Credit

Credit, in Political Economy, may be defined as the power to make use of another man's wealth. It rests on the simple fact that when one man has more wealth than he proposes to use himself, he is ready, for a consideration, to lend it to another. The wealth thus lent may be used for purposes either of production or consumption, though the great function of credit in modern industry is to furnish the means of production to those who are in need of them. Credit of course is not capital, but it enables one man to utilise the capital of another. The credit system is an elaborate system of appliances and institutions, by which facilities for lending and borrowing are provided. Bills and bank-notes are well-known instruments of credit. Banks are the most notable institutions of credit, which is further facilitated by companies of every kind, designed to transmit superabundant capital to the most distant colonies and to all the ends of the earth. Credit is thus a mighty organ of industry, whose operations are co-extensive with the world, but it has attained to this far-reaching and cosmopolitan position only in comparatively recent times. Yet it is also one of the oldest phenomena in the history of society, marked by usages and laws, which are of the highest interest and importance. Credit is found in the earliest communities, one of its most striking forms being in the relations of the primitive farming class to the money-lender. It was considerably developed in ancient Greece and Rome, as also in the commercial Phœnician states on the Mediterranean. During the middle ages it grew up in the Italian republics, and afterwards in the cities of Germany and the Netherlands. But its vast extension dates from the great development of commerce and industry connected with the United States, India, and the colonies, combined with the utilisation of steam and the electric telegraph. In short the development of the credit system has gone hand in hand with the development of modern industry. While the credit system has thus so powerfully aided the development of industry by supplying capital to those who have ability and opportunity to utilise it, it is needless to say that it has led to many abuses. In early communities the creditor had power to enslave, maim, or even to slay the debtor. In modern times, by rendering capital accessible to adventurers of every class, it has occasionally given scope for the wildest and most dishonest speculation.