1. Goods or commodities in the ordinary course of business pass through the following hands - 1st the foreign importer: 2dly the wholesale dealer: 3dly the retail dealer: 4thly the customer or consumer. To the first three of these persons these goods are Capital; because they import, manufacture, or buy them for the purpose of selling them again with a profit: the fourth buys them for the sake of use or enjoyment. The price the ultimate consumer pays for them, must evidently be sufficient to reimburse the original expense of production, together with the profits of the three succeeding operations.

Now leaving out of the question at present how the importer of the goods gains possession of them, which concerns the foreign trade of the country, which we do not touch upon here - if he sells the goods to the wholesale dealer for ready money, he can of course immediately import or produce a further supply of goods in the room of those he has disposed of. In a similar way the wholesale dealer sells to the retail dealer, and if he were paid in ready money, he might immediately effect further purchases from the merchant to supply the place of the goods he had sold. So also if the retail dealer were always paid in ready money by his customer he might replace the part of his stock that was sold: and so if everybody had always ready money at command, the stream of Circulation or Production, might go on uninterruptedly as fast as Consumption or Demand, might allow.

This however is not the case. Few or no persons have always ready money at command for what they require. Very few traders can commence with enough ready money to pay for all their purchases; and if the stream of circulation or production were to stop until the consumer had paid for the goods in money, it would be vastly diminished.

Now let us suppose that the merchant, having confidence in the character of the wholesale dealer, agrees to sell the goods to him, but not to demand the money for them till some time afterwards. He accordingly parts with the Property in the goods to the wholesale dealer, exactly as if he had been paid in money, and receives in return the Right to demand payment at some time after date. Now the very same circulation of goods has taken place as would have been caused by Money. The only difference is that the actual payment is postponed, and for this the merchant charges a certain price. This Debt may be recorded in two ways: it may be simply recorded in the merchant's books, or else in a Bill of Exchange. But it is quite clear that the Property is absolutely the same in whichever form it is, though one form may have more conveniences than the other.

In a similar manner the wholesale dealer may sell for Credit to the retail dealer, and this Debt may be recorded in two forms, like the first, either as a Book-debt, or in a Bill of Exchange. As in the former case, the same Circulation, or Production has been caused by Credit as by Money. Lastly the retail dealer may sell to his customer on Credit, and this Debt may also be recorded in two forms, either as a Book-debt, or as a Bill of Exchange. In this latter case the Debt is very seldom embodied in a Bill of Exchange: it most frequently rests as a Book-debt. But in this case as well as in the former ones, Credit has had precisely the same effect as Money in circulating the goods. Hence we see that Credit has had precisely the same effect as Money in circulating the goods from the merchant to the consumer. Moreover we see that the passage of the goods through these various hands has generated a Debt at each transfer. Supposing the merchant sold the goods for a Debt of £100 to the wholesale dealer, the wholesale dealer would probably sell them for a Debt of £140 to the retail dealer, and the retail dealer would sell them to different customers for Debts not less probably in the whole than £200. Hence we see that the successive transfers of the same goods have generated Debts to the amount of £440: thereby exemplifying the distinction we have already pointed out between Credit and Bills of Lading: because if the goods had passed through twenty hands, the same Bill of Lading would always have accompanied them.

2. Now the Debt for which the merchant sold the goods to the wholesale dealer is no doubt valuable Property to him, because he knows that it will be paid in due time. It may moreover be exchanged for anything else, like any other property, if any one will take it. But it is of no immediate use for what the merchant or manufacturer probably wants at the time, namely, Money to buy more goods, or to pay wages etc. Moreover though he may be quite satisfied as to the safety of the Debt, from his knowledge of his customer, it does not follow that others who don't know him will Consequently such a Debt would not be well adapted for general circulation, and therefore it would be of no use towards further Production. In a similar way the Debt for which the wholesale dealer sold the goods to the retail dealer, would not be well adapted for general circulation and therefore could not conduce further to Production. The Debts due by customers to retail dealers seldom do conduce to further production, because they are most frequently merely in the form of Book debts.

Now the merchant would probably sell to a great number of wholesale dealers whose Debts would fall due at different times, and therefore a certain stream of money would always be coming in to enable him to continue Production. Similarly the wholesale dealer would sell to a great variety of retail dealers whose Debts would fall due at various periods, and so a certain stream of money would always be coming in to enable him to continue Production. Similarly the retail dealer sells to a great variety of customers, a great many of whom pay him ready money at the time of the purchase, as casual buyers, and his customers too pay him money, by which he can continue to make purchases and keep up the stream of Production. And therefore this would greatly facilitate Circulation or Production.