shall proceed to examine, beginning, as is our custom, with the simplest.
First: Suppose A and B to be two dealers, who have transactions with each other both as buyers and as sellers. A buys from B on credit. B does the like with respect to A. At the end of the year, the sum of A's debts to B is set against the sum of B's debts to A, and it is ascertained to which side a balance is due. This balance, which may be less than the amount of many of the transactions singly, and is necessarily less than the sum of the transactions, is all that is paid in money; and perhaps even this is not paid, but carried over in an account current to the next year. A single payment of a hundred pounds may in this manner suffice to liquidate a long series of transactions, some of them to the value of thousands.
But secondly: The debts of A to B may be paid without the intervention of money, even though there be no reciprocal debts of B to A. A may satisfy B by making over to him a debt due to himself from a third person, C. This is conveniently done by means of a written instrument, called a bill of exchange, which is, in fact, a transferable order by a creditor upon his debtor, and when accepted by the debtor, that is, authenticated by his signature, becomes an acknowledgment of debt.
§ 4.Bills of exchange were first introduced to save the expense and risk of transporting the precious metals from place to place. "Let it be supposed," says Mr. Henry Thornton,[1] "that there are in London ten manufacturers who sell their article to ten shopkeepers in York, by whom it is retailed; and that there are in York ten manufacturers
- ↑ Enquiry into the Nature and Effects of the Paper Credit of Great Britain, p. 24. This work, published in 1802, is even now the clearest exposition that I am acquainted with, in the English language, of the modes in which credit is given and taken in a mercantile community.
