Essays, Thomas Paine [digital book reader .txt] 📗

removes the old. Every natural idiot can see this; it is the stock-jobbing idiot only that mistakes. He has conceived that art can do what nature cannot. He is teaching her a new system⁠—that there is no occasion for man to die⁠—that the scheme of creation can be carried on upon the plan of the funding system⁠—that it can proceed by continual additions of new beings, like new loans, and all live together in eternal youth. Go, count the graves, thou idiot, and learn the folly of thy arithmetic!

But besides these things, there is something visibly farcical in the whole operation of loaning. It is scarcely more than four years ago that such a rot of bankruptcy spread itself over London, that the whole commercial fabric tottered; trade and credit were at a stand; and such was the state of things that, to prevent or suspend a general bankruptcy, the government lent the merchants six millions in government paper, and now the merchants lend the government twenty-two millions in their paper; and two parties, Boyd and Morgan, men but little known, contend who shall be the lenders. What a farce is this! It reduces the operation of loaning to accommodation paper, in which the competitors contend, not who shall lend, but who shall sign, because there is something to be got for signing.

Every English stockjobber and minister boasts of the credit of England. Its credit, say they, is greater than that of any country in Europe. There is a good reason for this: for there is not another country in Europe that could be made the dupe of such a delusion. The English funding system will remain a monument of wonder, not so much on account of the extent to which it has been carried, as of the folly of believing in it.

Those who had formerly predicted that the funding system would break up when the debt should amount to one hundred or one hundred and fifty millions, erred only in not distinguishing between insolvency and actual bankruptcy; for the insolvency commenced as soon as the government became unable to pay the interest in cash, or to give cash for the bank notes in which the interest was paid, whether that inability was known or not, or whether it was suspected or not. Insolvency always takes place before bankruptcy; for bankruptcy is nothing more than the publication of that insolvency. In the affairs of an individual, it often happens that insolvency exists several years before bankruptcy, and that the insolvency is concealed and carried on till the individual is not able to pay one shilling in the pound. A government can ward off bankruptcy longer than an individual: but insolvency will inevitably produce bankruptcy, whether in an individual or in a government. If then the quantity of bank notes payable on demand, which the bank has issued, are greater than the bank can pay off, the bank is insolvent: and when that insolvency is declared, it is bankruptcy.23

I come now to show the several ways by which bank notes get into circulation: I shall afterwards offer an estimate on the total quantity or amount of bank notes existing at this moment.

The bank acts in three capacities. As a bank of discount; as a bank of deposit; and as a banker for the government.

First, as a bank of discount. The bank discounts merchants’ bills of exchange for two months. When a merchant has a bill that will become due at the end of two months, and wants payment before that time, the bank advances that payment to him, deducting therefrom at the rate of five percent per annum. The bill of exchange remains at the bank as a pledge or pawn, and at the end of two months it must be redeemed. This transaction is done altogether in paper; for the profits of the bank, as a bank of discount, arise entirely from its making use of paper as money. The bank gives bank notes to the merchant in discounting the bill of exchange, and the redeemer of the bill pays bank notes to the bank in redeeming it. It very seldom happens that any real money passes between them.

If the profits of a bank be, for example, two hundred thousand pounds a year (a great sum to be made merely by exchanging one sort of paper for another, and which shows also that the merchants of that place are pressed for money for payments, instead of having money to spare to lend to government,) it proves that the bank discounts to the amount of four millions annually, or £666,666 every two months; and as there never remain in the bank more than two months’ pledges, of the value of £666,666, at any one time, the amount of bank notes in circulation at any one time should not be more than to that amount. This is sufficient to show that the present immense quantity of bank notes, which are distributed through every city, town, village, and farmhouse in England, cannot be accounted for on the score of discounting.

Secondly, as a bank of deposit. To deposit money at the bank means to lodge it there for the sake of convenience, and to be drawn out at any moment the depositor pleases, or to be paid away to his order. When the business of discounting is great, that of depositing is necessarily small. No man deposits and applies for discounts at the same time; for it would be like paying interest for lending money, instead of for borrowing it. The deposits that are now made at the bank are almost entirely in bank notes, and consequently they add nothing to the ability of the bank to pay off the bank notes that may be presented for payment; and besides this, the deposits are no more the property of the bank than the cash or bank notes in a merchant’s countinghouse are the property of his bookkeeper. No great increase therefore