------------------------------------------------------------------------ BOOK IV. | OF CREDIT AND DEBTS. PART IV. | OF PUBLIC CREDIT. ------------------------------------------------------------------------ BOOK IV. | OF CREDIT AND DEBTS. PART II. OF BANKS. ------------------------------------------------------------------------ CHAP. I. _Of the various Kinds of Credit._ We have already pointed out the nature of credit, which is confidence; and we have deduced the principles which influence the rate of interest, the essential requisite for its support. We come now to treat of domestic circulation; where we are to deduce the principles of banking. This is the great engine calculated for carrying it on. That I may, with order, investigate the many combinations we shall here meet with, I must point out wherein banks differ from one another in point of policy, as well as in the principle upon which their credit is built. If we consider them relative to their policy, I divide them into banks of circulation, and banks of deposit. This every one understands. If according to their principle, they are established either on _private_, or _mercantile_, or _public credit_. This last division I must attend to in the distribution of what is to follow; and therefore it is proper to set out by explaining what I understand by the terms I have here introduced. 1_mo_, Private credit. This is established upon a security, real or personal, of value sufficient to make good the obligation of repayment both of capital and interest. This is the most solid of all. 2_do_, Mercantile credit. This is established upon the confidence the lender has, that the borrower, from his integrity and knowledge in trade, may be able to replace the capital advanced, and the interest due during the advance, in terms of the agreement. This is the most precarious of all. 3_tio_, Public credit. This is established upon the confidence reposed in a state, or body politic, who borrow money upon condition that the capital shall not be demandable; but that a certain proportional part of the sum shall be annually paid, either in lieu of interest, or in extinction of part of the capital; for the security of which, a permanent annual fund is appropriated, with a liberty, however, to the state to liberate itself at pleasure, upon repaying the whole; when nothing to the contrary is stipulated. The solidity of this species of credit depends upon circumstances.