That credit, in its infancy, is of a very delicate nature, I willingly allow; as also that we have many examples which confirm the sentiments of those who believe it to contain, in itself, something very mysterious: but this proves no more, than that, in such cases, credit (as I consider it, and as it will appear really to be) has not been properly established. The cause of confidence has had nothing in it but opinion, and when this is the case, credit is but a shadow; a thin vapour, which may be dissipated by the smallest breath of wind.
They all agree that credit is no more than confidence, but they do not examine how that confidence is to be established on a solid foundation.
The operations of credit are incompatible with the involved contracts of the law, and with the spirit of intricate land-securities. The policy of such contracts was analogous to the manners of the times which gave them birth. Trade is a late refinement, in most nations of Europe, and industry is still a later: the beginnings of both are slow, imperceptible, and obscure. The instruments by which they are promoted, are the lower classes of a people; such individuals appear to be of very small consequence; and yet it is by the accumulation of many small things only, that this huge fabric is erected.
To establish that credit, which is necessary for carrying on so great a work, a statesman must lend his hand. He must give a validity to mercantile obligations, which have no name in his law books: he must support the weak against the strong: he must reform the unwieldy procedure of courts of justice: he must facilitate the sale of property: he must establish the credibility of merchants books regularly kept: he must discourage frauds, and support fair dealing.
When such a plan is once established, confidence will find a basis in the property of every individual who profits by it. When it is not established, credit will appear like a meteor: intelligent and crafty men will avail themselves of it, and thereby dazzle the eyes of the public, with gilded schemes of opulence and prosperity: mankind will fly to industry, confidence will be established; but as there will be no method of determining the bounds of that confidence, the promoters of the scheme will profit of the delusion: confidence will vanish; and the whole will appear to have been a mystery, a dream. Is not this a representation of many projects set on foot since the beginning of this century? What were the South Sea’s and Missisippi’s, but an abuse of confidence? Had ever the cause of confidence been examined into, would ever such extravagant ideas have arrived at the height they did?
Credit therefore must have a real, not an imaginary object to support it; and although I allow that in all operations of mercantile credit, there must be something left to chance and accident; yet that chance must bear a due proportion to the extraordinary profits reasonably to be expected from the undertaking.
From this it appears, what an useful speculation it is to inquire properly into the nature of credit; to deduce with accuracy the principles upon which it is founded; to banish mystery from plain reason; to shew how even[even] the most surprizing effect of credit, whether tending to the advantage, or to the hurt of society, may easily be accounted for; and, which is the most useful of all, to point out how such effects may be foreseen, so as either to be improved or prevented.
In going through so extensive a subject, as a deduction of the principles of credit, method is very necessary; and when a detail is long, subdivisions are very convenient. I have, upon this account, divided this book into four parts.
The first shall be set apart for deducing the principles which regulate the rate of interest; because this is the basis of the whole.
The second, for the principles of banking; under which I shall have an opportunity to unfold the whole doctrine of domestic circulation.