MERCANTILE CREDIT IS MERCANTILE CAPITAL. 143

bill to his banker, and how the banker buys it will be explained in the next chapter.

Now we have shewn that Capital, in its most general sense, is not any particular thing, but simply an Economic Quantity, be it Currency or anything else, employed in reproductive operations. In its general sense it is the Purchasing Power of the merchant, or it is the moving power at his command to generate a circulation of commodities, out of which he reaps his profits. The Money he has is the fruit of the services he has formerly done to the community. Credit is also the power he has of drawing the goods from the possession of the manufacturer, and is the pledge of his skill in rendering future services to the community, by discerning their wants and supplying them. The effect upon the market and upon prices is exactly the same whether purchases, i.e. circulation of commodities, be generated by Credit or by Real Capital, and the profits and losses are exactly the same to the community, whether the operation be effected by Credit or by Real Capital. Hence it is seen how MERCANTILE CREDIT IS MERCANTILE CAPITAL.

It has frequently been observed that all great inventions have an equalising tendency: the invention of gunpowder equalised the condition of the poorest foot soldier and the wealthiest knight, and it destroyed the supremacy of the knights: the invention of printing opened up the paths of knowledge to the poorest as well as to the rich, and destroyed the supremacy of wealth in the acquisition of science: the invention of steam and railroads has equalised the means of locomotion to the humble and to the wealthy; so the invention of Credit has destroyed the supremacy of Money, and has provided the means for the most humble to place his foot on the ladder of opulence. It is a matter of common observation that nothing is so difficult as the first step to wealth: that many men could get on if they could only make a beginning. Now Credit supplies the means of attaining that first step to all. Credit is a mighty power, and no doubt, like other great engines, is liable to be abused: but it is entitled to take rank with gunpowder, printing, and steam, among the marvels of human ingenuity; and it has been the chief cause of the magnitude of modern commerce.

CHAPTER VI.

THE THEORY OF BANKING.

On the Meaning of the word BANK.

1. THE word BANK originated in this way. In the year 1171 the City of Venice was at war with both the eastern and western Empires. The finances were in a state of great disorder; and the Great Council ordered a forced loan of 1 per cent. from every citizen, upon payment of interest at five per cent. Commissioners were appointed to manage the payment of the interest to the fund holders and the transfers of the Stock. Such a loan has several names in Italian, such as Compera, Mutuo, but the most usual is Monte, a joint stock fund. The citizens received Stock certificates in exchange for the sums they paid, bearing interest, which they might sell or transfer to any one else. The original loan was called the Monte Vecchio: afterwards two other similar Loans were contracted which were called the Monte Nuovo and Monte Nuovissimo.

At this period the Germans were masters of a great part of Italy; and the German word BANCK came to be used as well as its Italian equivalent MONTE: and was Italianised into BANCO; and the loans, or Public Debts, were called indifferently MONTI or BANCHI.

Thus an English writer Benbrigge in 1646 speaks of the "three BANKES of Venice" meaning the three public loans, or Monti.

So a recent eminent Italian writer, Count Cibrario, says"Regarding the Theory of Credit which I have said was invented by the Italian cities, it is known that the first BANK (banco) or Public Debt was erected at Venice in 1171. In the

13th century Paper Money is mentioned at Milan: the credit was paid off. A MONTE or Public Debt was established at Florence in 1336.

"At Genoa, during the wars of the 14th century, the Bank of St. George was established, formed of the creditors of the State."

So in Florio and Torriano's Italian Dictionary 1659, it says"MONTE-a standing Bank or Mount of money, as they have in divers cities of Italy, namely in Rome or Genoa.”

The BANK of Venice then was in reality the origin of the Funding System; or the system of Public Debts: it did not for many centuries do any of what we call banking business.

2. The meaning of the word Bank was the same in English when it was first introduced.

Thus Bacon says "Let it be no BANK or common stock, but every man master of his own money."

So Gerard Malynes, a Mercantile writer in 1622, says—“ In Italy there are Montes Pietatis, that is to say MOUNTS or BANKS of Charity."

Benbrigge in his "Usura Accommodata" in 1646 says"For their rescue may be collected MoNs Pietatis sive Charitatis or BANKE of Piety or Charity, as they of Trent fitly call it. Again for borrowers in trade for their supply as their occasion shall require; may be erected MONS Negotiationis or BANKE of Trade."

In the time of Cromwell many proposals were made to erect Banks in London. A merchant writing in 1658 says—“ A Bank is a number of sufficient men of estates and credit joined together in Joint Stock, being as it were the general cash keepers, or treasurers of that place where they settled, letting out imaginary money (i.e. Credit) at interest at £2 or £3 per cent. to tradesmen, or others that agree with them for the same, and making payment thereof by assignation, and passing each man's account from one to another with much facility and ease."

So Blackstone says "At Florence in 1344, Government owed £60,000, and being unable to pay it, formed the principal into an aggregate sum, called metaphorically, a MOUNT or BANK."

The essential feature of all these "BANKS" was that a number of persons placed their money in them and received in exchange

L

for it, Credit, or a Promise to pay which Credit they might transfer to any one else.

The Bank of England was formed in a similar manner of a company of persons who advanced a sum of money to Government, and received in exchange for it an Annuity. This was the foundation of our regular National Debt: and to the present day the Funds are Legally called "Bank Annuities."

On the Definition of a BANKER.

3. The Nature of a Bank therefore being to receive Money and issue Credit in exchange for it, the business of a Banker' is exactly the same.

The Romans invented the business of banking. Roman bankers were called Argentarii: they received the money of their clients, who could give their creditors cheques on their bankers, as is the modern custom. We have already seen that they invented Bills of Exchange, and to send a draft or bill for money was called permutare. But about the first century A.D. a provincial Latin word cambio (-ire or -iare) began to be used instead of permutare: and eventually entirely superseded it. And those persons who followed the business of the Roman Argentarii came in the course of the middle ages to be called Cambitores, or Cambiatores. As Commerce increased in the prosperity of the eleventh century, they established correspondents in various parts of Europe and drew bills upon them called Litteræ Cambitoria or Bills of Exchange.

Afterwards when the word Banco came into use, as their business was similar in its nature, they came to be called Banchieri, and the drafts they issued Litteræ bancales.

Galiani, an Italian writer, says "The first Banks were in the hands of private persons with whom people deposited Money, and from whom they received Bills of Credit, and who were governed by the same rules as the public Banks are now. And thus the Italians have not only been the fathers, and the masters, and the arbiters of commerce: so that in all Europe they have been the depositaries of money and are called BANKERS."

Genovesi says " These Monti were at first administered with

MEANING OF BANKER.

147

scrupulous fidelity, as are all human institutions made in the heat of virtue. From which it came to pass that many placed their money in deposit, and as a security received Paper which was called and is still called Bills of Credit. Thus private banks were established among us, whose Bills of Credit acquired gradually a great circulation and increased the quantity of signs and the velocity of Commerce."

Also—“ The Bill of Exchange is called drawn by him who sells it, and is called remitted on the part of the correspondent who must pay it. Those who make this their special business are called Cambists, and BANKERS in the language of the great commerce of Europe."

The essential feature of a “Banker” is that when his customers place money with him, it becomes his absolute property to deal with as he pleases, and he is in no way accountable to them for the purposes he applies the money to. The customers of a "banker" cede to him absolutely the property in their money; and receive in exchange for it the Right to have an equal sum paid back on demand. A banker, therefore, is not the Trustee of his customers, but simply their Debtor.

And this was always regarded as the essential feature of a "banker." Marquardus says "And by 'banking' is meant a certain species of trading in money, under the sanction of public authority, in which money is placed with bankers (who are also called Cashiers and Depositaries of money), for the security of Creditors and the convenience of Debtors, in such a way that the Property in the money passes to them: but always on this condition understood, that any one who places his money with them may have it back whenever he pleases."

Thus a "Banker" always buys money with his CREDIT: and moreover when he buys Commercial Debts, he always does it with his CREDIT also and not with cash. This is the essential distinction between a "Banker" and a bill discounter, that a banker always buys Bills with his Credit, and a bill discounter with cash. Hence when a Bill discounter has invested all the cash in his possession, either his own, or what others have placed with him, in this way, he is at the end of his resources. But a Banker always buys Commercial Debts with his own Credit, or