CREDIT Confidence and Time Element The discussion of money has so far dealt only with the metallic forms. Transactions in which immediate payment of standard metallic money is made are primarily barter transactions—as when one hat is exchanged for one ounce of gold; they are trans actions, however, which differ from the original barter trans actions, inasmuch as the receiver of the gold does not take it for his present industrial or personal use but as a representative of those things for which he is confident he can exchange it.
This purposed exchange may be direct or indirect. One man, Brown, accepts gold because he is confident that another, Jones, will take it from him for shoes which Brown wishes and which Jones has. This confidence is born of custom and rests upon the inertia of custom to change, and is seldom if ever consciously acted upon. Brown, however, may accept silver or paper which he knows Jones will not accept for the shoes, but which he knows Smith will accept in exchange for gold. That is, Brown knows that by indirection he can get the shoes from Jones. This con fidence that Smith stands ready to exchange gold for silver or paper rests upon custom, upon Smith's promise, or upon law or public opinion compelling Smith to make such exchanges. Smith's function is to convert or redeem silver or paper with gold.
Thus the very foundation of the money concept is faith in another. This faith is "credit." "He believes." Brown believes that Jones will accept and Smith will redeem. It is a confidence which extends over a period of time, that is, Brown accepts now, believing that Jones or Smith will accept later. The coin or paper is the tangible evidence of that faith and the measure of its amount. A gold eagle or a $20 bill accepted by Brown is evidence that he trusts custom, promise, or law to that amount.
The Contract Element Indeed, Brown may desire the shoes but he may not have gold or another commodity acceptable to Jones, but Jones, hav ing confidence in Brown's future ability and willingness to provide acceptable commodities, may therefore be willing to transfer the shoes to Brown at once and trust him to transfer acceptable commodities later. The payment, in other words, is deferred.
Since either man—or both—is likely to forget the exact nature and terms of this deferred payment, some written evidence is usually prepared to describe it. This written evidence may be simply a book entry, or it may be a special instrument drawn up to which Brown subscribes. In any case the credit precedes and exists independently of the instrument; contracts, written or parol (oral), characterize a credit economy and may well be regarded an essential attribute of credits, but emphasis on this feature is likely to becloud the more fundamental element—confidence.
Reduction of the credit contract to writing serves several purposes, but parol credit is just as thoroughly credit as is that evidenced by written instruments. Writing gives the contract legal definiteness; what was possibly vague, easily forgotten, and therefore subject to dispute, becomes definite and lasting. If left in the form of an entry in an open book account, it is still subject to dispute by the debtor, and the burden of proof of its validity and correctness rests upon the creditor. But if reduced to writing and signed by the debtor, the law presumes that it was then and is now valid and correct, hence the burden of proof to the contrary is upon the debtor. Writing also makes the contract more easily transferable. Writing, however, does not change its credit basis; the credit instrument cannot be better than the credit which it embodies; its safety and security do not lie in the form, but in the credit conditions underlying its creation; the promissory note by which a book account is closed has no greater security than the book account itself; it simply renders the ac count in a more convenient form for the creditor.