DIVISION OF CREDITS 1. Varieties of business credit.—It was shown in the first chapter that barter, money and credit repre sent three stages in commercial development, differ ing primarily in the degree of confidence in business relations which each implies. Such confidence is most marked in the credit economy stage, since the very essence of our present commercial system con sists in the time element in business transactions. All but a small fraction of modern business is done on credit. The longer the lapse of time from the sur render of one's property until payment is received therefor, the greater is the confidence in one another revealed in the transaction.
Nevertheless, there is a definite relation between the present-day credit economy and the use of money, inasmuch as every credit instrument given in ex change for goods is a promise to pay money and must be capable of liquidation by means of money.
For this reason the commercial world is compelled to watch both the character of the collateral, and the condition of the money market. The credit must be based on marketable goods or collateral that will not have declined in money value when the end of the credit period shall have been reached.
When we speak of personal credit, banking credit or mercantile credit, we do not mean that the transac tions to which these terms refer differ in their nature, but simply that they occupy different positions in the field of business relations. It is evident that a bank, a large commercial house and a small retail store may all on the same day receive requests for credit, and that the same kind of security may be offered in each case ; yet, inasmuch as there would be different re lations established, different names would be used in designating them. Therefore, while certain cases are common to the whole field of credit operations there are certain lines of credit which must be considered under the various titles by which they are commonly known.
2. Personal credit.—The first kind of credit to
come into existence was personal credit. Borrowing arose from a desire to obtain present possession of goods for personal uses at times when means of pay ment were not available. Later on, however, when man was not satisfied with making a living but in sisted upon making a profit, other forms of credit, namely, banking and commercial credit, came into ex istence.
But altho personal credit is the oldest, the granting of such credit is not systematically organized. This fact need occasion no surprise, however, if we take into account the conditions under which such credit is usually granted. Each separate extension of such credit is made to an individual member of society whose relation to others, in his capacity as an indi vidual consumer, is not placed on record by means of public ratings of his capital or character, as is the case with the applicant for commercial credit. The great differences in the economic status of those who wish to buy, on credit, goods for their own consumption, render almost impossible the establishment of a uni form credit policy on the part of the dealers from whom they buy.
But the lack of system which generally exists in this branch of credit is not explained altogether by the theory of a difference in economic standing on the part of consumers. To some extent, at least, the dis pensers of credit are themselves at fault. The late J. G. Cannon, former president of the Fourth Na tional Bank of New York, observed some years ago, in a paper entitled "Individual Credits," that one of the great evils connected with personal credit is "too great liberality." While this is undoubtedly true, yet it should be noted that such liberality is not an expression of benevolence or kindred senti ment on the part of the credit-giver, but rather the direct result of ignorance or carelessness on the part of those whose duty it is to investigate fully the credit title of each applicant for personal credit.