Money and trade considered

by John Law

This bank was more useful than that of Amsterdam, or England; its notes passing in most payments, and through the whole country: the bank of Amsterdam being only for that town, and that of England of little use but at London.

The stop of payments which happened to the bank of Scotland, was foreseen, and might have been prevented. the consumption of foreign goods, and expence in England, being more than the export of goods did pay; the ballance sent out in money lessened the credit of the bank. for as credit is voluntary, it depends on the quantity of money in the country, and increases or decreases with it. coyning notes of one pound supported the bank, by furnishing paper for small payments, and thereby preventing a part of the demand for money: by these notes the bank might have kept its credit, till other methods had been taken to supply the country with money; had not a report of raising the money occasioned an extraordinary demand, which in few days exhausted the money in bank, and put a stop to payments.

It would not have been easie in that scarcity of money to have got enough to support the bank, tho’ men of the best credit had undertaken it; that report of raising the money having only occasioned a demand from the people in Edinburgh. in a short time notes would have come in so fast from the country, that what money could have been got, would not have answered the demand.

If the privy council had lowered the money, the English crown to 5s. and the other money in proportion, to take place 2 pence p. crown in 3 days, and the other 3 pence in a month; the occasion of the demand being removed, in all appearance money would have been returned to the bank.

If the state of the bank had been known, or suspected by the people; such a proclamation would have had the same effect, tho’ the stop of payment had then happen’d. in that case, the support of the bank might have been the narrative of the proclamation; the security being good, few or none would have kept their money to loss, rather than return it to the bank. and if in 3 days money had not come in so fast as expected, their lordships by a 2d. proclamation might have lowered the crown to 5 sh. to take place then, and 6 pence more in 3 days. when the credit of the bank had been re-established, the money might have been cryed up, if that had been necessary, the crown to 5 sh. and 5 pence, and the other money in proportion as it was before.

Some are against all banks where the money does not lie pledged equal to the credit. 1. they say the demand may be greater than the money in bank. secondly, if we are declining in our trade, or money, we are not at all, or are less sensible of it: and if the bank fail, we are in a worse condition than before.

To the first it’s answered, Tho’ the nation had no benefit by the addition the bank makes to the money; nor the people by being supply’d with money when otherwise they could not, and at less interest; and tho’ the proprietors had no gain by it: the other conveniencies, as quicker and easier payments, &c. are more than equal to that hazard; or bank notes, gold-smiths and bankers notes, would not be preferred to money, every body knowing such a stop may happen to the bank, and that gold-smiths and bankers may fail.

The other objection is the same as to say, a merchant who had a small stock, and was capable of imploying a greater; if a sum were offered him without interest, equal to what he had, and more as his own increased, should refuse it, because he might fancy himself richer than he was, and if his own stock decreased, that sum lent would be taken from him.

If 15000 is supposed the money in bank, and 75000 lib. of notes out; 60000 lib. is added to the money of the nation, without interest: for what is payed by the borrowers, is got by the proprietors. as the money of the nation increases, the credit of the bank increases, and the sum of notes out is greater; and so far from making the people less sensible of the condition of the country, a surer judgment of the state of trade and money may be made from the books of the bank, than any other way.

If trade can be carried on with a 100000 lib. and a ballance then due by foreigners; the same measures, and a greater quantity of money, would make the ballance greater. nor is that additional money the bank furnishes, to be supposed will be lost, if by a ballance due from trade the silver money increases: that credit may fail from an accident when money is plentiful, and would soon be recover’d; ’tis only lost by a scarcity of money. such a credit may support trade, in cases where without it trade would sink, but cannot do prejudice.