The knowledge which the banker acquires, by means of the system of bank credits, of the state of the affairs of those dealing with him, is probably somewhat greater than can be obtained by the mere discount of bills.It gives him the sort of information, which one would acquire of the affairs of another, by having the care of his purse.I believe, also, that persons dealing with the Scotch bankers, are somewhat more strongly excited than those dealing with other bankers, to vigilance in providing funds to meet positive engagements with them, as the slightest failure of any individual in any such transaction, occasions his sureties being called on to pay up his cash account, ruins his credit, and renders it impossible for him to continue his business.It is probable, therefore, that this system has considerable efficiency in checking rash and imprudent speculations, by withholding funds from those most likely to run into them.
3.The large amount of stock subscribed, and the subscribers being severally responsible to the amount of all the property they possess, give so great confidence in the stability of the banks, that nothing but some very great revolution in the affairs of the society, or some great convulsion in the money market, would be sufficient to shake it.Owing to the system pursued, the possibility of any great disturbance of the money market is prevented.
This forms the fourth circumstance to be noted.
4.I have observed in the text, that, when any reverse happens to the trade of a community, the diminution of sales which is the consequence of it, while it renders it necessary for those, whose business, as compared with their capital, is much expanded, to borrow money to meet the engagements which they have entered into, gives a redundancy of money to those whose business, as compared with their capital, is small, and who have contracted to receive a great amount of money, and to pay only a small amount.
According to the system of banking which prevails in England, and in most countries, all individuals in the latter class will have a greater or less amount of cash lying by them useless.They are afraid to lend it, owing to the prevailing embarassments, and, where the banker allows no interest on money deposited with him, they have no particular motive to induce them to lodge it in any bank.But, when a person intends to keep money lying by him, he will be apt to prefer coin, to paper, the former is the securest of any sort of property, the latter may possibly be insecure.
He will more especially be inclined to prefer the former, if he have the least suspicion of the stability of the bank issuing the paper.It is thus that, at such seasons, what are called runs upon particular banks, are very apt to arise, and both to bring ruin on the bank, and increase the general embarrassment.But wherever, as in Scotland, the banker allows interest on all sums deposited, no one thinks of keeping money by him.
The very classes, too, it may be remarked, who are most apt to commence these runs, petty shop-keepers and tradesmen, have in Scotland, in general, bank credits, and are continually striving to put as much money into the bank with which they deal, as the necessity of their business will permit.
In Scotland, therefore, the banks, owning greatly, no doubt, to the guarantee of a very large capital prudently managed, but, also, as I conceive, in no inconsiderable degree, to the tendency of the system to bring into them all the spare funds of the society in the shape of deposits, have not for fifty years been exposed to any dangers or inconveniences of the sort, and in the midst of the severest commercial distress, and the ruin of the banking establishments of the sister kingdom, have always maintained their course steadily, and been able to apply the resources of the community to carry those through the crisis, whose embarrassments had arisen, not from the bankrupt state of their affairs, but from the pressure of the times.(197)5.Banks have very often issued an overabundant supply of their particular money, and it has been depreciated.An effectual remedy for this, one would be inclined to conceive, would be their being obliged to convert it, on demand, into gold or silver.Many persons, however, do not think that this is sufficient, and believe, that, notwithstanding, an over issue may take place.If so, the Scotch system, by its tendency to return on the bank all money not in immediate use, would seem to be a pretty effective check on the occurrence of such an evil.
Banking may be fifty described, as a generalization of individual credit transactions.Every system of banking generalizes them to a greater or less extent.The more complete the generalization, the more completely does the system perform its functions, and the nearer it comes to the perfection of art.The Scotch system, viewed as an art of this sort, seems to discharge its function well.Whatever spare capital the turns of business may there throw into any individuals hand, he finds it for his advantage to place in the bank, whatever additional capital they may require of him, he easily procures from the bank.The facility with which it operates may be best seen, by contrasting it with the English system.
