Chapter 2l

Banks Increase National Wealth by Mobilizing Dead Stock Icon

January 1, 2020

86 The judicious operations of banking can increase a country’s industry, not by augmenting the country’s capital, but by rendering most of that capital productive.

The money which a dealer keeps unemployed for answering occasional demands is dead stock. It produces nothing to him or to his country. The judicious operations of banking enable him to convert this dead stock into=

  • active and productive stock,
  • materials to work on,
  • tools to work with,
  • provisions to work for, and
  • stock which produces something to himself and his country.

The gold and silver money which circulates a country’s annual produce to its consumers is all dead stock, just like the dealer’s ready money. It is a very valuable part of the country’s capital. Yet it produces nothing to the country.

The judicious operations of banking substitutes much of gold and silver with paper. It enables the country to convert much of this dead stock into productive stock which produces something. The gold and silver money which circulates in any country may be compared to a highway.

It carries to market all the country’s grass and grain, yet it produces no grass and grain by itself. The judicious operations of banking provides a sort of wagon-way through the air. It enables the country to convert much of its highways into good pastures and grain fields. It increases the annual produce of its land and labour considerably. However, the country’s commerce and industry cannot be so secure when they are suspended on the Dædalian wings of paper money as when they travel on the solid ground of gold and silver. Commerce and industry may be augmented by paper money. But the unskillfulness of the conductors of paper money exposes the country to several accidents.

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=

  • its capital, and
  • the treasure which supported the credit of the paper money.

Exchanges could only then be made by barter or credit.

The prince would not be able to pay his troops or furnish his magazines since all the taxes were paid in paper money. The country’s state would be much more irretrievable than if most of its circulation consisted in gold and silver. A prince should guard against the excessive multiplication of paper money which=

  • ruins the banks that issue it, and
  • enables banks to fill most of the country’s circulation.

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