If, as matters stand, a very great inconvenience results to Scotland from the want of a communication of paper credit with England, and if thereby an exchange of 4 and even 5 per cent. has been paid for bills upon London, because all the coin of the country is locked up in banks; I ask what would be the consequence, if banks had their will in banishing from the circulation of their own district, every other notes but their own? In that case, we might, in a short time, find an exchange of 4 and 5 per cent. between Fife and Lothian, between Glasgow and Ayr, and so of the rest. What would then become of manufacturers, who could not dispose of their work at the distance of a few miles, without having recourse to exchangers for their payment? If such an abuse were once allowed to creep in, there would be no other remedy but to destroy banks altogether, and throw the little coin there is into circulation.
On the other hand, when banks are in a good understanding, when they are established on solid principles, when their paper is issued on proper security, the public is safe; and in every little district, under the wings of their own bank, there will arise a set of exchangers, who will give credit to merchants and manufacturers, and who will have recourse to their own bank for the coin or bills necessary for their occasions. This will naturally divide the payment of the grand balance among them, in a due proportion to their circulation.
I shall now consider the principles which may direct a statesman to settle banking upon mortgage on a proper footing, to serve every national purpose.
CHAP. XVI.
Of some Regulations proper to be made with regard to national Banks.
From what has been said, we may conclude, that were a national bank upon mortgage, established on a plan calculated to answer the purposes of the most extensive domestic circulation, it might be regulated in the following manner.
1mo, Let a large stock of property, of one species or other, be provided, in order to gain the confidence of the public, and let it be pledged for the payment of all the notes.
2do, Let all solid property intended to be melted down into paper money, be first constituted in such a manner as to be easily sold, and in the mean time secured to the company, for their advance, preferably to every other person, and let it be of a revenue fully sufficient to acquit the interest for ever.
3tio, The capitals due to the bank must not be demandable by the bank, as long as the interest is regularly paid.
4to, Every one who constitutes his property according to the regulations, must be entitled to a proportional credit from them.