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Credit

capital, money, business, capitalist, labour, system, wealth, payment and industry

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CREDIT, in commerce and in political economy, signifies the trusting or lending of one man's property to another. The man who trusts or lends is said to give credit, and he who is trusted is said to obtain it. The one is called a creditor, and the other a debtor.

Credit is given either in goods or in money. By the former mode goods are supplied to a purchaser, for which the payment is deferred for some fixed period, or indefinitely, and the person who supplies them indemnifies himself for the delay by an increased price. By the latter mode, money is advanced, upon security or otherwise, and interest is charged upon the loan. [INTEREST; MORTGAGEd Both these modes are used, in conjunction with each other, in the large transactions of commerce. A manufacturer, for example, sells to a merchant, for exportation, goods to the value of a thousand pounds. The merchant, however, is unable to pay for them until he has received remittances from abroad ; and the manufacturer, aware of his sol vency, is contented to receive in payment a bill of exchange, due at some future period. [EXCHANGE, BILL OF.J But in the mean time he is himself in need of money to carry on his business; and in stead of waiting for the payment of the bill when it shall become due, he gets it discounted by a banker or other capitalist. Thus having given credit to one person in goods, he obtains credit from another in money. In this and other ways capital is circulated and applied to the various purposes for which it is required. But without entering further upon the prac tical methods by which the mercantile system of credit is conducted, it is pro posed to inquire into its causes and into its economical uses and results.

There can be no system of credit until there has been a considerable accumula tion of capital ; for when capital first -begins tale accumulated, those who pos sess it apply it directly in aid of their own labour. They have no superfluity which they can afford to lend to others ; and they are generally engaged in some business in which their savings can be profitably employed. As a country in creases in wealth, many persons acquire capital which they cannot employ in their own business, or can only employ by offering inducements to purchase in the shape of deferred payments. Others, again, inherit capital from' which they wish to derive an income without the trouble of personally superintending its application. It is from these classes of persons that lenders of capital arise ; and they have no difficulty in finding bor rowers. Setting aside that countless class of mankind whose maxim it is to get money or money's worth, honestly if they can, but at all events to get it—who will borrow whenever others will lend, and reckon the loan as so much money earned, most men have an instinctive perception that the next best thing to having capital of their own is to have the use of the capital of others. The efficacy of capital is very

soon discovered as an instrument for the production of wealth, and those who have it not are willing to pay for its use ; or, in other words, to share with a capitalist the profits of their own industry, on con dition that he intrusts to them such funds as they require for making it productive. Thus as soon as a sufficient capital exists, a system of credit has a natural tendency to arise, and will continue to grow with the increase of capital, unless it be checked by a general insecurity of pro perty, by imperfect legal securities for the payment of debts, or by a want of confidence in the integrity of the parties who desire to borrow. When the society and laws of a country are in a sound state, and capital is abundant, credit comes fully into operation.

The precise use of credit as an agent in the production of wealth is that it gives circulation to capital, and renders it available wherever it can be most profit ably employed. It does for capital what division of employments does for labour. Without augmenting its quantity it in creases its utility and productiveness. Credit, in fact, may be best understood by regarding it as one of the many forms in which the division of employments facilitates the production of wealth. Without the aid of capital, the labour of man is comparatively ineffectual ; and credit, by circulating capital among those who are engaged in the productive employment of labour, promotes the most essential of all divisions of industry—that which uses and makes effective the in genuity of men in those pursuits for which they are adapted. [Divistox OF EMPLOYMENTS.] To employ capital productively is a business requiring great knowledge, skill, and industry ; and is rendered mom effeo the by a division of superintendence, as manual labour is facilitated by a judicious distribution of employments among several hands. Every man who borrows money for the legitimate purposes of industry, and applies it with judgment, is really the agent of the capitalist, in executing duties which the capitalist himself would be unable to perform. A man's capital would be comparatively useless without an active superintendence, and a union of skill and industry in a particular business. These qualities are placed at his disposal by the system of credit, and stimulated to exer tion by a share in the profits arising from the use of his capital. If the capitalist should trust persons improvidently, these useful results will not follow ; but it is his peculiar province, as it is his interest, tc exercise caution and judgment in the in vestment of his own capital ; and if he fail to do this, his fortune will suffer in precisely the same manner as if he super intended a factory himself without under standing the business, and employed idle and ignorant foremen and unskilled operatives.

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