§ 5.A third form in which credit is employed as a substitute for currency, is that of promissory notes. A bill drawn upon any one and accepted by him, and a note of hand by him promising to pay the same sum, are, as far as he is concerned, exactly equivalent, except that the former commonly bears interest and the latter generally does not; and that the former is commonly payable only after a certain lapse of time, and the latter payable at sight. But it is chiefly in the latter form that it has become in commercial countries, an express occupation to issue such substitutes for money. Dealers in money (as lenders by profession are improperly called) desire, like other dealers, to stretch their operations beyond what can be carried on by their own means: they wish to lend, not their capital merely, but their credit, and not only such portion of their credit as consists of funds actually deposited with them, but their power of obtaining credit from the public generally, so far as they think they can safely employ it. This is done in a very convenient manner by lending their own promissory notes payable to bearer on demand: the borrower being willing to accept these as so much money, because the credit of the lender makes other people willingly receive them on the same footing, in purchases or other payments. These notes, therefore, perform all the functions of currency, and render an equivalent amount of money which was previously in circulation, unnecessary. As, however, being payable on demand, they may be at any time returned on the issuer, and money demanded for them, he must, on pain of bankruptcy, keep by him as much money as will enable him to meet any claims of that sort which can be expected to occur within the time necessary for providing himself with more: and prudence also requires that he should not attempt to issue notes beyond the amount which experience shows can remain in circulation without being presented for payment.
The convenience of this mode of (as it were) coining credit, having once been discovered, governments have availed
