These illustrations will suffice to ex plain the nature and uses of credit: but it must always be borne in mind that in circulating capital and making it available in aid of industry, it calls no new capital into existence. It makes the existing capital of a country more productive, and consequently accelerates the accumulation of fresh capital ; but credit cannot be, in itself; a substitute for capital. A man without any capital of his own may carry on business by the aid of credit; but he is merely using the capital of another. No man can lend his money, and still use it himself. It is not ubiquitous—nor can it serve two purposes at once. If a man does not use his own capital, he may lend it to another to use ; but it is impossible that he can both use it himself and allow another to use it at the same time. He cannot use it in person and by proxy.
Stated in this manner, the truth of these principles is obvious ; yet so great is the influence of credit in stimulating enter prise, that it is constantly mistaken for a distinct productive agency. Thus it is said, for example, that wherever credit is freely obtained in a country, great pro.
sperity is the result ; and it is undeniable that facilities in obtaining credit and prosperity are ordinary concomitants; but they are both equally the results of an abundance of capital seeking employment, under circumstances favourable for its profitable use. If credit be granted too freely for the amount of capital by which it is supported, or if it be forced beyond the natural demands of trade, speculations and improvidence are encouraged which are ruinous to the parties concerned, and deeply injurious to society. An apparent prosperity exists for a time, but when the day of reckoning arrives, it is dis covered that credit, instead of creating capital, has merely diverted it from one investment to another more specu lative and hazardous, which at best can only be made ultimately profitable by a continuance of the credit by which it was encouraged. But if this credit be limited or withdrawn, what becomes of the fictitious capital upon which so much reliance had been placed ? Without any failure of the enterprise, the capital by which it was conducted is gone at once. This could not happen if credit created capital ; but it is perfectly accounted for when it is understood that capital, how ever it may be circulated and made acces sible by credit, in order to be applied to any new object must have been with drawn from another, to which it is liable to revert. As one of the forms in which capital is distributed, a system of credit is of the highest value; but if relied on as an independent equivalent of capital, it is delusive or fraudulent. [MONEY.] As yet that description of credit which consists in defined payments for goods has only been generally adverted to ; but we cannot close this article without a special notice of its peculiar character and effects. This system of credit is
generally resorted to by tradesmen to increase their business ; and it is unde niable that deferred payments offer a strong temptation to purchase. We are always eager to possess, and the cost of possession appears small in remote per spective. When a customer buys an article for which he is not to pay for twelve months, he becomes indebted for its value,. and he has also, in fact, bor rowed that amount of the tradesman, to whom he must ultimately repay—let, the cost price of the article ; 2ndly, the profit upon the sale ; and, 3rdly, the year's interest upon the amount advanced. The tradesman, if he have capital, and can rely upon ultimate payment, is very glad to encourage purchases, and not only to sell his goods, but to charge a high rate of interest for deferred payments. If he have not a sufficient capital, he must borrow from others to enable him to give credit ; and, of course, he will charge to his customers a higher interest than be has paid himself. In either case he runs considerable risk, for the debts contracted in this manner are devoid of all security. The goods are supplied and consumed ; and if the parties fail in payment, there can be no restitution or compensation. When the system is fully established, many persons avail themselves of it dishonestly ; others are improvident, and without intentional fraud, exceed their means, and become insolvent ; and various accidental circumstances may pre vent the tradesman from recovering his debts. His risk, therefore, is exceedingly great ; and in charging interest for his loans, he must cover all his losses. He consequently charges not only a reason able interest for the risk which he runs in each case, but also an insurance against all the losses which he may incur in his business. Thus a customer pays the price of his own purchases, a high rate of interest for his loans, and a portion of the unpaid debts of other people. Nor can any check be placed upon the creditor, as in other forms of credit. No specific sum is advanced with a stipulated interest ; but a gross amount is due, in which the rate of interest is concealed. It may be exorbitant, and out of all proportion to the value of the article supplied, and the accommodation given ; but it is not sepa rable from the delusive price. This cir cumstance is an obvious encouragement to fraud ; and it has a tendency to raise prices injuriously to the consumer ; an evil which even extends itself, in a great measure, to purchases paid for in ready money.