Credit

Credit, in economics and commercial life, the trust reposed in debtors which permits them to defer payment of money due from them, by giving written or other promises to pay either on demand or at some future date. A bank note, an I O U, a cheque, a bill of exchange, a debenture or Government bond, are all classed as forms of credit. Such instruments are of special value in trade - first, as facilitating payments to be made between distant places, without transmission of specie (even Government bonds "to bearer" are so used at times); secondly, as facilitating borrowing for commercial purposes, so that much wealth which the possessors cannot use profitably themselves can be applied to production by being lent to men with more ability or better opportunities; most of all, perhaps, as supplying a ready substitute for coin in periods of expansion of trade. Were there no such substitute, every improvement in trade would involve an immensely increased demand for coin; that is, coin would become scarce and rise in value, prices would fall, and the world would probably have to revert to the barter of our remote ancestors. By the use of such substitutes, provided confidence in the ability of the debtors to pay is unshaken, specie is practically dispensed with in wholesale trade, quite 99 per cent. of which is carried on with such substitutes. Though we find beginnings of a system of banking in Greece and even banker's drafts in Rome, the modern system of credit is not much more than two centuries old. Doubtless it has disadvantages, and a "collapse of credit," leading to the sudden contraction of the circulation of the substitutes for money mentioned above, is but another name for a commercial crisis.