might seem as if both B and A had the use of it at once. But the smallest consideration will show that when B has parted with his capital to A, the use of it as capital rests with A alone, and that B has no other service from it than in so far as his ultimate claim upon it serves him to obtain the use of another capital from a third person C. All capital (not his own) of which any person has really the use, is, and must be, so much subtracted from the capital of some one else.[1]
§ 2.But though credit is but a transfer of capital from hand to hand, it is generally, and naturally, a transfer to hands more competent to employ the capital efficiently in production. If there were no such thing as credit, or if, from general insecurity and want of confidence, it were scantily practised, many persons who possess more or less of capital,
- ↑ To make the proposition in the text strictly true, a corrective, though a very alight one, requires to be made. The circulating medium existing in a country at a given time, is partly employed in purchases for productive, and partly for unproductive consumption. According as a larger proportion of it is employed in the one way or in the other, the real capital of the country is greater or less. If, then, an addition were made to the circulating medium in the hands of unproductive consumers exclusively, a larger portion of the existing stock of commodities would be bought for unproductive consumption, and a smaller for productive, which state of things, while it lasted, would be equivalent to a diminution of capital; and on the contrary, if the addition made be to the portion of the circulating medium which is in the hands of producers, and destined for their business, a greater portion of the commodities in the country will for the present be employed as capital, and a less portion unproductively. Now an effect of this latter character naturally attends some extensions of credit, especially when taking place in the form of bank notes, or other instruments of exchange. The additional bank notes are, in ordinary course, first issued to producers or dealers, to be employed as capital: and though the stock of commodities in the country is no greater than before, yet as a greater share of that stock now comes by purchase into the hands of producers and dealers, to that extent what would have been unproductively consumed is applied to production, and there is a real increase of capital. The effect ceases, and a counter-process takes place, when the additional credit is stopped, and the notes called in.
