Section II

ON THE NATURE OF CREDIT

Personal Qualities are Wealth

12. It has been shown that in ancient times the author of the Eryxias expressly classed Personal Qualities under the title of Wealth (xpμara, πλoûтos), because persons can make an income by their use

In modern times Smith, and all Economists of note since his day, Say, Senior, Mill, and others, all agree that Personal Qualities, Ability, Energy, Skill, and Character, are Wealth. And the reason is, that persons can make an income by trading with their Personal Qualities exactly in the same way as they can by trading in material goods. Personal Qualities may be called Moral, or Personal Capital

Personal Qualities may be used as Capital, or so as to produce a Profit in two distinct ways

1. By their direct exercise as Labour; with which, however, we are not concerned in this work

2. They may be used as Purchasing Power: that is, to purchase Goods or Labour, by giving a Promise to pay at a future time, instead of actual money, in exchange for them. Personal Character used in this way as Purchasing Power, is, in popular language, termed Credit

All eminent writers recognise Personal Credit as Personal Property, or Wealth

Thus Demosthenes says

“ δυοῖν ̓Αγαθοῖν ὄντοιν πλούτου τε καὶ τοῦ πρὸς ἅπαντας πιστεύεσθαι, μεῖζόν ἐστι τὸ τῆς πίστεως ὑπάρχον ἡμῖν”

"There being two kinds of Property, Money and General Credit, our greatest Properly is Credit "

So also—“ εἰ δὲ τοῦτο ἀγνοεῖς ὅτι Πίστις Αφορμὴ τῶν πασῶν ἐστὶ μεγίστη πρὸς χρηματισμὸν, πᾶν ἂν ἀγνοήσειας.”

"If you were ignorant of this, that Credit is the greatest Capital of all towards the acquisition of Wealth, you would be utterly ignorant"

So Bishop Berkeley, in his Querist, asks-" Whether Power to command the Industry of others [i.e., Credit] be not real Wealth?"

So Melon says "To the calculation of Values in Money there must be added the current Credit of the merchant, and his possible Credit"

So Dutot says "Since there has been regular commerce among men, those who have need of money have made Bills, or Promises to pay, money. The first use of Credit, therefore, is to represent Money by Paper. The usage is very old: the first want gave rise to it. It multiplies specie considerably: it supplies it where it is wanting; and which would never be sufficient without the Credit : because there is not sufficient Gold and Silver to circulate all the products of nature and art. So there is in commerce a much larger amount in Bills than there is in specie in the possession of the merchants

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"A well managed Credit amounts to tenfold the funds of a merchant and he gains as much by his Credit as if he had ten times as much Money. This maxim is generally received among all merchants

"Credit is, therefore, the greatest Wealth to every one who carries on commerce

So Smith says "Trade can be extended as Stock increases: and the Credit of a frugal and thriving man increases much faster than his stock. His trade is extended in proportion to the amount of Both [i.e., his Stock and his Credit], and the sum or amount of his Profits, is in proportion to the extent of his trade and his annual accumulation in proportion to his Profits"

So Junius says-" Private Credit is Wealth "

So Franklin says-" Credit is Money"

No one is more emphatic than Mill in the assertion that Credit is Wealth

In the beginning of his work he says

"Everything forms, therefore, a part of Wealth which has a Power of Purchasing

He then says " For Credit, though it is not productive power, is Purchasing Power"

Also-"The amount of Purchasing Power which a person can exercise is composed of all the Money in his possession, or due to him [i.e., the Bank Notes, Credits, or Bills he has], and of all his Credit"

Also-" Credit, in short, has exactly the same Purchasing Power with Money"

And he repeats the same thing in numerous other passages

Now, if Mill lays it down as the fundamental Definition of Wealth that

"Everything is Wealth that has Purchasing

Power"

And if he says that "Credit is Purchasing Power:" then the necessary inference is that "Credit is Wealth"

That is a Syllogism in which Mill is safely padlocked, and from which there is no escape

Hence it is seen, by the direct statement of all these writersand innumerable others might be cited, if necessary-that Mercantile Character is Purchasing Power, and is Wealth, or Personal Capital; because it can be used as well as Money to purchase Goods and Labour with. And if a man can purchase Goods, Labour, or Money with his Personal Credit, then his Credit has a Value which is measured in Money, as well as that of any material chattel

Hence, Mercantile Character is Wealth: Valuable Property; and may be used as Capital, as well as any material chattels

And a merchant's Character, or Credit, may be damaged and injured by false reports just as his material chattels may be damaged and injured by material violence. To damage a merchant's Credit is to injure and destroy his Purchasing Power: and as we have seen that everything which has Purchasing Power is Wealth, to ruin a merchant's Credit is exactly the same injury to him as to rob him of so much actual money. And he has an action against any one who injures his Mercantile Character, or Credit, equally as he has against any one who injures his material chattels

So distinctly is Personal Character recognised as Property in Roman Law, that it is classed under the Jura in re: and an attack on it is an Injuria, or the infringement of a legal Right

Hence it must be carefully observed that Mercantile Character, or Credit, is National Wealth

On the Creation of Obligations

13. Mercantile Character, or Credit, then, is Purchasing Power, and is now universally admitted to be Wealth. But as Value does not enter into Economics unless a person manifests his Value, or Demand for something, by giving something in exchange for it so Mercantile Character, or Credit, does not enter into Economics until the merchant actually exercises his Credit by making a purchase with it

And when a merchant buys goods with his Credit, or "on Credit," as it is often termed, it is an absolute Sale, just as much as if the purchase had been effected with Money. He acquires the absolute Property in the goods as fully and effectually as if he had paid for them in Money

But at the very instant that the Property in the goods is ceded to the merchant, a Contract, or Obligation, is created between the two parties, the buyer and the seller of the goods, which consists of two parts

1. The Right to demand payment in the person of the Seller, or Creditor

2. The Duty to pay in the person of the Buyer, or Debtor

These two Quantities constitute the Contract, or Obligation, or the Bond of Law between the two parties

In this Contract, or Obligation, it is the Creditor's Right of action to demand the Payment at a future time, which, in Law, Commerce, and Economics, is termed the Credit

And this Right of action, or Credit, is the Price, or Payment, for the goods. When a merchant takes a trader's Bill at three months in exchange for goods, it is Payment for the goods, just as much as if it were Money. The transaction is a Sale, or an Exchange. When the trader gives his Bill at three months, the Bill is Payment for the goods: what he has to do is to pay his Bill when it becomes due: which is another Exchange

Division of Opinion among Jurists as to the Case of the Debtor in an Obligation

14. We have now come to the most abstruse and subtle point in all Economics, which will demand the student's most earnest attention because it is the great Serbonian bog in which multitudes of writers, literary and mathematical, have been swallowed up, from a want of knowledge of the most elementary principles of Mercantile Law and practical business and its rectification and elucidation will open up a completely new branch of inquiry of the greatest novelty and interest

When an Obligation has been created between two parties in the manner described in the preceding paragraph, on the Sale of Goods or the Loan of Money, the case of the Creditor is clear: in exchange for the Goods or the Money he has received a Right of action. This is his Property, which he can sell and exchange for other Goods, or for Money

But a strong division of opinion exists among Jurists as to the case of the Debtor in the Obligation. When a merchant has bought goods and given a Bill at three months in payment for them-Is he in Debt at the Present time?

The great Roman Lawyers held that he is in Debt at the present time but that the Remedy is deferred. The maxim of Roman Law is Debitum in presenti, solvendum in futuro

But English Law holds a different view. It holds that when

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