12. The Credit created by the Bankers in the operations just described was employed to buy Commercial Bills, which arose out of the transfer of Commodities, and we have seen that they create Credit to several times the amount of cash in their possession. We have now to describe a species of Credit of a totally different sort, invented in Scotland, and to which the marvellous progress and prosperity of that country is mainly due.

The Bank of Scotland began to issue £1 notes about the beginning of the last century. In 1727 another Bank was founded named the Royal Bank. In the very contracted sphere of Scottish commerce at that time, there were not sufficient Commercial Bills to exhaust the Credit of the Banks. They had as it were a superfluity of Credit on hand, and the Royal Bank devised a new means of getting it into circulation.

It agreed on receiving sufficient guarantees to open or create Credits in favour of respectable and trustworthy persons.

A Cash Credit is therefore simply a drawing account, created in favour of a customer, upon which he may operate in precisely the same manner, as on a common drawing account. The only difference being that instead of receiving interest upon the daily balance to his Credit, as is very commonly the custom in Scotland, he pays interest on the daily balance at his debit. It is thus an inverse drawing account.

All these advances are made exclusively in the Bank's own notes, and they are not made on the basis of any previous transaction.

13. Cash Credits are applicable to a totally different class of transactions from those which give rise to Bills of Exchange, and we will now explain their nature more fully.

Every man in business, however humble or however extensive, must necessarily keep a certain portion of ready money by him to answer immediate demands for small daily expenses, wages, and other things. This would of course be much more profitably employed in his business, where it might produce a profit of 15 or 20 per cent, instead of lying idle. But unless the trader knew that he could command it at a moment's notice, he would always be obliged to keep a certain portion of ready money in his own till, or he must be able to command the use of some one else's till. Now one object of a Cash Credit is to supply this convenience to the trader, to enable him to invest the whole of his capital in trade, and upon proper security being given, to furnish him with the accommodation of a till at a moment's notice, in such small sums as he may require, on his paying a moderate interest for the accommodation.

Almost every young man commencing business in Scotland does it by means of a Cash Credit. A young solicitor for instance in England must have a very considerable amount of ready money to begin business with any ease to himself, as he is expected to make disbursements before he can get in payments from his clients. But in Scotland this is done by means of a Cash Credit which is guaranteed by his friends.

14. These Credits are granted to all classes of society, to the poor as freely as to the rich. Everything depends upon character. Young men in the humblest walks of life inspire their friends with confidence in their steadiness and judgment, and they become sureties for them on a Cash Credit. This is exactly the same thing as money to them, and then they have the means placed within their reach of rising to any extent to which their abilities and industry permit them. Multitudes of men who have raised themselves to enormous wealth, began life with nothing but a Cash Credit. As one example among thousands, Mr. Monteith,

M.P. told the Committee of the House of Commons in 1826 that he was a manufacturer, employing at that time 4,000 hands, and that with the exception of the merest trifle of capital, lent to him, and which he very soon paid off, he began the world with nothing but a Cash Credit.

The banks usually limit their advance to a certain moderate amount varying from £100 to £1,000 in general, and they always take several sureties in each case, never less than two, and frequently many more, to cover any possible losses that may arise. These cautioners, as they are termed in Scotch Law, keep a watchful eye on the proceedings of the customer, and have always the right of inspecting his account with the bank and of stopping it at any time, if irregular. These Credits are not meant to degenerate into dead loans, but they are required to be constantly operated upon by paying in and drawing out.

The enormous amount of transactions carried on by this kind of accounts may be judged of by the evidence given before the Committee of the Commons in 1826. It was stated that on a Credit of £1,000, operations to the extent of £50,000 took place in a single week. Its effects therefore were exactly the same as if there had been 1,000 sovereigns. Others stated that on a Cash Credit of £500 operations to the amount of £70,000 took place in a year. One witness stated that during 21 years in a very moderately sized country bank, operations had taken place to the amount of nearly £90,000,000, and that there never had been but one loss of £200 on one account; and that the whole losses of the bank during that period did not exceed £1,200. Now this immense mass of transactions was effected by creations of pure Credit. At that time it was conjectured that there were about 12,000 Cash Credits guaranteed to persons in Scotland, and that there were about 40,000 persons as sureties, who were interested in the integrity, prudence, and success of the others. The witnesses before the Lords declared that the effects of these were most remarkable on the morals of the people.

15. But the operation of these Cash Credits is immensely extended beyond Commerce, and their advantages are more openly and strikingly displayed in the prodigious stimulus they have given to the agriculture of Scotland. They have indeed been the principal means of making it what it is. In the Scottish system of farming, leases almost universally prevail, and a farm is not entrusted to a man who is not educated to his business. He usually enjoys nineteen years' security of tenure; or where leases are granted for the purpose of reclaiming land, for much longer periods. Now suppose a farmer is known to be active, skilful, and industrious, and obtains a farm upon lease, which is capable of great improvement, he goes to the bank, and upon the security of the lease and some friends who become sureties for him, the Bank grants him a Cash Credit. With this advance - pure Credit - he reclaims the land, employs the people, reaps the harvest, and, when it is gathered, pays back the loan.