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THE NATURE OF COIN, AND OF BANK AND BANKERS' NOTES.
COIN of gold or silver denotes the quantity of pure gold or pure silver contained in the coin, which may thus be taken, in exchange, without the trouble of weighing or assaying. Gold or silver having been assumed by civilised nations as the measure of exchangeable value, coin of gold and silver is thus rendered conveniently useful for the purpose of making exchanges, and in the employment of labour, which, as well as commodities, is measured by gold or silver.
Bills of exchange have been resorted to for the purpose of making payments, as between one country and another, and between one individual and another in the same country. The exchangeable value of the commodities for which they are granted is estimated in gold or silver; and the bills granted in exchange for commodities are payable in gold or silver, if required by the holder. Such bills of exchange are well known among merchants every where; but a banker's note, such as it exists in the United Kingdom, is hardly known in any other country in Europe, though approaches have been made
to it in America. Our standard being gold, a banker's note is in the nature of a receipt for so much gold not that gold is always given for it; but no banker issues a note without receiving value for it, estimated in gold.
The only part of the United Kingdom where banking has not been interfered with by the legislature (except that no note shall be issued for less than twenty shillings) is Scotland, and there the most perfect security has been the consequence of the most perfect freedom. The currency of Scotland has attained the perfection described by Mr. Ricardo, but which he was not aware actually existed: "A currency is in its "most perfect state, when it consists wholly of
paper money, but of paper money of an equal "value with the gold which it professes to re66 present. The use of paper in place of
gold, substitutes the cheapest, in place of the "most expensive, medium; and enables the "country, without loss to any individual, to ex"change all the gold which it before used for "this purpose for raw materials, utensils, and "food, by the use of which both its wealth and "and its enjoyments are increased." He adds:Experience shows that neither a state nor a "bank ever has had the unrestricted power of
Principles of Political Economy, third edit. p. 432.
issuing paper money, without abusing that power: in all states, therefore, the issue of
paper money ought to be under some check "or control; and none seems so proper for "that purpose, as that of subjecting the issuers "of paper money to the obligation of paying "their notes either in gold coin or bullion."
Silver is necessary for the purpose of making payments under twenty shillings; but gold is hardly ever seen in Scotland, where a banker's note is preferred to it. A banker's note in Scotland has every quality of the coin of the realm; for it is taken in exchange as money in every part of Scotland. A banker's note in Scotland is not only superior in that respect to a banker's note in England, which has only a limited circulation, in the neighbourhood of the place where it is issued; but it is even superior in this respect to a note of the Bank of England, which does not circulate generally in the country of England, where the note of a banker known in the neighbourhood is preferred to it.
Banking appears to have extended itself in Scotland sooner than it did in England, and to have made its commencement, as England did, by the issue of notes under twenty shillings, which were prohibited in Scotland ten years before they were prohibited in England.* For
* 5 G. 3. c. 49.
tunately for Scotland, her banking operations escaped observation from the passing of that act in 1765, until the year 1826, when the proscription of small notes in England, in that year, was also fortunately prevented from being extended to Scotland.
The consequence of this freedom had been, that, previously to the present year, three banking companies only, who issued notes, have stopped
payment in Scotland, all of whom paid twenty shillings in the pound. The banker who became bankrupt in the present year had the vice, common to bankers in England, of not carrying on the business of banking as a substantive trade, and his banking engagements were to a comparatively small amount.
Seeing that deposits with bankers in Scotland were proved to exceed 20,000,000l., no security for their notes, that could have been required
* Thirty-one banking companies, issuing notes in Scotland, were the number returned to the Small Note Committee, in 1826; but the number of companies conveys a very inadequate impression with regard to the business of banking in that country. The Bank of Scotland was proved to have sixteen branches, at as many different places; the British Linen Company twenty-seven; the Commercial Banking Company thirty-one. These were the greatest number; but almost all the thirty-one banking companies had some branches, so that no place in Scotland, of any note, was without a banking establishment.
from bankers, would have been of any avail.* But the course of transactions consequent upon a free system of banking, has practically worked out a security for the issue of notes in Scotland, which no legislative provision could have attained.
The cash credits in Scotland, for which ample security is always taken, were proved in 1826 to exceed 5,000,000l., while the whole paper circulation of Scotland was proved to be under 3,200,000l.; so that the security taken for cash credits, in Scotland, was found to be much more than equal to the whole paper circulation of Scotland.
THE REVULSION OF 1825-6.
THE revulsion of 1825-6 was similar to the revulsion of 1815-16, which last proved as fatal to
Many persons who advocate the freedom of banking propose that bankers should give security for the issue of their notes, forgetting that such a regulation is a restriction, and an infraction of the very principle they advocate. Adverting to the amount of deposits and discounts, any security that would be required would be unavailing; with freedom of banking it is useless.