Further explanations and enquiries as to the utility of a National Bank It is of little importance to examine why the Bank of Venice and that of Amsterdam keep their books in moneys of account different from current money, and why there is always an agio on converting these book credits into currency. It is not a point of any service for circulation. The Bank of England has not followed it in this. Its accounts, its notes and its payments are made and are kept in current coin, which seems to me more uniform and more natural and no less useful.
I have not been able to obtain exact information of the quantity of sums ordinarily brought to these Banks, nor the amount of their notes and accounts, loans, and sums kept as reserve. Some one who is better informed on these points will be better able to discuss them. As, however, I know fairly well that these sums are not so huge as commonly supposed I will not omit to give an idea of them.
If the bills and notes of the Bank of England which seems to me the most considerable, amount weekly on an average to 4,000,000 ounces of silver or about 1 million sterling, and if they are content to keep regularly in reserve a quarter or ?50,000 sterling or 1 million ounces of silver in coin, the utility of this Bank to circulation corresponds to an increase of the money of the State by 3 million ounces or ?50,000 sterling which is without doubt a very large sum and of very great utility for the circulation when it has need to be speeded up: for I have remarked elsewhere that there are cases where it is better for the welfare of the State to retard the circulation than to accelerate it. I have heard that the notes and bills of the Bank of England have risen in some cases to 2 millions sterling, but it seems to me this can only have been by extraordinary accident.
And I think the utility of this Bank corresponds in general only to about one tenth part of all the money in circulation in England.
If the explanations given to me in round figures in 1719 on the receipts of the Bank of Venice are correct it may be said of national banks generally that their utility never corresponds to the tenth part of the current money circulating in a State. This is approximately what I ascertained there.
The revenues of the State of Venice may amount annually to 4 million ounces of silver, which must be paid in Bank money, and the Collectors set up for that purpose who receive at Bergamo and in the most distant places taxes in money, are obliged to change them into bank money when they make payment of them to the Republic.
All payments at Venice for negociations, purchases and sales above a certain modest sum must by law be made in Bank money. All the retailers who have collected current money in their dealings are compelled to buy Bank money with it to make their payments for large amounts. And those who need for their expenses or for the detail of small circulation to get back current money have to sell their Bank money to obtain it.
It is found that the sellers and buyers of the Bank money are regularly equal when the total of all the credits or inscriptions on the books of the Bank do not exceed the value of 800,000 ounces of silver or thereabout.
Time and experience (according to my informant) have given this knowledge to the Venetians. When the Bank was first set up individuals brought their money to the Bank to have credit at the Bank of the same value. This money deposited at the Bank was later spent for the needs of the Republic and yet the Bank money preserved its original value because there were as many people who had need to buy it as those who had need to sell it. Finally the State being pressed for money gave to the War Contractors credits in Bank money instead of silver and doubled the amount of its credits.
Then the number of sellers of Bank money being much greater than the buyers Bank money began to be at a discount against silver and fell 20 per cent below. By this discredit the revenue of the Republic fell off one fifth and the only remedy found for this disorder was to pledge part of the State revenue to borrow Bank money at interest. By these borrowings of Bank money half of them were cancelled and then the sellers and buyers being about equal the Bank regained its original credit and the total of Bank money was brought back to 800,000 ounces of silver.
It is thus that it has been ascertained that the utility of the Bank of Venice as regards circulation corresponds to about 800,000 ounces of silver: and if it is supposed that all the current money in the States of that Republic amount to 8 million ounces of silver the utility of the Bank corresponds to one tenth of that silver.
A national Bank in the capital of a great Kingdom or State must, it seems, contribute less to the utility of circulation because of the distance of its provinces, than in a small State.
And when money circulates there in greater abundance than among its neighbours a national Bank does more harm than good. An abundance of fictitious and imaginary money causes the same disadvantages as an increase of real money in circulation, by raising the price of land and labour, or by making works and manufactures more expensive at the risk of subsequent loss. But this furtive abundance vanishes at the first gust of discreet and precipitates disorder.
Towards the middle of the reign of Louis XIV there was more money in circulation in France than in neighbouring countries, and the King's revenue was collected there without the help of a Bank, as easily and conveniently as it is collected today in England with the help of the Bank of England.
If the clearings at Lyons in one of its four fairs amount to 80 millions of livres, if they are begun and finished with a single million of ready money, they are doubtless of great convenience in saving the trouble of an infinity of transports of silver from one house to another. But with that exception it seems that with this same million of cash which began and ended these clearings it would be quite feasible to conduct in three months all the payments of 80 millions.
