Already accustomed to accept money for commodities, the people next accepted promises for money, and ceased to look at all behind the representative for the thing represented. Money was a sign of real commodities, but credit was but the sign of a sign. There was a natural limit to gold and silver, that is, money proper, but none to credit, and the result was that the volume of credit, that is, the promises of money, ceased to bear any ascertainable proportion to the money, still less to the commodities, actually in existence. Under such a system, frequent and periodical crises were necessitated by a law as absolute as that which brings to the ground a structure overhanging its centre of gravity. It was one of your fictions that the government and the banks authorized by it alone issued money; but everybody who gave a dollar's credit issued money to that extent, which was as good as any to swell the circulation till the next crises. The great extension of the credit system was a characteristic of the latter part of the nineteenth century, and accounts largely for the almost incessant business crises which marked that period.
Perilous as credit was, you could not dispense with its use, for, lacking any national or other public organization of the capital of the country, it was the only means you had for concentrating and directing it upon industrial enterprises. It was in this way a most potent means for exaggerating the chief peril of the private enterprise system of industry by enabling particular industries to absorb disproportionate amounts of the disposable capital of the country, and thus prepare disaster. Business enterprises were always vastly in debt for advances of credit, both to one another and to the banks and capitalists, and the prompt withdrawal of this credit at the first sign of a crisis was generally the precipitating cause of it.
"It was the misfortune of your contemporaries that they had to cement their business fabric with a material which an accident might at any moment turn into an explosive. They were in the plight of a man building a house with dynamite for mortar, for credit can be compared with nothing else.
"If you would see how needless were these convulsions of business which I have been speaking of, and how entirely they resulted from leaving industry to private and unorganized management, just consider the working of our system. Overproduction in special lines, which was the great hobgoblin of your day, is impossible now, for by the connection between distribution and production supply is geared to demand like an engine to the governor which regulates its speed. Even suppose by an error of judgment an excessive production of some commodity. The consequent slackening or cessation of production in that line throws nobody out of employment. The suspended workers are at once found occupation in some other department of the vast workshop and lose only the time spent in changing, while, as for the glut, the business of the nation is large enough to carry any amount of product manufactured in excess of demand till the latter overtakes it. In such a case of over-production, as I have supposed, there is not with us, as with you, any complex machinery to get out of order and magnify a thousand times the original mistake. Of course, having not even money, we still less have credit. All estimates deal directly with the real things, the flour, iron, wood, wool, and labor, of which money and credit were for you the very misleading representatives. In our calcula-tion of cost there can be no mistakes. Out of the annual product the amount necessary for the support of the people is taken, and the requisite labor to produce the next year's consumption provided for. The residue of the material and labor represents what can be safely expended in improvements. If the crops are bad, the surplus for that year is less than usual, that is all. Except for slight occasional effects of such natural causes, there are no fluctuations of business; the material prosperity of the nation flows on uninterruptedly from generation to generation, like an ever broadening and deepening river.
"Your business crises, Mr. West," continued the doctor, "like either of the great wastes I mentioned before, were enough, alone, to have kept your noses to the grindstone forever; but Ihave still to speak of one other great cause of your poverty, and that was the idleness of a great part of your capital and labor.
With us it is the business of the administration to keep in constant employment every ounce of available capital and labor in the country. In your day there was no general control of either capital or labor, and a large part of both failed to find employment.
`Capital,' you used to say, `is naturally timid,' and it would certainly have been reckless if it had not been timid in an epoch when there was a large preponderance of probability that any particular business venture would end in failure. There was no time when, if security could have been guaranteed it, the amount of capital devoted to productive industry could not have been greatly increased. The proportion of it so employed underwent constant extraordinary fluctuations, according to the greater or less feeling of uncertainty as to the stability of the industrial situation, so that the output of the national industries greatly varied in different years. But for the same reason that the amount of capital employed at times of special insecurity was far less than at times of somewhat greater security, a very large proportion was never employed at all, because the hazard of business was always very great in the best of times.
