The advantage of the second method is that it makes Capital more abundant, and sometimes might provide it when not otherwise obtainable. If it were scarce, or otherwise occupied, it might not always be possible to obtain it. If nobody had money to lend, the second method might supply the want, and so long as it is practised by judicious persons, and used in promoting successful operations it is a great blessing. But it is just on this very point that it is liable to the most dangerous abuse. If the Corporation were limited to the use of real Capital advanced by some independent person, he would probably take into consideration the purpose to which it was to be applied, as well as the solvency of the Corporation, and if he thought it injudicious, he would probably not advance it. There would therefore be so far a check upon them; but if they were totally destitute of control, and could embark in any operation, by simply writing a few "Promises to pay" upon bits of paper, they may be led away into wild and dangerous speculations, deceived by false expectations of profit, and involve themselves and all who trust them in ruinous losses. Because, though these Promises to pay did not represent real advances, and are therefore inaccurately called fictitious Capital, if they get into circulation, and people give value for them in commodities or services, a disastrous operation based upon them is just as much loss of Capital as if they had been real advances.

14. We have thus shewn that in the production of commodities, which term by the unanimous consent of all modern Economists includes both the formation and the transfer of commodities, Credit performs exactly the same functions as Money : So far therefore as production goes, Credit is in all respects equivalent to Money. And so long as the operations are successful, everything goes well: Money being as we have laid down the representative of the fruits of a man's past industry, and Credit a pledge of his future industry. It is certain that "Credit" exceeds "Money" many times in this country, for whereas it is not supposed that the actual Money exceeds £80,000,000, the Credit in Bills of Exchange, which is only one form of it, taking a very low estimate exceeds £400,000,000: that is the people of this country have always pledged their future industry to the extent of four hundred millions of money. And this £400,000,000 is equally Capital, it is equally a Real Value as the £80.000,000. No doubt it is of a different description; it is more perilous, a portion of it may perish. But it is an undeniable fact that it has performed the same functions, so far as regards Production, as Money. It is a distinct and separate article of Value over and above commodities, totally different from Bills of Lading, which merely represent particular commodities. Bills of Exchange are not a lien upon Property, but upon industry, and any property a man possesses is only a kind of collateral security to make good his engagements in case his industry is unsuccessful.

15. In the case we examined of a bank discounting the bill of the manufacturer A, upon the dealer B, the transaction was already effected upon which it was founded. A had rendered the service to B, for which he was to be paid at a future day, before he drew the bill upon him, and originally all Bills of Exchange represented previously existing Debts, and they bore on the face of them the words "for value received" to testify the fact. Consequently when A discounts the bill founded upon that transaction, with the bank, it must be carefully observed that he is simply selling a Debt which is his existing property. And so long as Bills of Exchange are restricted to representing past transactions, their negotiation is not borrowing money, as is commonly understood. But the sharpness of traders discovered that they might be applied to future transactions.

In the case of a past transaction, the bill was given by B, who had got the goods, to A, who had given them, and A had got the money that would be payable to him at the maturity of the Bill, advanced to him by the bank on the credit of B's reputation, as well as his own. If B, however, be a person of wealth and reputation, he may lend the use of his name to A without any real transaction having taken place between them. Thus he may accept a bill of A's, and A on the strength of his name, goes to his banker, and gets the money, with which he performs some operation, such as manufacturing goods, and, having done so, he may sell them to C, and take C's bill in payment of them, which latter is a real transaction. Now the whole of this operation is based upon the credit of B's name; it is not based upon anything real, or upon any service previously rendered: consequently it is in itself a completely new transaction. Such a bill between A and B is called an Accommodation Bill. This name is however not confined to cases where the acceptor lends his name for the accommodation of the drawer, though that is the most usual form, but wherever an acceptor, drawer, or indorser puts his name upon the bill, and therefore, renders himself liable to the holder for value to discharge it, without, as the legal expression is, consideration moving to him, it is an Accommodation Bill, and the party for whose accommodation it is negotiated is bound by law to provide funds to discharge it at maturity, and also to indemnify the accommodation acceptor, drawer, or indorser, as the case may be, against the consequences of nonpayment.

The practical effect of this transaction is simply that B stands security to the bank for the money advanced to A; and there is nothing in the nature of such a transaction worse than for one man to stand security for another in any other commercial transaction. In some respects it is much fairer to the person who runs the risk as security, because in the ordinary course, when one person becomes security for another, he does not receive any pecuniary recompense for the risk he runs, to which he was most certainly fairly entitled: whereas if it be done by way of Accommodation Bill, he generally receives some quid pro quo, and when a bank performs an operation of exactly the same nature, it always receives a high interest for the risk it runs, and, when judiciously done, is a very profitable source of income. From the extravagant abuse, however, of such modes of raising Capital, Accommodation Bills have acquired a most discreditable reputation, and there is nothing which requires more vigilance in a bank than to guard against being entrapped into making unwary purchases of such securities.