On page 244, Smith reiterates what he said before about not counting money when reckoning wealth. This–both his reasoning and my problems with it–are covered in my earlier posts, so there’s no point my restating them.
On page 245 he talks about the substitution of paper for gold and silver, and from there discusses the proportion of money (gold, silver, and paper) that is in circulation at any given time to the total value of the produce of a nation. He speaks in particular of the money destined for maintainance of industry. What is interesting here is that he seems to be implying that money is often the limiting factor in production, on a national level, whereas earlier I thought he was saying that labor was the limiting factor. I think I’m just confused here.
NB: Page 247: The phrase “discounting bills of exchange,” which is used a lot, means “advancing money upon them before they are due.” Now, if I just knew what “bills of exchange” were, I think I’d have it.
On page 249 he gives an example, referring to “cash accounts” as practiced at the time in Edinburgh–basically automatic short-term loans, presumably for relatively small amounts. He talks of how merchants without access to this cash account must keep funds on hand to pay bills as they become due. Suppose the amount this merchant must keep in hand for lack of this account is five hundred pounds. Then, “His annual profits must be less by all that he could have made by the sale of five hundred pounds worth more goods; and the number of people employed in preparing his goods for the market, must be less by all those that five hundred pounds more stock could have employed.” Well yes, except that he is ignoring the interest the merchant must pay on that cash account as he uses it. He is assuming that the interest he pays must be less than what 500 pounds invested in his business would bring in; I’m not sure that is always the case.
Further down. “The whole paper money of every kind which can easily circulate in any country never can exceed the value of the gold and silver, of which it supplies the place, or which (the commerce being supposed the same) would circulate there, if there was no paper money.” Here he is warning against putting into circulation more paper within a country than the amount of gold and silver that would circulate there. This says nothing about circulation (of gold and silver) outside of the country, which, added to the paper circulating within, will be a significantly greater total than the amount of gold and silver. His objection, then, is to excess currency within a country; not to producing currency in excess of that which is backed by precious metal.
On page 250 he mentions two expenses unique to bankers. “First, in the expence of keeping at all times in its coffers, for answering the occasional demands of the holders of its notes, a large sum of money, of which it loses the interest; And, secondly, in the expence of replenishing those coffers as fast as they are emptied by answering such occasional demands.” I’m having trouble seeing how those two things aren’t just two ways of saying the same thing. Moreover, it seems that, in some sense, every business must have money on hand to meet occasional expenses, barring access to a “cash account” as discussed above (in which case, there is the replacement cost of the interest on the cash account).