Now the first effect of this displacement of gold and silver by paper credits is that the rapidity with which these pass from hand to hand sets up a corresponding rapidity in the circulation of the material commodities themselves to which they correspond, and against which they are drawn, inasmuch as without them, these commodities would come to a stand-still at each point in their course, like carriages on a railway siding, until the gold which was necessary to book them through and pass them on was forthcoming. And so by the stimulus given to the circulation of every commodity on the wheel, the revolutions of the wheel as a whole in a given unit of time are accelerated, and the wealth of the nation as a whole proportionately increased.

With the above preliminaries we are now brought to the very nodus of the problem which we are to discuss in this chapter, namely as to the law or principle which is to guide us in fixing the point to which these paper credits may be multiplied and extended with positive advantage, and beyond which a further extension of them can only work mischief or end in financial crisis and disaster.

The first point we have to notice is that every commodity that is put on the wheel of wealth can have a credit note drawn against it at the start, and an extra one, and for a greater amount, if it forms a link in a process of manufacture, like flour from wheat, every time it changes hands, until it is finally taken off the wheel at the retailer's, and consumed by his customer. And further, that so long as the consumer pays the retailer for the goods he has bought, it matters not how many of these credit notes are contracted and accumulated by these goods on their way; for the retailer will then be able to pay the merchant, the merchant the manufacturer, and the manufacturer the farmer or mine owner; and the whole accumulated credits which have been hung around one and the same commodity like a hive of swarming bees around their queen, will be detached and extinguished one by one in turn until none are left. So far this is what is called legitimate business; and the only effect of having added these paper credits to the metallic currency and used them alongside of it as an addition to the circulating medium of the country will be one of pure gain, for they will have brought commodities all the more quickly from the fields, the factories, the workshop.-, or the mines where they were produced, to the point where they were wanted for consumption, and so by the saving of time involved, will have accelerated the movement of the wheel and increased the nation's wealth; these lightly blown and unsubstantial gossamer-like credits which in themselves are of no more intrinsic value than that of the ink and the paper on which they were written, having through their industrial and economic effects in speeding the circulation of commodities, a value as substantial as the material ships, railroads and waterways themselves; the only difference being that while the credits, like ordinary railway tickets, are good only for the different stages of the particular journey for which they are issued, the railroads and ships having the relative permanency of fixed capital are good for all the stages of all the journeys of all the commodities that pass over them.

But if on the other hand we assume, for the nonce, that the consumers of a nation do not pay the retailers, the retailers in turn will not be able to pay the merchants, the merchants the manufacturers, nor the manufacturers the farmers or mine owners, and the consequence will be that the wheel of wealth will have to start on its next revolution with the added load of unredeemed and unextinguished paper credits clinging like dead weights around the fresh supply of commodities newly issued from the soil, the workshops, and the looms; the credits which before were like the engine attached to the train of goods to help them along, being now like an added load of empty carriages obstructing its running. It is of course true that as the consumers in general, as we have seen, are the same persons as the producers, there is no reason in the ordinary course of things why they should not be able to pay their retailers, inasmuch as being all at work by the hypothesis, they are all in receipt of the money wages and other incomes to do it with; and besides, the law of contract is always at their side like a policeman to compel them to do it if necessary.

But if from some widespread and unexpected industrial calamity whether personal or national, great masses of them were unable to do so, still the impetus given to the speed of the wheel by the paper credits when in due and normal quantity will have given it such an increase of momentum as will enable it like a railway train at full speed to carry a greater freightage and excess of these credits, and to a greater distance beyond the point of difficulty and obstruction, than if it had been moving more sluggishly; and will, unless the calamity be too long continued, make comparatively little appreciable difference in the speed of the wheel. The old batch of unredeemed credits will, so long as the fixed capital is still kept running, be spread thinly and evenly over a number of revolutions instead of being heaped up around one, and so will be gradually redeemed and extinguished without any violent perturbation or crisis in trade. But this of itself, it is to be observed, would not be sufficient to protect a nation for long from serious economic disturbances and joltings, even in the ordinary course of legitimate credit business, were it not for a special mechanism which exists to ensure the smooth and easy working of the wheel; and to this we must now give a word of passing notice before we can proceed to other aspects of the credit problem.