Chap. XXXVIII. Coin is liable to constant vicissitudes. Its denomination may be changed by an act of power, and its real weight may be diminished in circulation. But when it is locked up, all these inconveniences are prevented. Bank money, therefore, being the value of the coin locked up, is constantly the same: whereas all coin which circulates is liable to variations; consequently, these variations are relative to the coin which circulates, and not to the bank-money. The difference between the one and the other is called agio.
Chap. XXXIX. Many have imagined the treasure of the bank of Amsterdam to be immense; because no body can ever take any thing from it, and that it is constantly receiving new augmentations: but the policy of the bank itself destroys this supposition, and shews plainly, that the sum locked up never can exceed what is absolutely necessary for circulating the trade of the city.
It is true, no person can go to the bank and demand to have the amount of his written credit paid him in coin. But were the written credits to exceed the uses found for them, the value of such bank-money would diminish; consequently, the value of the circulating coin would increase, which is the same thing. Now as this would prove a great discredit to the bank, they employ a set of cashiers or brokers to keep the balance even. Their business is to buy and sell bank credit with current coin, and to these the bank gives credit. When there is a demand for bank credit, the cashiers sell it for coin, and both parties going to the bank, a new credit is written, or the cashier’s credit is transferred to the buyer. When, on the other hand, coin is demanded for bank credit, the cashiers pay for it with coin which the bank lends them; and for their repayment, they transfer to the bank the credit they have bought with it. This needs a little explanation. Suppose one to have credit in bank for a thousand gilders, which he wants to send away in coin. He goes to the cashier and sells his thousand gilders of bank credit: the bank lends this thousand gilders to the cashier, and the man who sells the credit gets the coin, and makes a transfer of the credit in favour of the cashier. But as he owes this sum to the bank, he transfers this credit to the bank itself, in payment of the thousand gilders borrowed; and then the bank may expunge it, if they please, from their books; because it is due to themselves. Thus although no money can be demanded of the bank by one who has credit, they can give the money to a third party who does it for them.
Part III. Of Exchange.
Chap. I. Foreign circulation is carried on by bills of exchange.
When reciprocal debts are contracted by different countries, the creditors in both take payment at home for the bills they draw to the order of those who pay; and they again indorse the bills to their creditors abroad.
In this contract four parties concur: the domestic and foreign creditors; the domestic and foreign debtors. This operation can extend no farther than to the amount of reciprocal and equal debts; if there be a balance owing upon one side, this balance must be paid in value, either in money or merchandize. Now as a debt is much easier discharged by compensation than by payment, merchants endeavour to profit of this compensation; but as every one endeavours alike when there is a balance on one side, it operates upon the whole of the exchange, and every one must bear his share of the expence of paying it.
If London should owe a balance to the world, after compensating all that the world owes to her, every London-debtor to the world will wish to compensate; consequently, he will look out for one who is creditor to the world: but this search betrays the secret, and shews that he is the demander; upon which the other avails himself of his situation, and refuses to compensate without profit. Hence the secrecy said to be requisite in this branch of trade. It is requisite to the trader only, whose interest is concerned; because whatever one set of merchants in a place wish to conceal, another set have constantly an interest to divulge. The interest of the state consists in preserving an equality of profit and loss among them all; and in facilitating to them the paying and receiving the balances due upon the total of all their transactions. The loss of the nation is upon the balance due by the country; the expence of paying the balance, which is the price of exchange, is only a relative loss to some of her subjects, and a relative gain to others.
The attention, therefore, of a statesman in what regards exchange, is, 1mo, To take care that the true par between the value of the national money and the money of other nations, shall be as much as possible proportional to the quantity of metal contained in each.