Credit so far even as this would be of great assistance to Production, and the vast amount of it generated in this manner would be valuable Property to its owners. But it is manifest that it would be of no further immediate use to them. It might therefore be aptly compared to so much dead stock. The next grand improvement would be to make this dead stock negotiable, or exchangeable. The next great step is to make the Debts themselves saleable commodities: to sell them either for ready money, or for other Debts of more convenient amount, and immediately exchangeable for Money on demand, and therefore equivalent to Money.

3. There are two classes of traders whose especial business is to buy these commercial Debts, and so to give activity and circulation to this enormous mass of valuable property, and to convert it from dead stock into further Productive power. The first class of these traders are called Bill Discounters i.e. buyers of Debts; they buy these Debts with money. The second class are called Bankers; and they buy these commercial Debts, by creating other Debts payable on demand.

Banks, then, as far as regards our present subject, are shops opened for the purpose of buying these commercial Debts. The merchant draws a bill upon the wholesale dealer, who accepts it, and thus becomes the principal debtor on the bill. The merchant then takes the bill for sale, or discount, as it is technically termed, to his banker. It is usual to make bills payable to the drawer, or his order, which is signified by his writing his name on the back of the bill. The merchant therefore writes his name on the back of the bill, and sells it to the banker, and this operation is termed Indorsing the bill. But the indorsement has another effect besides merely assigning over the Debt to the banker, for unless specially guarded against, it makes him a surety for the payment of the bill, in case the acceptor does not pay it. The effect therefore of the Indorsement, is a Sale of the Debt, with a warranty of its soundness. But this warranty is not an absolute one, but only a limited one, as has been explained above. The banker, therefore, buys this Debt with a limited warranty of soundness by creating another Credit, by writing down the amount to the credit of his account, which Credit is called a Deposit; at the same time charging him with the discount, and gives the merchant power to draw upon him at pleasure and at demand. Thus we see that the Banker has bought one Debt, which is valuable Property, by creating another Debt, which is also valuable Property, and is equivalent to ready money to the merchant. And it must be observed that this is not a cancelment of Debts, as many suppose, but an exchange of valuable Properties.

4. The merchant has, however, a great many similar Debts, because he has sold to a great many wholesale dealers, and he will probably want to sell these in a similar way to his banker. The merchant will therefore indorse each of them over to his banker, thereby making each of the acceptors the principal debtor to the banker, but at the same time becoming himself responsible if any of them fail to pay his Debt. If therefore the banker discounts the bills of 20 acceptors, he will have 20 principal debtors, who are each of them bound under the penalty of commercial ruin, to pay their debts when they are due. The merchant however, is surety for each of them, and as it may happen that out of so many, some may make default, the banker usually stipulates that the merchant shall leave a certain amount of Deposit on his account by way of additional security. If any acceptor then makes default the banker immediately debits the account of the customer with the amount, and gives him back the bill. Thus to a certain extent the banker always keeps the means of paying himself in his own hands, besides having his customer's name on the bill, which makes his whole estate liable; and even should his customer fail, he retains the right to have his Debt paid out of the estates of both the principal and surety.

The wholesale dealer has given his acceptance for the goods, and he sells them to the retail dealer and takes his acceptance for them. In a similar manner he wishes to sell this Debt to his banker, and so convert it into Productive Capital. A similar transaction takes place as in the former case. The wholesale dealer sells the Debt of the retail dealer and becomes himself surety for its payment to his banker. The banker also buys this Debt by creating another Debt payable on demand, which is equivalent to ready money.

The retail dealer may also draw upon his customers, though this is comparatively rare, because customers are generally beyond the pale of commercial law.

By these means we see that the dead stock of commercial Debts is converted into Productive Capital. The merchant and the wholesale dealer have now the full command of ready money for any purchases they require, and can continue the stream of production without interruption, and as their bills fall due, all they have to do is to give an order on their banker.

5. These are the fewest number of hands that goods in the ordinary course of business pass through, and it is clear that in their passage from the manufacturer to the customer they will give rise to at least two bills, sometimes to three. They are all regular business bills, they originate from real transactions, and they are what are called Real or Value Bills, and they are what arise out of the regular and legitimate course of business, and are the great staple of what bankers purchase. It is a very prevalent belief among commercial men, that business bills are essentially safe, because they are based upon real transactions and always represent property. But the foregoing considerations will dispel at once a considerable amount of the security supposed to reside in commercial bills on that account, because we have seen that in the legitimate course of business, there will generally be two bills afloat, originating out of the transfers of any given amount of property, so that in the ordinary way there will be twice as many bills afloat as there is property to which they refer.