Adam Smith's Simplified Wealth of Nations, Book 2, Chapter 2f: Central Banks

Chapter 2f: Central Banks - The Bank of England

79The Bank of England is the biggest bank of circulation in Europe.

80 In 1697, the bank was allowed to enlarge its capital stock by an engraftment of £1,001,171 81 In pursuance of the 7th Anne, c. vii. (in 1708), the Bank paid into the exchequer £400,000.

6% was the common legal and market interest rate of those times.

82 By a call of 15% in 1709, £656,204 was paid in.

83 In pursuance of the 3rd George I., c. 8 in 1716, the bank delivered £2m of exchequer bills to be cancelled.

In 1722, its capital stock was increased by £3.4m because of the purchase.

84 The Bank dividend has varied according to:

This interest rate has gradually been reduced from 8% to 3%.

85 The stability of the Bank of England is equal to the stability of the British government.

The Role Of Banks In The National Wealth

">86 "It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country."


87 If a country's whole circulation were done with paper instead of gold and silver, there would be so much more confusion if its enemy gains:

Exchanges could only then be made by barter or credit.

Two Branches of the Circulation of Money

88 The circulation of every country is divided into two branches:

  1. The circulation of the dealers with one another
  2. The circulation between the dealers and the consumers

Paper or metal money may be employed in either circulation.

89Paper money may be regulated to confine itself to the circulation between dealers and dealers.

90 Where small bank notes are commonly issued, many mean people are enabled and encouraged to become bankers.

91 Perhaps it were better that no bank notes were issued smaller than £5. 92 There is always plenty of gold and silver where paper money is confined to the circulation between dealers and dealers, as in London.

93 Banks might still be able to give the same assistance to country's industry and commerce if paper money were confined to the circulation between dealers and dealers, as when paper money filled almost the whole circulation.

94 Restraining private people from receiving a banker's promissory notes which they are willing to receive, and restraining a banker from issuing such notes everyone is willing to accept, are violations of that natural liberty which the law should support and not infringe.

95 A paper money consisting in bank notes is equal in value to gold and silver money when it is:

96 The increase of paper money increases the amount and reduces the value of the whole currency.

97 It would be otherwise with a paper money consisting in promissory notes, of which the immediate payment:

Paper money in promissory notes would fall below the value of gold and silver according to the:

98 Some years ago, the Scottish banks inserted an Optional Clause into their bank notes.

99 In the paper currencies of Yorkshire, the payment of so small a sum as a sixpence required that the holder of the note should bring the change of a guinea to the issuer.

100 The paper currencies of North America consisted in government paper and not in bank notes payable to the bearer.

101 An Act of Parliament which declared that no paper currency emitted in the colonies should be a legal tender, is most equitable.

102 "Pennsylvania was always more moderate in its emissions of paper money than any other of our colonies."


103 The paper of each colony was used to pay the provincial taxes.

104 A prince who orders that taxes paid to him be paid in a paper money, might give a certain value to this paper money, even if the terms of its final redemption should depend entirely on the prince.

105 A paper currency which falls below the value of gold and silver coin does not thereby sink the value of those metals.

106 Banks are considered perfectly free if:

The recent multiplication of banking companies in the United Kingdom has alarmed many people.

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Next: Chapter 3a: Productive Labor