West Prussia in 1787; East Prussia in 1788; Luneburg in 1791; Esthonia and Livonia in 1803; Schleswick Holstein in 1811; Mecklenburg in 1818; Posen in 1822; Poland in 1825; Kalonberg, Grubenhagen, and Hildesheim in 1826; Wurtemberg in 1827; Hesse Cassel in 1832; Westphalia in 1835; Gallicia in 1841; Hanover in 1842; Saxony in 1844 and France in 1852

The fullest information respecting these banks is to be found in a work by M. Josseau, from which these details are taken, and to which we may refer the reader who wants full information on the different constitutions of these Associations

All these Land Banks make advances to about one-half the value of the land, in small bonds, chiefly varying from £5 to £100, bearing interest from three-and-a-half to four per cent. transferable by indorsement or delivery: together with a small sum to form a sinking fund to redeem the principal, and defray the expenses of management

The holder of the bouds has, as security for their payment, the whole Capital of the Company, and the lands specially mortgaged to them

The borrowers may pay either in money, or in the bonds of the Company, which they may purchase from the public: thus exhibiting another example of the universal doctrine that the Release of a Debt is equivalent to a Payment in Money

These institutions have had the most marvelous effects in developing the agriculture of the countries in which they have been formed exactly similar to the effects of Cash Credits in Scotland

Their Obligations have maintained through all crises-monetary, war, and revolutionary-a steadiness of value far beyond any other public securities whatever, either Government or Commercial. Josseau says that in a population of 27,827,990, the negotiable Lettres de Gage, or Pfandbriefe, amounted to 540,423,158 francs. In the revolutionary period o. 1848, while the Prussian funds fell to 69: the shares of the Bank of Prussia to 63 and the shares in Railroads 30 to 90 per cent.: the Land Bank bonds, producing 3 per cent. interest, stood at 93 in Silesia and Pomerania; at 83 in West Prussia; and at 96 in East Prussia

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On the Economical Effects of Banking

24. Having now given an exposition of the actual mechanism of banking, we can observe its Economical effects

We observe, that the business of banking is to build up a superstructure of Credit several times exceeding the basis of bullion and this Credit is intended to circulate and produce all the effects of money

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And every one who has understood the mechanism of banking has seen that it practically augments the Capital of the country. Thus, John Law says, that the Bank of Scotland, on a basis of £10,000 in money, were able to maintain £50,000 of their notes in circulation; which, he says, was in effect so much additional money to the country. He also says "The introduction of Credit, by means of a bank, augments the quantity of money more in one year than a prosperous commerce would do in ten'

So, Bishop Berkeley, after proposing many wise queries on Money and Credit, says that a bank is a gold mine, and asks whether it be not the true philosopher's stone?

So, Alexander Hamilton, the eminent financier of the United States, when called upon to present a report on the expediency of establishing a National Bank, says

"The following are among the principal advantages of a Bank:

"First: the Augmentation of the active or productive capital of a country. . . . . It is a well-established fact that banks in good credit can circulate a far greater sum than the actual quantum of their Capital in gold and silver. . . . . .. This faculty is produced in various ways—

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"(1) A great portion of the notes which are issued and current as cash are indefinitely suspended in circulation, from the confidence which each holder has that he can, at any moment, turn hem into gold and silver

"(2) Every loan which a bank makes is, in its first shape, a Credit given to the borrower on its books, the amount of which it stands ready to pay, either in its own notes, or gold or silver, at his option. But, in a great number of cases, no actual payment is made in either. . . . . The same circumstances illustrate the truth of the position that it is one of the properties of banks to

increase the active Capital of a country. This additional employ ment given to money, and the faculty of a bank to lend and circulate a greater sum than the amount of coin, are to all the purposes of trade and industry an absolute Increase of Capital. Purchases, and undertakings in general, can be carried on by means of Bank Paper, or Credit, as effectually as by an equal sum of gold and silver. And thus, by contributing to enlarge the mass of industrious and commercial enterprises, banks become nurseries of national wealth,-a consequence as satisfactorily verified by experience as it is clearly deducible in theory "

So, J. B. Say says "If Bills of Credit could replace completely metallic money, it is evident that a Bank of Circulation veritably augments the sum of National Wealth, because, in this case, the metallic wealth, becoming superfluous as an agent of circulation, and nevertheless preserving its own value, becomes disposable, and can serve other purposes. But how does this substitution take place? What are its limits? What classes of society make their profit of this interest of the new fund added to the Capital of the nation?

According as a bank issues its notes, and the public consents to receive them on the same footing as metallic money, the number of monetary units increases

"If, suppose, it issues one hundred millions of notes, it will withdraw, perhaps, forty millions in specie, which it will put in reserve to meet the payments which may be demanded of it. Therefore, if it adds to the quantity of money in circulation, and if it withdraws forty millions from circulation, it is as if it added only sixty millions

"We now wish to learn what class of society enjoys the use of this New Capital"

Say then goes on to explain how this New Capital is employed, and who reaps the profit of it

Thus, it is seen, that all these writers, and many more might be cited if necessary, recognise the fact that banking augments the Capital of the country

Gilbart, also, says-" Bankers also employ their own Credit as Capital. They issue Notes promising to pay the bearer on demand. As long as the public are willing to take these Notes as gold, they produce the same effects. The banker who makes

advances to the agriculturist, the manufacturer, or the merchant, in his own notes, stimulates as much the productive powers of the country, and provides employment for as many labourers, as if, by means of the philosopher's stone, he had created an equal amount of solid gold. It is this feature of our banking system that has been most frequently assailed. It has been called a system of fictitious Credit-a raising the wind-a system of bubbles. Call it what you please, we will not quarrel with names: but by whatever name you please to call it, it is a powerful instrument of production. If it be a fictitious system, its effects are not fictitious for it leads to the feeding, the clothing, and the employing of a numerous population. If it be a raising the wind, it is the wind of commerce, that bears to distant markets the produce of our soil, and wafts to our shores the productions of every climate. If it be a system of bubbles, they are bubbles which, like those of steam, move the mighty engines that promote a nation's greatness and a nation's wealth

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Not many persons are aware, probably, of the immense consequences produced by Banking. We have shown, elsewhere, that in countries where there is no Credit, and advances are made in actual money, the usual rate of interest varies from eighteen to thirty-six per cent. When the London goldsmiths took to banking, the ordinary rate of interest was ten per cent. But when the bankers found that they could maintain a large amount of their Credit in circulation, which served the purposes of money, they found, as it were, that their resources were multiplied: and, consequently, they began to bid against each other and, in a very short time, the average rate of interest was reduced from ten to three per cent. When the Bank of England was founded, Exchequer Bills and other Government Securities, were at a discount of about forty per cent. In a very short time the Bank brought down the rate of Government Securities to three per cent., at about which they have remained ever since

One of the consequences of this was to triple the value of Land which depends chiefly on the current average rate of interest. When the rate of interest, in the time of Charles II., was ten per cent., the land was worth only ten years' purchase: but now that the current rate of interest is reduced to three per cent., the common value of land is about thirty years' purchase

It has been calculated by an eminent authority that the amount of Banking Credits, or Deposits, in all the banks of the country, is about £800,000,000, while the cash held in reserve is, probably, not more than £80,000,000-if so much. These Banking Credits are, for all practical purposes, the current coin of Commerce. They affect prices, and have all the practical effects of so much gold

If it were possible to trace the effects of Banking through all their ramifications, which would not be suitable for this work, it would be clearly seen how true is the saying of the great American - Jurist and Statesman, Daniel Webster-" Credit has done more, a thousand times, to enrich nations, than all the mines of all the world "

Contrast between the Common Notions about

Banking, and the Reality

25. Having now given an exposition of the actual facts and mechanism of Banking, it will be as well to contrast the Common Notions respecting it with the Reality

I. It is commonly supposed that Bankers are dealers only in Money

The fact is, that Bankers are dealers in Credit

II. It is commonly supposed that Bankers act only as intermediaries between persons who want to lend and those who want to borrow

The fact is, that a Banker is a Trader, whose business is to buy Money and Debts, by creating other Debts

III. It is commonly supposed that a Banker's profit consists in the Difference between the interest he pays for the Money he borrows, and the interest he charges for the Money he lends

The fact is, that a Banker's profits consist exclusively in the profits he can make by creating and issuing Credit in excess of the specie he holds in reserve

A bank which issues Credit only in exchange for Money, never made, and can by no possibility make, profits. It only begins to make profits when it creates and issues Credit in exchange for Debts payable at a future time which, according to Mill, is robbery !