this belief is based simply on the opinion entertained of the person of the debtor, we speak of personal credit,* 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. 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 Hence it is, that 4 Personal credit, of course, preponderates in commerce. in mercantile life, information concerning the personal status, reputation etc. of his colleagues, plays so important a part with the merchant. This information was made more accessible in England by the Lloyd institution. On similar North American institutions, see Tellkampf, Beiträge, I, 51. Credit given on security is a modification, sometimes of personal and sometimes of real credit. Compare, infra, the theory on bankers, brokers etc. * In despotisms, credit is almost entirely personal. Montesquieu Esprit des Lois, L. V., 15. In New York, says M. Chevalier, a merchant with resources worth 200,000 francs, can do a business of from 1,000,000 to 1,500,000 francs. In Paris, under similar circumstances, the same man would find it difficult to be credited to the extent of 500,000 francs. In Holland, two hundred years ago, a person who hypothecated his property was obliged to pay a higher rate of interest than in business (Becher, Polit. Discurs, 1763, 699), while the stationary period, one hundred years ago, made personal credit extremely difficult. In Zurich, it was encouraged by the prohibition of loaning money out of the country. (Büsch, Gedlumlauf, III, 40.) 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." The social diseases of panics and of extravagant enterprises stand in the same relation to credit that unbelief and superstition do to true religion. (Schäffle.) SECTION XC. CREDIT-EFFECTS OF CREDIT. As regards the effects of credit, we may remark, that it is as powerless directly to produce new capital as is the division of labor to produce new workmen. To every credit of the Schäffle, Nat. Œk., II, Aufl., 112. Schäffle, according to the purpose which it is intended to subserve, divides credit into production-credit (investment of loans in immoveable property and in moveable property engaged in industrial operations), consumptioncredit and clearing-credit, or loans made to pay respited purchase and earnest money, inheritances etc. (Kapitalismus und Socialismus, 552.) creditor corresponds a debit of the debtor. As Turgot said: Tout credit est un emprunt.123 But, on the other hand, credit 1 Pinto, Traité de la Circulation et du Crédit, 1771, considers loans bearing interest as new portions of the resources of a country (p. 161), and that government loans not made in excess of its powers are une alchymie réalisée dont souvent eux mêmes qui l' opèrent n' entendent pas tout le mystère, (p. 338.) Similarly and earlier, v. Schröder, F. Schatz-und Rentkammer, 238 ff; Mélon, Essai politique sur le Commerce, 1734, ch. 6; next, Hamilton, Report to the House of Representatives on the subject of Manufactures, Dec. 5, 1791; Von Struensee, Abhandlungen, 1800, I, 259. See infra, § 210. More recently, St. Chamans, Nouvel Essai sur la Richesses des Nations, 1824, 83 ff. To some extent, even Dietzel, System der Staatsanleihen, 1855, 200. This is a dangerous error, since to every credit there is a set-off in the nature of a debit of an equal amount; and the evidences of debt are nothing but claims on the future revenue of the state. This was fully recognized by Cantillon, 291 ff. One of the principal advocates of that view among writers on Polit. ical Economy is the vivacious, acute and practically not unskillful, but sophistically superficial Macleod. (Elements of Political Economy, 1858, ch. 3, Dictionary, 1862, v. Credit.) The creditor's assignable right of demand, he considers immaterial capital. While bills of lading, warehouse receipts, dock yard receipts etc., only represent goods, the bank note is new goods. Even metallic money has only a credit-value, inasmuch as it can be used only to effect exchanges. To the of the creditor may correspond a + of the debtor; but the latter is negative only in the sense that we speak of negative electricity, a negative thermometrical degree. When an estate is leased, the owner has, in his demand for rent, a vendible plus; but the lessee no corresponding minus. (Not so. To the same extent that the proprietor has his future payments on the lease discounted, the present sale-value of his estate is diminished; or if it is not sold, the last party obtaining the discount has made his available capital as much less by the advance as that of the lessor has been increased.) The "discounting of the future," that is, the apparent capitalization of hopes, so much in vogue at the present time, may be a great spur to production as it may also be to baseless extravagance. 2 Many theoreticians ascribe a direct creation of new capital to credit, in so far as the capacity of the evidences of debt to circulate as a medium of exchange effects a real saving, and permits the former very costly and intrinsically valuable instruments of exchange to be used in some other way. ($123.) Compare Ricardo, Proposals for a secure and economical Currency (1817). 7. S. Mill, Principles, II, 174 and 36. McCulloch, Commercial Dictionary, art. Credit. And so it was in the first four editions of this book of mine. But here, too, there is, immediately, only a transfer of already existing capital. The person, for instance, who accepts a bank note for payment, loans a part of his capital to the bank; and the advantage to the whole facilitates the transmission of the elements of production, especially of capital, from one hand to another. When, therefore, the debtor employs the capital that he has borrowed, more productively than the creditor would have done, the whole country is a gainer; as it is a loser, on the contrary, when a person engaged in industry advances to the idler, the frugal man to the spendthrift, the solid man to the wild speculator. In declining nations, where every new development hastens decay, the latter alternative may be the prevailing one; and, especially here, may the usurious giving of credit by the shrewd to the simple lead to ruinous debtor-slavery. Among a vigorous and energetic people, the former is apt to govern, as it is only by the productive employment of the loans made that they are permanently enabled to pay interest. Here credit is an invaluable means, not only of putting idle capital in motion, and of making active capital still more active, but especially of concentrating capital, by which it may gain as much in productive power as labor does by the coöperation of labor. This is effected, very frequently, by means of joint-stock companies, the principle of which recommends them especially in enterprises where stationary capital is required rather than circulating capital, and where capital generally plays a greater part than labor; and where this labor can be subjected to provisions which may be accurately laid down beforehand; as, for instance, in the case of docks, insurance companies, banks,5 community of such credit-operations consists chiefly in this: that so large a quantity of cash-capital which lay idle in banks etc., may be used more productively. 3 When Roesler says that credit is capital, the product of saving, and very serviceable in further production (Grunds., 300), he confounds credit itself with the foundations of credit, which are, indeed, in large part material or moral capital. 4 O Compare Discourse on Trade, Coyn and Paper-Credit, London, 1697, 72 ff. 5 Compare Buron, Guerre au Crédit, 1868. Schäffle, Tüb. Ztsch., 1869, 296 ff. With a thorough understanding of its politico-economècal hearing, O. Michaelis, (Berliner V. Jahrsschr. 1863, IV, 121,) says: The capital-value of my credit is not equal to the nominal value of my evidences of indebtedness etc. Banks, then, become real reservoirs of capital, provided they are properly and judiciously established and managed; real reservoirs which receive in one place the capital which is superfluous elsewhere, in order to supply some other place with that which is necessary to it. The more confidence increases, the more are even the smallest driblets of capital awakened from their slumbers, and made active and productive. It is only by means of credit that the help of foreign capital can be obtained for home production. Indeed, credit, considered as an exchange of probable future goods against actually existing goods, is one of the principal functions of the temporal solidarity of the economy of nations. (Schäffle.) Without credit, there would be very little place for speculation proper. We may see how the possibility of giving and receiving credit promotes wealth, by contemplating the poorer classes, whose poverty, both as cause and effect, is very closely related to the absence of credit. And here we have a suggestion of the reverse to the bright side of the picture of credit, analogous to that mentioned in § 62 of the coöperation of labor, viz.: that it tends to intensify inequality among men. The man who is distinguished by the amount of his wealth, or by his position is naturally known to a much wider circle than others are. From which it follows, that he may, by the way of credit, increase his power, already so much greater in the economic world, by a much larger multiplier. Hence, it need not [notes etc.], but to the capitalized amount of the extra surplus which I have obtained in my business by means of credit, after deduction is made of the costs and of the risk-premium. 6 We shall, in the books to follow this, inquire with great care, what are the means best calculated to remedy this dangerous tendency. We need only remark here, that it is to be found in a judicious association of small capitalists, and also in the capitalization, so to speak, of personal qualities. A well organized society of work-men, without capital, may indeed obtain credit, as for instance, the Schultze-Delitsch societies, the Russian artelschnicks (market-aid societies) etc. prove. (Frühauf, Die russ. Artels in Faucher's Vierteljahrsschrift, 1868, I, 106 ff.) We may also mention the greater credit accorded to a land-owner the moment he becomes a member VOL. I.-18 |