(3.xii.9) In competition with such an establishment, any bank, of doubtful credit, wouldvainly endeavour to introduce its notes into circulation. The sense of interest keeps the attentionsufficiently awake, and where education and knowledge are tolerably advanced, and the press isfree, intellect is not wanting to guide the most ignorant to the proper conclusions. The peoplemay be trusted to reject the notes of a suspected party, when they may have those of a party inwhom they confide.
(3.xii.10) Another great advantage is gained, by the scheme of numerous banks, eachsupplying, under the safeguard of freedom and competition, a limited district; that if one of them fails, theevil is limited, and produces inconvenience to but a small portion of the community.
(3.xii.11) The interest, also, which banks, where numerous, have in supplanting one another,places them on the watch to discover any symptom of deficiency on the part of a rival; and eachof them, knowing that it is vigilantly watched, is careful to avoid any fault, which can lead to adiminution of its credit.
(3.xii.12) In Scotland, where banking is nearly placed upon this desirable footing, and wherepaper money spontaneously filled the channels of circulation, long before the suspension of cashpayments at the Bank of England, there have been few failures in the numerous banks whichissued paper, notwithstanding all the fluctuations in the value of' money, produced by thatsuspension, and all the convulsions of credit of which those fluctuations were the cause.
(3.xii.13) Such are the securities which the interest and intelligence of the parties wouldprovide, without the intervention of the legislature. Of the securities which might be provided by thelegislature, the following are among those which most obviously present themselves.
(3.xii.14) It might be rendered imperative upon every bank to transmit to some organ ofgovernment two monthly statements, one of the amount of its notes, another of the securitieswith which it was provided to meet the demands to which it was liable; while appropriatepowers might be granted, for taking the necessary steps to protect the public, where propersecurities might appear to be wanting.
(3.xii.15) As a great profit attends the issuing of notes in favourable circumstances, it isdesirable that the benefit, if unattended with preponderant evil, should accrue to the public. Theprofit, it is observable, arising from the interest upon the notes as they are lent, is altogetherdistinct from the other benefit, arising from the conversion of a costly medium of exchange intoinstruments of production.
(3.xii.16) The issuing of notes is one of that small number of businesses, which it suits agovernment to conduct a business which may be reduced to a strict routine and falls within thecompass of a small number of clear and definite rules. If the public were its own banker, as itcould not fail in payments to itself, the evils, liable to arise from the failure of the parties whoissue notes to fulfil their engagements, could not possibly have place. The people, in this case,would provide the funds to fulfill the engagements, and the people would receive them. PoliticalEconomy does not contemplate the misapplication of the funds provided by the people. Thecases of national bankruptcy, and of the non-payment of a government paper, by which thepeople of various countries have suffered, have all been cases in which the many have beenplundered for the benefit of the few. When the people, as a body, are to receive the payment,which the people, as a body, provide the funds to make, it would be absurd to speak of their lossby a failure.
(3.xii.17) The chance of evil, then, from a failure in discharging the obligations contractedby the issue of paper money, is capable of being so much reduced, as to constitute no validobjection against an expedient, the benefits of which are great and indisputable. There arepersons, however, who say, that if the benefits derived from paper money did surpass the chanceof evil in quiet and orderly times, the case is very different in those of civil war or foreigninvasion.
(3.xii.18) Civil war, and foreign invasion. are words which raise up vague conceptions ofdanger; and vague conceptions of danger are too apt to exert undue influence on theunderstanding.
(3.xii.19) In the first place, there is, in the present state or the civilised world, so littlechance of Civil war, or foreign invasion, in any country having a good government and a considerablepopulation that, in contriving the means of national felicity, small allowance can be rationallyrequired for it. To adopt a course of action, disadvantageous at all but times of civil war andforeign invasion, only because it were good on those occasions, would be as absurd, as it wouldbe, in medicine, to confine all men continually to that species or regimen which suits a violentdisease. If the advantages, which arise from the use of paper money, are enjoyed, without anyconsiderable abatement, at all times, excepting those of civil war and foreign invasion, the utilityor paper money is sufficiently provcd.
(3.xii.20) To save ourselves from the delusion which vague conceptions of danger are apt tocreate, it is proper to inquire, what are the precise evils which may arise from paper money,during those rare and extraordinary times.
(3.xii.21) A civil war, or a foreign invasion, is attended with a great derangement of thecirculating medium, when it is composed of gold and silver. At such a period there is a generaldisposition to hoard: a considerable proportion, therefore, of the medium of exchange iswithdrawn from circulation, and the evils of a scarcity of money are immediately felt; the pricesof commodities fall; the value of money rises; those who have goods to sell, and those who havedebts to pay, are subject to losses; and calamity is widely diffused.
