In England, an individual dealing with a banker, is expected to leave in his hands an amount of capital as a deposit, for which he receives no interest.It is from this that the profit of the banker is derived.When, therefore, a person in the course of business has a greater portion than usual of unemployed capital, he finds there no immediate advantage in placing it m the bankers hands.He, therefore, probably, will not place it there so promptly, as he would in Scotland.The effect of this tardiness is more especially felt at those critical periods to which I have referred in the text, when, in consequence of a general decrease of the amount el sales, persons whose means have been most expanded, are under the necessity of borrowing to a larger extent than they had anticipated.If, on such occasions, they whose business has been contracted within narrower limits than their capitals would have admitted, and who, in consequence of avoiding to purchase, have a larger surplus capital than usual in their hands in the shape of money, retain it there, instead of placing it in the bank, the banker is restrained from making the advances he otherwise would, and a violent cheek is given to the operation of the credit system, sufficient to give a beginning to convulsions more extensively deranging it.
This system, also, as compared with the English, adjusts itself with greater precision to the actual circumstances of the two great classes of the community, the lenders and borrowers, to whose transactions it serves as the instrument.When, in consequence either.of the progress of accumulation, or of misfortunes befalling the industry of the country instruments are placed in more slowly returning orders, and profits fall, borrowers should pay less, and lenders receive less, for the use of capital.And reversely, when profits rise, more should be paid by the one class, and more received by the other.This is naturally brought about where a certain rate is paid for funds deposited, as well as for those drawn.Under such a system the banker cannot afford to have any capital lying dormant.He must, therefore, preserve the proper proportion between the funds deposited in his hands, and those drawn out of his hands.When the former become too great, which will be the case when trade is dull, he lowers the rate of interest which he charges his customers, and, also, that which he gives them, and thus diminishes the amount deposited, and increases that drawn.He does just the reverse and produces directly opposite effects, when trade becomes more lively, and profits rise.In England, on the contrary, the state of trade has no direct effect on the interest which bankers charge, and the due proportion between borrowers and lenders is not so maintained.(198)The advantages derived from any system become apparent, by considering the consequences that would result from its being abolished, or from its actions being impeded.On this account I shall state three hypothetical cases, with regard to the system which we are now considering, as an example of the effects of banking in general.
In the year 1856 it was proposed in the British Parliament, to enact a law putting a stop to the circulation of one pound bank notes, the chief money of Scotland.The bankers maintained that in this case they would no longer carry on business.Let us suppose, that the proposal had been adopted, and that the effect had really been utterly to abolish the business of banking in that country, and unless in barter, to make all buying and selling to be transacted in coin, either in ready cash, or in cash paid when the period, to which credit had been limited, expired.
In considering the effects of such a change, we may divide all transactions now taking place in Scotland, and concerned in the question, into those effected by bank bills, or as they are termed, bank notes, and those effected by cheeks on some bank.
