CREDIT, in political economy, is the trust which an individual places in ano ther individual, or in the state, in pecu niary transactions. This trust arises from a confidence in the creditor, that the debt or will fulfil the engagement into which he enters.
' The foundation of credit is a knowledge of the circumstances of the debtor, or of his character for industry, ability, and probity. The degree of confidence is Increased by experience of his punctu ality in making good his engagements, and diminished by all circumstances which diminish the safety, or even inter rupt the regular course of mercantile transactions.
The money price of goods sold upon credit must be higher than that of goods paid for immediately, and this in propor tion to the length of credit given and the risk. The advantage of giving credit to men of large capitals is, that they get higher prices, the difference between the money price and the credit price being greater than the legal interest of the mo ney price for the time. Hence it is a principle with some traders to give very long credit at proportionate prices. The advantage to purchasers of small capital is, that these credits are so much addition to their capital for the time Some men of large property, but whose concerns admit of indefinite extension, will take all the credit they can get, ei ther on pecuniary loans, or in purchases, being able to make a larger profit on any , capital they can procure by either of these methods than it costs them. They are exposed, however, 1, to the risk of having great demands made upon them, when it may be inconvenient to satisfy them ; and, 2, to the very common 'mis fortune of forgetting how much of their capital belongs to other people ; Dr.
Franklin's' observation being too true, that most men think their debts and their sins less than they really are. A person on whom credit is placed, and to whom it is advantageous, should be religiously punctual. Nothing will so much confirm his credit. He, however, is in a safer condition, who can give credit without taking any ; who sells on credit, but buys for money. And this should in general be the object of every young trades man.
The degree of credit among private persons is considerably affected by the laws. If they tend to enforce the fulfil ment of engagements, they strengthen credit; if they facilitate fraud, they en feeble it.
The confidence placed in governments, on the public credit, depends exactly on the same causes as the credit of individu als, on the punctuality with which they fulfil their engagements. Hence, in free states, i. e. states in which the creditors have a controul over the government, cre dit is extensive ; but in absolute monarchies it is little or nothing. It is an alarm. ing circumstance for all creditors of the state, that wherein a great national debt has been contracted, the issue has been a national bankruptcy. The republics of Italy, and that of the United Provinces, as well as the monarchs of France, have ultimately discharged their debts in this unhappy manner. This has been caused, indeed, by the pressure of inevitable cir cumstances, but it is not the less alarming on that account.