The Online Library of Liberty

A project of Liberty Fund, Inc.

• Notice.
• Mr M C Culloch’s Publications.
• Treaties and Essays On Subjects Connected With Economical Policy; With Biographical Sketches of Quesnay, Adam Smith, and Ricardo
• A Treatise On Money. 1
• Sect. I.—: Circumstances Which Led to the Use of Money. Principal Properties Which Every Commodity Used As Such Ought to Possess. Not a Sign Or a Measure of Value, But a Real Equivalent.
• Sect. II.—: Circumstances Which Regulate the Exchangeable Value of Money.
• Sect. III.—: A Moderate Seignorage On Coined Money Advantageous. Principles Which Should Regulate Its Amount. 1
• Sect. IV.—: Expense of a Currency Consisting of the Precious Metals.
• Sect. V.—: Paper Money. Principle On Which Its Value Is Maintained.
• Sect. VI.—: Whether Gold Or Silver Should Be Adopted As the Standard of the Currency, Or Whether It Should Consist of Both.
• Sect. VII.—: Standard of Money. Degradation of the Standard In Rome, France, Great Britain, and Other Countries. Effects of This Degradation.
• Tables Relative to the Money of the United Kingdom.
• Treatise On the Circumstances Which Determine the Course of Exchange.
• Inland Exchange.
• Foreign Exchange.
• Sect. I.—: Nominal Exchange.
• Sect. II.—: Real Exchange.
• Sect. III.—: Computed Exchange.
• History and Influence of Bills of Exchange.
• Essay On Interest and Usury Laws.
• A Treatise On the Letting and Occupancy of Land.
• 1.: Money Rents.
• 2.: Proportional Rents.
• 3.: Produce Rents.
• 4.: Service Rents.
• An Essay Showing the Erroneousness of the Prevailing Opinions In Regard to Absenteeism.
• Sketch of the History of Commerce, to the Sixteenth Century.
• Sect. I.—: PhŒnician Commerce.
• Sect. II.—: Grecian Commerce.
• Sect. III.—: Roman Commerce.
• Sect. IV.—: Italian Commerce In the Middle Ages.
• Sect. V.—: Vasco De Gama and Columbus.
• An Essay On the Rise, Progress, and Decline of Commerce In Holland.
• An Essay On the Rise, Progress, and Decline of the Hanseatic League.
• Essay On the Origin of the Compass.
• Sketch of the Progress of Maritime Law.
• An Essay On the Colonial System of the Ancients.
• Sketch of the Life and Writings of Francis Quesnay.
• Sketch of the Life and Writings of Adam Smith, Ll.d.
• Sketch of the Life and Writings of David Ricardo, Esq., M.P.

HISTORY AND INFLUENCE OF BILLS OF EXCHANGE.

It is not easy to discover the æra when bills of exchange were first employed to transfer and adjust the mutual claims and obligations of merchants. Their invention has been ascribed to the Arabians and Jews of the middle ages. But it seems certain that they were in use in remote antiquity. Isocrates states that a stranger who brought some cargoes of corn to Athens, furnished a merchant of the name of Stratocles with an order or bill of exchange on a town on the Euxine, where money was owing to him; and, because the person who had drawn the bill had no fixed domicile, Stratocles was to have recourse on a merchant in Athens, in the event of its being protested. The merchant, says Isocrates, who procured this order found it extremely advantageous, inasmuch as it enabled him to avoid risking his fortune on seas covered with pirates, and the hostile squadrons of the Lacedæmonians.1

There is also good evidence to show that the method of transferring and cancelling the debts of parties residing at a distance by means of letters of credit, which are in effect the same as bills of exchange, was not unknown to the Romans. Cicero, in one of his epistles to Atticus,1 inquires whether his son must carry cash to defray the expense of his studies with him to Athens, or whether he might not save this trouble and risk by obtaining an assignment for an equivalent sum from a creditor in Rome on his debtor in Athens. It is evident, from a subsequent epistle of Cicero, that the latter method had been preferred, and that the transference of the money had, in consequence, been rendered unnecessary.2

Macpherson states,3 that the first mention of bills of exchange in modern history occurs in 1255. The pope, having quarrelled with Manfred, king of Sicily, engaged, on Henry III. of England agreeing to indemnify him for the expense, to depose Manfred, and raise Henry’s second son, Edmund, to the Sicilian throne. The enterprise misgave. But the merchants of Sienna and Florence, who originally advanced the money to carry it into effect, or rather to gratify the pope’s rapacity, were paid by bills drawn on the prelates of England, who, although they protested that they knew nothing at all about the transaction, were nevertheless compelled, under pain of excommunication, to pay the bills and interest!4

Capmany, in his “Memoirs” respecting the Commerce, etc., of Barcelona, gives a copy of an ordonnance of the magistracy, dated in 1394, enacting that bills should be accepted within twenty-four hours after their presentation; a sufficient proof that they were in general use in the end of the fourteenth century.

But whatever be the æra of the introduction of bills of exchange, few inventions have redounded more to the public advantage. Without this simple and ingenious contrivance, commerce could have made no great progress. Had there been no means of adjusting the mutual claims of debtors and creditors otherwise than by the intervention of metallic money (for bank paper is only another species of bills of exchange), a very large portion of that capital which is setting productive labour in motion in every quarter of the globe, and ministering to the wants and enjoyments of mankind, must have been employed in effecting those exchanges which are much better effected by the agency of a few quires of paper. Instead of a perpetual importation and exportation of gold and silver, necessarily attended with an immensity of trouble and expense, bills, possessing little or no intrinsic worth, and which are transferred with the utmost facility, suffice to adjust the most extensive and complicated transactions. But the mere setting free of an immense productive power, engaged in a comparatively unprofitable employment, is only one of the many benefits we owe to the use of bills. By cheapening the instruments by which commerce is carried on, they have materially reduced the prices of most articles. And have, in consequence, increased the command of all classes over necessaries and luxuries, and accelerated the progress of civilisation, by occasioning a more extensive intercourse and intimate connection between different and independent countries, than would otherwise have taken place.

In a political point of view, their effects have been equally salutary. They enable individuals imperceptibly to transfer their fortune to other countries, and to preserve it safe alike from the rapacity of their own governments and the hostile attacks of others. The security of property has, in consequence, been vastly augmented. And though we should concede to the satirist, that paper credit has “lent corruption lighter wings to fly,”1 it has, at the same time, powerfully contributed to render subjects less dependent on the policy, and less liable to be injuriously affected by the injudicious measures of their rulers. In countries in a low stage of civilisation, the inhabitants endeavour, by burying all the gold and silver they can collect, to preserve a part of their property from the despots by whom they are alternately plundered and oppressed. This was universally the case in the middle ages. And in Turkey, India, Persia, and other eastern, and also in some European, countries, the practice is still carried on to a greater or less extent. Some economists have endeavoured to account for the long-continued importation and high value of the precious metals in India, by the loss which necessarily attends the practice of hoarding. And, undoubtedly, this locking up of capital, while it evinces an extreme degree of insecurity, is a main cause of the poverty of these countries. But the security afforded by bills of exchange is infinitely greater than any which can be derived from the barbarous expedient of trusting property to the bosom of the earth. “Pregnant with thousands flits the scrap unseen,” and in a moment places the largest fortune beyond the reach of danger. Mr Harris was, therefore, right in saying, “that the introduction of bills of exchange was the greatest security to merchants, both as to their persons and effects, and consequently the greatest encouragement to commerce, and the greatest blow to despotism, of anything that ever was invented.”1

Its extensive commerce, the wealth and punctuality of its merchants, and their intimate connection with all the other great trading cities of the world, made Amsterdam, previously to the peace of 1763, the chief place where the accounts of commercial countries were balanced and adjusted. But the loss of foreign trade, and the other vexations to which Holland was subjected during the ascendancy of the French, nearly divested Amsterdam of all share in this business; and it has not since recovered its former superiority. London is now the trading metropolis of Europe, and of the world, universi orbis terrarum emporium. The vast extent of its commercial dealings necessarily renders it the great mart for bills of exchange. Its bill merchants, a class of men remarkable for their shrewdness, and generally possessed of large capitals, assist in trimming and adjusting the balance of debt and credit between the most remote countries. They buy up bills where they are cheap, and sell them where they are dear. And, by the extent of their correspondence and the magnitude of their transactions, give a steadiness to the exchange, to which it could not otherwise attain.

[1 ] De Pauw, “Recherches sur les Grècs,” i. 258.

[1 ] Epist. ad Atticum, xii. 24.

[2 ] Epist. ad Atticum, xii. 27. “De Cicerone, ut scribis, ita faciam: ipsi permittam de tempore: nummorum quantum opus erit ut permutetur tu videbis.” In his notes on a parallel passage, Grævius remarks, “Permutatio est quod nunc barbare cambium dicitur.”—Epist. ad Atticum, xi. 24.

[3 ] Annals of Commerce, i. 405.

[4 ] Hume’s England, cap. 12.

[1 ] Harris on Coins, part i. p. 108.