What pity Lycurgus did not think of paper-credit when he wanted to banish gold and silver from Sparta! It would have served his purpose better than the lumps of iron he made use of as money, and would also have prevented more effectually all commerce with strangers, as being of so much less real and intrinsic value.
It must, however, be confessed that, as all these questions of trade and money are extremely complicated, there are certain lights in which this subject may be placed so as to represent the advantages of paper-credit and banks to be superior to their disadvantages. That they banish specie and bullion from a state is undoubtedly true, and whoever looks no farther than this circumstance does well to condemn them; but specie and bullion are not of so great consequence as not to admit of a compensation, and even an overbalance from the increase of industry and of credit which may be promoted by the right use of paper-money. It is well known of what advantage it is to a merchant to be able to discount his bills upon occasion; and everything that facilitates this species of traffic is favourable to the general commerce of a state. But private bankers are enabled to give such credit by the credit they receive from the depositing of money in their shops; and the Bank of England in the same manner, from the liberty they have to issue their notes in all payments. There was an invention of this kind which was fallen upon some years ago by the banks of Edinburgh, and which, as it is one of the most ingenious ideas that has been executed in commerce, has also been found very advantageous to Scotland. It is there called a bank-credit, and is of this nature: A man goes to the bank and finds surety to the amount, we shall suppose, of five thousand pounds. This money, or any part of it, he has the liberty of drawing out whenever he pleases, and he pays only the ordinary interest for it while it is in his hands. He may, when he pleases, repay any sum so small as twenty pounds, and the interest is discounted from the very day of the repayment. The advantages resulting from this contrivance are manifold. As a man may find surety nearly to the amount of his substance, and his bank-credit is equivalent to ready money, a merchant does hereby in a manner coin his houses, his household furniture, the goods in his warehouse, the foreign debts due to him, his ships at sea; and can, upon occasion, employ them in all payments as if they were the current money of the country. If a man borrows five thousand pounds from a private hand, besides that it is not always to be found when required, he pays interest for it whether he be using it or not; his bank-credit costs him nothing except during the very moment in which it is of service to him, and this circumstance is of equal advantage as if he had borrowed money at much lower interest. Merchants likewise from this invention acquire a great facility in supporting each other’s credit, which is a considerable security against bankruptcies. A man, when his own bank-credit is exhausted, goes to any of his neighbours who is not in the same condition, and he gets the money, which he replaces at his convenience.