6. We must refer to the next chapter for an exposition of the mechanism of banking, shewing how the creation and exchange of Debts is made in modern commerce to perform the part of money. We will only observe here, that the manufacturer, the wholesale dealer, and the retail dealer, may all be customers of the same bank, and if they all have their bills discounted by it, it will purchase a whole series of Debts arising out of the transfers of the same property.

The above operations are only what arise in the ordinary course of business; it may sometimes happen that property may change hands much more frequently, and at every transfer a bill may be created. Hence when the Credits are very long, and the transfers numerous, it is easy to imagine any number of bills being created by repeated transfers of the same property. In times of speculation this is particularly the case.

Now all these bills are technically Commercial or Real Bills, but it is evidently a delusion to suppose that there is any security in them on that account. The fact is that the whole misconception arises from an error in the meaning of the word "represent." A Bill of Lading does, as we have said above, represent Property, and whoever has the Bill of Lading, actually has so much property. But a Bill of Exchange does not represent goods at all. It represents nothing but Debt; not even any specific money. It is created as a substitute for Money, to transfer Property, but it does not represent it any more than Money represents it. This was long ago pointed out by Mr. Thornton in his Essay on Paper Credit - "In order to justify the supposition that a real bill, as it is called, represents actual property, there ought to be some power in the bill-holder to prevent the property which the bill represents from being turned to other purposes than that of paying the bill in question. No such power exists; neither the man who holds the bill, nor the man who discounted it, has any property in the specific goods for which it was given." This is perfectly manifest. It is both contrary to the law and the nature of Bills that they should be tied down to any specific goods. And it shows that the real security of the bill consists in the general ability of the parties to it to meet their engagements, and not in any specific goods it is supposed to represent, the value of which is vague or illusory, and impossible to be ascertained by any one who holds it or discounts it.

7. The distinction between Bills of Lading and Bills of Exchange is of so subtle a nature, but is of such momentous consequence, that we may illustrate it further. The preceding sections shew that any given amount of property may, by repeated transfers, give rise to any amount of bills, which are all bond fide, just for the same reason that every transfer would require a quantity of Money equal to the Property itself to transfer it. Then, even supposing the price remained the same at each transfer, it would require twenty times £20 to circulate property to the value of £20 twenty times. But also £20 by twenty transfers may circulate property to the value of twenty times £20. So also a Bill of Exchange may represent the transfers of many times the amount of property expressed on the face of it. This is the case whenever a Bill is indorsed or passed away for value: and the bill represents as many additional values expressed on the face of it as there are indorsements. Thus let us suppose a real transaction between A and B. A draws upon B. That shews that the bill has effected one transfer of property. A then buys something from C. It is clear that C might draw upon A, in a similar way that A drew upon B. But instead of that A may transfer the bill on B, by indorsement. It has now effected two transfers of property. In a similar way C may buy from D, and in payment of the property may indorse over the bill to D. The bill then represents three transfers of property. In a similar way it may pass through an unlimited number of hands, and will denote as many transfers of property. When C indorsed over the bill to D, he merely sold him the debt which A had previously sold to him. Now that might be done either by drawing a fresh bill on B, cancelling the first, or simply indorsing over the bill he received from A. Hence we see that every indorsement is equivalent to a fresh drawing. But if he draws a fresh bill on B, it will represent nothing but B's debt to him; whereas if he indorses over the bill he received, it will represent B's debt to A, A's debt to C, and C's debt to D, and consequently it will be much more desirable for D to receive a bill which represents the sum of so many previous transactions, and for the payment of which so many parties are bound to the whole extent of their estates.

Some sixty years ago, almost the entire circulating medium of Lancashire consisted of Bills of Exchange, and they sometimes had as many as 150 indorsements upon them before they came to maturity. From this also, we see that no true estimate can be formed of the effect of the Bills of Exchange in circulation, by the returns from the Stamp Office, as has sometimes been attempted to be done, as every fresh indorsement is in effect a new bill. So that the useful effect of a Bill of Exchange is indicated by the number of indorsements upon it, supposing that every transfer is accompanied by an indorsement, which is not always the case. We see here the fundamental difference between Bills of Lading and Bills of Exchange, because the indorsements on the former denote the number of transfers of the same property: the indorsements on the latter denote the number of transfers of different property. Ten indorsements on a Bill of Lading shew that the same property has been transferred ten times, but ten indorsements on a Bill of Exchange shew that eleven times the amount of property has been transferred once.

8. We have shewn that the prices of all commodities are universally governed by the Law of Supply and Demand at all times. If the supply be excessive, nothing can prevent the price from falling to any state of depression, until it becomes absolutely unsaleable. The commodity, therefore, will not pay the cost of its production, and unless those concerned in producing it have independent capital to enable them to hold on until the excessive supply is taken off, and save them from selling when the price is ruinously depressed, or to stand the losses, they will all fail.