CHAP. I. _Of the first Principles of Exchange._ Having ended what I had to say of banks, in which most of the principles of private credit have been sufficiently deduced, I now proceed to the doctrine of exchange, which is the principal operation of mercantile credit. The security which merchants commonly take from one another when they circulate their business, is a bill of exchange, or a note of hand: these are looked upon as payment. When they give credit to one another in account, or otherwise, the cause of confidence is of a mixed nature; established partly upon the security of their effects, partly on the capacity, integrity, and good fortune, of the person to whom the credit is given. No man but a merchant has any idea of the extent and nature of this kind of credit. It is a thing to be felt, but cannot be reduced to principles; and merchants themselves can lay down no certain rules concerning it. It is an operation which totally depends upon their own sagacity. But when they deal by bills of exchange, the case is very different. The punctuality of acquitting those obligations is essential to commerce; and no sooner is a merchant’s accepted bill protested, than he is considered as a bankrupt. For this reason, the laws of most nations have given very extraordinary privileges to bills of exchange. The security of trade is essential to every society; and were the claims of merchants to linger under the formalities of courts of law, when liquidated by bills of exchange, faith, confidence, and punctuality, would quickly disappear; and the great engine of commerce would be totally destroyed. A regular bill of exchange is a mercantile contract, in which four persons are concerned, viz. 1. The drawer, who receives the value: 2. His debtor in a distant place, upon whom the bill is drawn, and who must accept and pay it: 3. The person who gives value for the bill, to whose order it is to be paid: and 4. The person to whom it is ordered to be paid, creditor to the third. By this operation, reciprocal debts, due in two distant parts, are paid by a sort of transfer, or permutation of debtors and creditors. (A) in London, is creditor to (B) in Paris, value 100_l._ (C) again in London, is debtor to (D) in Paris for a like sum. By the operation of the bill of exchange, the London creditor is paid by the London debtor, and the Paris creditor is paid by the Paris debtor; consequently, the two debts are paid, and no money is sent from London to Paris, nor from Paris to London. In this example, (A) is the drawer, (B) is the accepter, (C) is the purchaser of the bill, and (D) receives the money. Two persons here receive the money, (A) and (D), and two pay the money, (B) and (C); which is just what must be done when two debtors and two creditors clear accounts. This is the plain principle of a bill of exchange. From which it appears, that reciprocal and equal debts only can be acquitted by them.