the principal, and defray the expenses of management The holder of the bonds has, as security for their payment, the whole Capital of the Company, and the lands specially mortgaged to them The borrowers may pay either in money, or in the bonds of the Company, which they may purchase from the public: thus exhibiting another example of the universal doctrine that the Release of a Debt is equivalent to a Payment in Money These institutions have had the most marvelous effects in developing the agriculture of the countries in which they have been formed exactly similar to the effects of Cash Credits in Scotland Their Obligations have maintained through all crises-monetary, war, and revolutionary-a steadiness of value far beyond any other public securities whatever, either Government or Commercial. Josseau says, that in a population of 27,827,990, the negotiable Lettres de Gage, or Pfandbriefe, amounted to 540,423,158 francs. In the revolutionary period of 1848, while the Prussian funds fell to 69: the shares of the Bank of Prussia to 63 and the shares in Railroads 30 to 90 per cent.: the Land Bank bonds, producing 3 per cent. interest, stood at 93 in Silesia and Pomerania; at 83 in West Prussia; and at 96 in East Prussia AA On the Economical Effects of Banking 24. Having now given an exposition of the actual mechanism of banking, we can observe its Economical effects We observe, that the business of banking is to build up a superstructure of Credit several times exceeding the basis of bullion and this Credit is intended to circulate and produce all the effects of money : And every one who has understood the mechanism of banking, has seen that it practically augments the Capital of the country. Thus, John Law says, that the Bank of Scotland, on a basis of £10,000 in money, were able to maintain £50,000 of their notes in circulation; which, he says, was in effect so much additional money to the country. He also says "The introduction of Credit, by means of a bank, augments the quantity of money more in one year than a prosperous commerce would do in ten " So, Bishop Berkeley, after proposing many wise queries on Money and Credit, says that a bank is a gold mine, and asks whether it be not the true philosopher's stone? So, Alexander Hamilton, the eminent financier of the United States, when called upon to present a report on the expediency of establishing a National Bank, says "The following are among the principal advantages of a Bank: "First: the Augmentation of the active or productive capital of a country. . . . . It is a well-established fact that banks in good credit can circulate a far greater sum than the actual quantum of their Capital in gold and silver. . . . . This faculty is produced in various ways "(1) A great portion of the notes which are issued and pass current as cash are indefinitely suspended in circulation, from the confidence which each holder has that he can, at any moment, turn them into gold and silver "(2) Every loan which a bank makes is, in its first shape, a Credit given to the borrower on its books, the amount of which it stands ready to pay, either in its own notes, or gold or silver, at his option. But, in a great number of cases, no actual payment is made in either. The same circumstances illustrate the truth of the position that it is one of the properties of banks to increase the active Capital of a country. This additional employment given to money, and the faculty of a bank to lend and circulate a greater sum than the amount of coin, are to all the purposes of trade and industry an absolute Increase of Capital. Purchases, and undertakings in general, can be carried on by means of Bank Paper, or Credit, as effectually as by an equal sum of gold and silver. And thus, by contributing to enlarge the mass of industrious and commercial enterprises, banks become nurseries of national wealth,-a consequence as satisfactorily verified by experience as it is clearly deducible in theory" So, J. B. Say says "If Bills of Credit could replace completely metallic money, it is evident that a Bank of Circulation veritably augments the sum of National Wealth, because, in this case, the metallic wealth, becoming superfluous as an agent of circulation, and nevertheless preserving its own value, becomes disposable, and can serve other purposes. But how does this substitution take place? What are its limits? What classes of society make their profit of this interest of the new fund added to the Capital of the nation? "According as a bank issues its notes, and the public consents to receive them on the same footing as metallic money, the number of monetary units increases "If, suppose, it issues one hundred millions of notes, it will withdraw, perhaps, forty millions in specie, which it will put in reserve to meet the payments which may be demanded of it. Therefore, if it adds to the quantity of money in circulation, and if it withdraws forty millions from circulation, it is as if it added only sixty millions "We now wish to learn what class of society enjoys the use of this New Capital" Say then goes on to explain how this New Capital is employed, and who reaps the profit of it Thus, it is seen, that all these writers, and many more might be cited if necessary, recognise the fact that banking augments the Capital of the country Gilbart, also, says-" Bankers also employ their own Credit as Capital. They issue Notes promising to pay the bearer on demand. As long as the public are willing to take these Notes as gold, they produce the same effects. The banker who makes |