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dwelling…houses of his workmen; etc。; of the capital which the

undertaker of a mine employs in sinking his shafts; in erecting

engines for drawing out the water; in making roads and

waggon…ways; etc。; of the capital which the person who undertakes

to improve land employs in clearing; draining; enclosing;

manuring; and ploughing waste and uncultivated fields; in

building farm…houses; with all their necessary appendages of

stables; granaries; etc。 The returns of the fixed capital are in

almost all cases much slower than those of the circulating

capital; and such expenses; even when laid out with the greatest

prudence and judgment; very seldom return to the undertaker till

after a period of many years; a period by far too distant to suit

the conveniency of a bank。 Traders and other undertakers may; no

doubt; with great propriety; carry on a very considerable part of

their projects with borrowed money。 In justice to their

creditors; however; their own capital ought; in this case; to be

sufficient to ensure; if I may say so; the capital of those

creditors; or to render it extremely improbable that those

creditors should incur any loss; even though the success of the

project should fall very much short of the expectation of the

projectors。 Even with this precaution too; the money which is

borrowed; and which it is meant should not be repaid till after a

period of several years; ought not to be borrowed of a bank; but

ought to be borrowed upon bond or mortgage of such private people

as propose to live upon the interest of their money without

taking the trouble themselves to employ the capital; and who are

upon that account willing to lend that capital to such people of

good credit as are likely to keep it for several years。 A bank;

indeed; which lends its money without the expense of stamped

paper; or of attorneys' fees for drawing bonds and mortgages; and

which accepts of repayment upon the easy terms of the banking

companies of Scotland; would; no doubt; be a very convenient

creditor to such traders and undertakers。 But such traders and

undertakers would; surely; be most inconvenient debtors to such a

bank。

     It is now more than five…and…twenty years since the paper

money issued by the different banking companies of Scotland was

fully equal; or rather was somewhat more than fully equal; to

what the circulation of the country could easily absorb and

employ。 Those companies; therefore; had so long ago given all the

assistance to the traders and other undertakers of Scotland which

it is possible for banks and bankers; consistently with their own

interest; to give。 They had even done somewhat more。 They had

overtraded a little; and had brought upon themselves that loss;

or at least that diminution of profit; which in this particular

business never fails to attend the smallest degree of

overtrading。 Those traders and other undertakers; having got so

much assistance from banks and bankers; wished to get still more。

The banks; they seem to have thought; could extend their credits

to whatever sum might be wanted; without incurring any other

expense besides that of a few reams of paper。 They complained of

the contracted views and dastardly spirit of the directors of

those banks; which did not; they said; extend their credits in

proportion to the extension of the trade of the country; meaning;

no doubt; by the extension of that trade the extension of their

own projects beyond what they could carry on; either with their

own capital; or with what they had credit to borrow of private

people in the usual way of bond or mortgage。 The banks; they seem

to have thought; were in honour bound to supply the deficiency;

and to provide them with all the capital which they wanted to

trade with。 The banks; however; were of a different opinion; and

upon their refusing to extend their credits; some of those

traders had recourse to an expedient which; for a time; served

their purpose; though at a much greater expense; yet as

effectually as the utmost extension of bank credits could have

done。 This expedient was no other than the well…known shift of

drawing and redrawing; the shift to which unfortunate traders

have sometimes recourse when they are upon the brink of

bankruptcy。 The practice of raising money in this manner had been

long known in England; and during the course of the late war;

when the high profits of trade afforded a great temptation to

overtrading; is said to have carried on to a very great extent。

From England it was brought into Scotland; where; in proportion

to the very limited commerce; and to the very moderate capital of

the country; it was soon carried on to a much greater extent than

it ever had been in England。

     The practice of drawing and redrawing is so well known to

all men of business that it may perhaps be thought unnecessary to

give an account of it。 But as this book may come into the hands

of many people who are not men of business; and as the effects of

this practice upon the banking trade are not perhaps generally

understood even by men of business themselves; I shall endeavour

to explain it as distinctly as I can。

     The customs of merchants; which were established when the

barbarous laws of Europe did not enforce the performance of their

contracts; and which during the course of the two last centuries

have been adopted into the laws of all European nations; have

given such extraordinary privileges to bills of exchange that

money is more readily advanced upon them than upon any other

species of obligation; especially when they are made payable

within so short a period as two or three months after their date。

If; when the bill becomes due; the acceptor does not pay it as

soon as it is presented; he becomes from that moment a bankrupt。

The bill is protested; and returns upon the drawer; who; if he

does not immediately pay it; becomes likewise a bankrupt。 If;

before it came to the person who presents it to the acceptor for

payment; it had passed through the hands of several other

persons; who had successively advanced to one another the

contents of it either in money or goods; and who to express that

each of them had in his turn received those contents; had all of

them in their order endorsed; that is; written their names upon

the back of the bill; each endorser becomes in his turn liable to

the owner of the bill for those contents; and; if he fails to

pay; he becomes too from that moment a bankrupt。 Though the

drawer; acceptor; and endorsers of the bill should; all of them;

be persons of doubtful credit; yet still the shortness of the

date gives some security to the owner of the bill。 Though all of

them may be very likely to become bankrupts; it is a chance if

they all become so in so short a time。 The house is crazy; says a

weary traveller to himself; and will not stand very long; but it

is a chance if it falls to…night; and I will venture; therefore;

to sleep in it to…night。

     The trader A in Edinburgh; we shall suppose; draws a bill

upon B in London; payable two months after date。 In reality B in

London owes nothing to A in Edinburgh; but he agrees to accept of

A's bill; upon condition that before the term of payment he shall

redraw upon A in Edinburgh for the same sum; together with the

interest and a commission; another bill; payable likewise two

months after date。 B accordingly; before the expiration of the

first two months; redraws this bill upon A in Edinburgh; who

again; before the expiration of the second two months; draws a

second bill upon B in London; payable likewise two months after

date; and before the expiration of the third two months; B in

London redraws upon A in Edinburgh another bill; payable also two

months after date。 This practice has sometimes gone on; not only

for several months; but for several years together; the bill

always returning upon A in Edinburgh; with the accumulated

interest and commission of all the former bills。 The interest was

five per cent in the year; and the commission was never less than

one half per cent on each draft。 This commission being repeated

more than six times in the year; whatever money A might raise by

this expedient must necessarily have; cost him something more

than eight per cent in the year; and sometimes a great deal more;

when either the price of the commission happened to rise; or when

he was obliged to pay compound interest upon the interest and

commission of former bills。 This practice was called raising

money by circulation。

     In a country where the ordinary profits of stock in the

greater part of mercantile projects are supposed to run between

six and ten per cent; it must have been a very fortunate

speculation of which the returns could not only repay the

enormous expense at which the money was thus borrowed for

carrying it on; but afford; besides; a good surplus profit to the

projector。 Many vast and extensive projects; however; were

undertaken; and for several years carried on without any other

fund to support them besides what was raised at this enormous

expense。 The

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