Chapter VI.. Credit.

Credit.

Section LXXXIX.

Credit In General.

Credit(530) is the power of disposition over the goods of another,(531) voluntarily granted in consideration of the mere promise of the counter-value.(532) As Franklin says: A good pay is master of another man’s purse. Hence, it is evident that whoever would obtain credit must be believed to possess the ability as well as the intention to fulfill his promise. Where this belief is based simply on the opinion entertained of the person of the debtor, we speak of personal credit,(533) in contradistinction especially to the credit based on bailment, pledge, hypothecation etc. The longer the time between the making of the promise and the period fixed for its fulfillment, the less certain is the latter, where the security is simply the person of the debtor. It is chiefly in very uncivilized nations and also in nations in their decrepitude, and during periods of anarchy, and in despotisms, that personal security stands higher than any other. The same is true, though for other reasons, in very energetic civilized nations, where the people put a high estimate on the element of labor in their economy, among whose members legal security is, indeed, found, but where the peculiar sensitiveness of speculation would be too much hampered by the more sluggish nature of other credits; as, for instance, in North America, and even in ancient Rome. Civilized nations that have reached the stationary economic state, on this account much prefer the greater security and the absence of care which accompany non-personal credit.(534) In estimating the ability of the debtor to meet his promise, we must take into account, especially, the disposable character of his resources; otherwise it would be impossible to understand why the merchant may so frequently obtain a loan on his stock equal to its whole value, while the owner of land can place it as security only to the extent of half its value.

Credit, on the whole, grows in importance with an advance in civilization, and this is true especially of credit intended for productive purposes. This is a consequence of the greater division of labor which causes unfinished products to be put on the market more and more frequently,—products which come to have a value only after some time, but which, when that time has elapsed, have present value. And, indeed, as the world advances and civilization grows, it becomes much easier to forecast the future with certainty. The future, also, then becomes more a source of solicitude, and fixed capital, as a consequence, plays a part which grows daily more important. The limit to the development of credit is this: it is safe only when the debtor invests his borrowed goods in the production of, to say the least, their equivalent. This is why the personality of the state, clothed with immortality and with a formally boundless power of taxation, is so often seduced into engaging in transactions of credit which are never self-discharged.(535) The social diseases of panics and of extravagant enterprises stand in the same relation to credit that unbelief and superstition do to true religion.(536) (Schäffle.)