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1.16 Benefits Resulting From Quick Circulation of Money and Commodities

It's generally accepted that numerous and rapid sales is beneficial, but it bears considering the reason it is so.

The author traces the flow of capital through the production of calico cloth: raw materials are grown, cloth and dye produced, and finished cloth made. In addition to the producers of goods, there are those whose business is their transportation and storage. Especially where the cotton and dye are produced overseas, there is a very long delay for transportation in which capital is frozen. And then the supply chain from producer to warehouse to retailer and consumer.

All told, the capital represented by the manufacture and sale of this cloth may be frozen for several months. Not only is the capital of little use during this time, but it is also subject to a sequence of risks: its loss at any point in the production chain, or the risk that there may be no demand by the time the goods are delivered to each party.

The author makes no distinction between the circulation of goods and the circulation of money, because there really is none. Money is merely a vehicle that stores value of past production for future exchange, and is of value only because it is used in exchange. The labor or product represented by coinage is likewise frozen into the coin, of benefit to no-one until it is exchanged for useful items.

A passing mention is made o interest: the lower the rate of interest charged or paid for money, the greater the encouragement for it to be used in productive endeavors, as the profit of keeping it is minimal. Conversely, of the interest rate of money is high, less production is feasible, and customers are likely to value their coin and seek to retain it rather than exchanging it for merchandise, in the belief that the interest they earn by keeping money will grant them more purchasing power in the future than presently.

One final consideration is the debasing of money, which causes people to want to be rid of money for fear it will be purchase less in future than it does presently. While this would seem to be a boon to production, the mere debasement of money does not provoke the creation of more goods, but the hoarding of goods until faith in the monetary system is lost completely and citizens revert to barter until a stable currency can be found as a replacement.