You are probably understanding this right. It has been made 2 systems used on magneto phones, both has the generator and a switch operated by the moving of the handle.
Some telephones used a shorting system where you did put the generator in series with the ringer across the line. In rest position the generator was shorted, when cranking the ringer was shorted. It looks like this principle is the generator used here, but the contacts are used different so the generator is disconnected util you crank it, then the ringer are just across the lie all the time.
The other system used the switch to connect either ringer or generator, if you put the ringer permanently across the line, the function will be equal.
I have to look for some schematics, and edit this message.
dsk
Shunting (Elektrisk Bureau)
http://www.classicrotaryphones.com/f...ch=67816;image
Switching: (US Army EE-8)
http://www.kadiak.org/tel/ee8_1.jpg