and only local repute; the value of any property they wish to pledge depends on local changes and local circumstances.  A banker who lives in the district, who has always lived there, whose whole mind is a history of the district and its changes, is easily able to lend money safely there.  But a manager deputed by a single central establishment does so with difficulty.  The worst people will come to him and ask for loans.  His ignorance is a mark for all the shrewd and crafty people thereabouts.  He will have endless difficulties in establishing the circulation of the distant bank, because he has not the local knowledge which alone can teach him how to issue that circulation with safety.

A system of note issues is therefore the best introduction to a large system of deposit banking.  As yet, historically, it is the only introduction:  no nation as yet has arrived at a great system of deposit banking without going first through the preliminary stage of note issue, and of such note issues the quickest and most efficient in this way is one made by individuals resident in the district, and conversant with it.

And this explains why deposit banking is so rare.  Such a note issue as has been described is possible only in a country exempt from invasion, and free from revolution.  During an invasion note-issuing banks must stop payment; a run is nearly inevitable at such a time, and in a revolution too.  In such great and close civil dangers a nation is always demoralised; everyone looks to himself, and everyone likes to possess himself of the precious metals.  These are sure to be valuable, invasion or no invasion, revolution or no revolution.  But the goodness of bank-notes depends on the solvency of the banker, and that solvency may be impaired if the invasion is not repelled or the revolution resisted.

Hardly any continental country has been till now exempt for long periods both from invasion and revolution.  In Holland and Germanytwo countries where note issue and deposit banking would seem as natural as in England and Scotlandthere was never any security from foreign war.  A profound apprehension of external invasion penetrated their whole habits, and men of business would have thought it insane not to contemplate a contingency so frequent in their history, and perhaps witnessed by themselves.

France indeed, before 1789, was an exception.  For many years under the old regime she was exempt from serious invasion or attempted revolution.  Her Government was fixed, as was then thought, and powerful; it could resist any external enemy, and the prestige on which it rested seemed too firm to fear any enemy from within.  But then it was not an honest Government, and it had shown its dishonesty in this particular matter of note issue.  The regent in Law’s time had given a monopoly of note issue to a bad bank, and had paid off the debts of the nation in worthiess paper.  The Government had created a machinery of ruin, and had thriven on it.  Among so apprehensive a race as the French the result was fatal.  For many years no attempt at note issue or deposit banking was possible in France.  So late as the foundation of the Caisse d’Escompte, in Turgot’s time, the remembrance of Law’s failure was distinctly felt, and impeded the commencement of better attempts.