Jones, however, at the time he grants credit to Brown, may not know what specific commodities he may want at the maturity of the credit; it serves his convenience, therefore, to have Brown promise to pay in terms of the most commonly acceptable com modity in the community, which Jones believes he can exchange for things then wanted. It is, therefore, drawn in terms of money. Money is the standard of deferred payment. Credit is the de ferred payment. The credit instrument is the certificate of such deferred payment. The four attributes of credit are, therefore, standard money, confidence, time, and contract.
Credit a Substitute for Money Credit serves the convenience of Brown and Jones in another way. So long as metallic money was passed at the time of ex change, every exchange necessitated the handling and testing of two commodities—the article bought and the gold given. The gold had to be carried to market, and as exchange grew in fre quency, volume, and distance, to carry and count metallic money became bothersome, dangerous, and expensive. The receipt of actual metallic money was no advantage except that it might be more widely acceptable than the private credit of the buyer.
If, however, Jones accepts Brown's credit and Brown accepts Jones's credit, the burden of actual money transactions can be greatly reduced. Promises may be balanced against each other and only the net balances actually paid in metallic money. Credit operations, therefore, while making use of standard money as a unit of account and as a standard of deferred payment, obviate to a large degree the use of money as a means of payment; hence credit comes to play an even more important role than standard money as a circulating medium. As standard money facilitates exchange over the barter economy, so credit facilitates exchange over the money economy.
A credit transaction is a form of exchange in which credit is given by one of the parties; it may be a deferred payment either of goods or of money, but it is usually stated, for reasons shown, in terms of the standard money; it is a present transfer of money or economic goods or services in consideration of a promise of a future return of probably greater value. But it may also be an exchange of credit against credit, of credit against a title to goods. To illustrate: Jones may have a promissory note from Brown which arose from a deferred payment for shoes, and Smith may have a similar note against White; Jones and Smith may exchange these credits so that Smith becomes Brown's creditor and Jones becomes White's. Such operations occur every time a commercial
instrument is sold for government or bank credit money and con stitute the prime business of the banks and of the discount market. In fact, credit transactions constitute practically the whole busi ness of finance as now conducted.
The Personal Element in Credit It is important to conceive the exact nature of a credit. If Brown promises to pay to Jones at some later date, he creates a property right; Jones thereafter has a claim on Brown and Brown's wealth; the state has found it politically and economi cally expedient to guarantee, under certain conditions, this right; it is a "chose in action," recoverable by law. Fundamentally it is a jus in personanz—a right against the person of the promissor, and once in the history of jurisprudence was collectible by forced service from him. Slavery and imprisonment for debt have, how ever, been abandoned by the civil state, and such rights, in the absence of wealth of the debtor, are rather moral claims against him than anything else. The importance of the consideration of the moral qualities of the debtor by the creditor is, therefore, ap parent; his ability to pay is best indicated by his present capital and his earning capacity, but his willingness to pay depends upon his character.
Credit is deferred payment; the creditor has confidence in the debtor's willingness and ability to pay; both willingness and ability to pay rest upon personal as well as impersonal elements. Willingness to pay is more a personal than an impersonal matter; and ability to pay is rather a matter of capital than of character, although the debtor's character—his business abilities—deter mine in no small degree his ownership or control of capital. The law supports the creditor as against the debtor who is able to pay but will not; but the law cannot make him willing to pay. Be cause his willingness is subject to caprice, it is difficult to estimate and so limits his credit to small compass. As business operations and discounting become more extensive and complex, the neces sity of eliminating or reducing the personal element of credit or of reinforcing it increases, for intimate knowledge of the personal character of the debtors is more difficult to ascertain.