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Credit

money, york, confidence, public, system, government and ability

CREDIT, Economic and Public. In political economy the term credit is used to sig nify (1) the ability of a person to secure a sum of money or its equivalent on a promise to pay the same sum or its equivalent at some fu ture date; (2) claims for future payment of money or its equivalent. It implies confidence of the creditor in the debtor; and the credit system implies general confidence in people's ability to meet their obligations. Credit may also rest upon the fact that a person possesses readily salable commodities, and the extent of credit may depend in large degree on the vol ume of such merchandise, though at times per sonal characteristics greatly influence the line of credit extended or allowed. In a mercantile credit is used more extensively than in an agricultural community since mercantile capital can be converted into cash more readily than agricultural.

The chief function of credit is the transfer ing of capital from those who own it to per sons who presumably expect to make a profit that exceeds the interest on the loan or in the case of goods sold on time (a disguised loan transaction) an excess of price usually exacted in credit sales. Thus while itself not a pro ductive agent, credit increases the productive power of capital. The modern credit system does not rest on good faith alone but its development through efficient credit institu tions and its extensive use in commercial trans actions are made possible by means of bonds, drafts, checks, promissory notes, etc., which have been standardized through the intermedi ation of a credit institution such as a bank. Thus the secondary function of credit is to per mit the exchange of commodities without the intervention of coin money. By means of a credit system a comparatively small stock of money can be made to do duty for carrying on a number of different transactions, but it is indispensible for every good system of credit that money be instantly available when required. When credit media of exchange are used, business may be violently disturbed by any doubt cast upon the general solvency of busi ness men, whereupon occurs a sudden contrac tion of the medium of exchange, with the resultant inability of producers to sell their commodities and a depression in prices. See CRISES, ECONOMIC.

Public credit is the confidence which men entertain in the ability and disposition of a nation to fulfil its engagements with its cred itors, or, in other words, the ability of public bodies to buy supplies or to contract to buy them. As more generally used the term means the borrowing capacity and rate at which money can be secured for the public service. The term is also applied to the general credit of the indi viduals in a nation. The credit of the govern ment does not always flourish or decline at the same time as private credit, yet there is some correspondence between the two, as general individual confidence can rarely if ever persist in the midst of distrust of the government, and a firm confidence in the government tends to promote a corresponding confidence among citizens. A government is usually supposed not to possess complete public confidence if its se curities sell at less than par, though in times of emergency the strongest government might be compelled to accept unfavorable terms for a loan, either by paying exorbitant interest or accept ing less than the face value of the obligation in payment. See Duns, PUBLIC; DEBTOR AND CREDITOR, LAWS OP.

Blanton, B. H., 'Credit, Its Principles and Practice> (New York 1915); Church, F. P., 'Modern Credit Methods> (Detroit 1912) ; Dunbar, C. F., 'Chapters in the History and Theory of Banking> (New York 1892) ; Fisher, E. D., 'Relation between Fixed and Fluid Credit> (Boston 1913) ; Haggerty, J. E., 'Mercantile Credit> (New York 1913) ; Howe, R. H., 'The Evolution of Banking> (Chicago 1915) ; Ingle, William, 'Credit, Ref ormation> (in Annals of the American Acad emy of Political and Social Science, Vol. LXIII, pp. 97-104, Philadelphia 1916) ; Johnson, J. F., (Money and Currency> (Boston 1905) ; Kinky, D., 'Money> (New York 1904) ; Laughlin, J. L., (Principles of Money> (Chicago 1903) and 'Credit> (Chicago 1903) ; MacLeod, H. D., (Theory of Credit> (2d ed., London 1897); Mitchell, W. C., 'Business Cycles> (Berkeley, Cal., 1913) ; Page, E. D., and Credit> (New York 1904) ; Pendergast, W. A., 'Credit and Its Uses> (New York 1906) ; Taylor, W. G. L., (The Credit System> (New York 1913) ; Veblen, T. B., 'The Theory of Business Enterprise> (New York 1904).