CREDIT 1. Relation of credit to exchange processes.—It is not practicable to unfold the science of business with the same logical precision that can be applied, for instance, in geometry. Business is a living thing and its parts are so bound up with one another that we must of necessity use many terms before it is possible to define them or consider them in detail.
No discussion of prices and no discussion of money would be possible which did not introduce at least incidentally the terms credit and banks. While the technical details of banking and credit are reserved for other volumes of the Modern Business Texts, some general consideration of the nature and functions of credit is indispensable to a proper understanding of the general principles which underlie all business affairs.
In the development of successive methods of ex changing goods, credit has been designated as the third and final step. The greater part of the world's busi ness is transacted on a credit basis, and the examina tion of how this is brought about will not only intro duce us to fundamental business activities but will serve to make clearer the processes which have already been explained.
2. Exchange tc,-ithout money.—The inconveniences of barter were largely removed by the use of money. Money has attained its present usefulness only after many experiments, but money is not without its limitations. Alany of the objections to the use of money in larger transactions, which grew out of the bulk and weight of the coin, have been removed by devising the various forms of paper money described in the preceding chapter. Even with this relief to the mercantile community there has been a constant striv ing to do -business without the actual use of money, not only because of its bulk, but also because it has been found that without using money directly, a rauch larger volume of business can be transacted.
With exchanges based on credit no money at all is used. Alen buy and sell without possessing money and sometimes without owning property. The buyer
gives instead of money, the promise to pay money. 13ut the promise to pay money is not of necessity redeemed in money itself. This promise may be, and p..,enerally is, satisfied by the transfer of money's equivalent.
Aloney is sometimes spoken of as the "control over goods." It is this control which men need in business, not the money which gives it. If they can secure the control without the money they are perfectly satisfied. Hence the promise to pay money involved in every credit transaction is in the majority of cases satisfied by some act of the debtor which at the time of maturity transfers to the creditor some form of control over goods or, as it Was expressed before, money's equivalent.
3. What is indication of the mean ing of credit has already been given, perhaps in quite as satisfactory form as in a formal definition. But the term is used in so many different senses, both in everyday )speech and in the language of affairs,,that it is well to determine in what sense it is to be used in this discussion. The common expression that a man is given credit for something, or that he has credit, means in mercantile life that he enjoys the confidence of the community and has the ability to borrow. This is the personal side of credit, which in the world of bpsiness is of great importance. The Modern Busi ness Text on "Credit and the Credit Man" will deal extensively with this personal aspect of credit.
In the present discussion credit must be considered objectively. John Stuart Mill in his "Principles of' Political Economy" defines credit as being the per mission to use another's capital. Mr. H. D. Mac Leod in his "Theory of Credit" informs us that credit is "a right of action." These two definitions present credit from two sides but each is an incomplete picture. Mill's definition of credit describes, tho briefly, the role which credit plays in modern business, while Mac Leod approaches the subject from its legal rather than from its economic side.