Suppose a similar transaction to be undergone with each of three sets of notes given by the coal company to the railroad company, each set originally amounting to forty thousand dollars. Instead of the original indebtedness of one hundred and twenty thousand dollars of the coal company to the railroad company, there is created by the exchange of notes for half that amount a joint liability of the coal company and the railroad company for one hundred and twenty thousand dollars. The coal has all been sold, but how is it with the coal company? How is it with the railroad company? And how is it with the banks that have discounted their notes?
The coal company continues business, giving new notes to coal producers for coal purchased, and new notes to the railroad company for freight. It is responsible not only for these notes, but for the previously issued notes. Because of this burden, it is obliged to increase its shipments of coal, and therefore to extend its markets. To do this it is obliged to undersell other coal-shipping companies, and therefore to dispose of coal at prices that do not yield enough to pay the notes given coal producers and the notes given the railroad company. The coal producers must be paid; but such remaining funds as it can obtain can not pay the increasing mass of notes given the railroad company, which mature at shorter and shorter intervals. There is more juggling of notes through banks, and the mutual liability of the coal company and the railroad company rolls up, like a big snowball pushed by schoolboys. The coal company must stop business or its shipments must increase. To stop is to acknowledge its bankruptcy. To increase shipments necessitates still further expansion of markets. It builds docks at the places of market, and organizes another company to operate them.
Although the stock of this receiving company is controlled by the same men that control the stock of the shipping company, the shipping company sells coal to it, and takes notes of the receiving company in payment therefor. These notes the shipping company discounts at banks. Notes have therefore been given by the shipping company to the coal producers for coal, and notes for the same coal have been given the shipping company by the receiving company. But the shipping company and the receiving company are controlled by the same men, and neither have working capital. The notes can not be met. There is more juggling through the banks, and the snowball grows. The shipping company must sell coal; the receiving company must sell coal. They cut prices; their competitors cut prices to retain their trade. The cutting continues until the wages of the miners who dig coal are cut; they are cut and cut. Coal is piled up on the docks. A great panic sweeps over the country. The shutting down of mills
