Credit (currency)

“ At the adoption of the National Constitution, the people, to their wide-spread cost, had become familiar with bills of credit and their incidents, while all conversant with Colonial history must have known the part which bills of credit played for nearly a century, not only as a help to currency, but as a tender, constituting paper money. ”

“ Credit, result of confidence and trust; creates a debt, and is the right to demand payment.
Seventh: Land or Government credit is unfit as a basis for money or currency.
Eighth: Our Colonial experience proved that land and [Pg 197] Government credit were unfit as a basis for money or currency.
Ninth: Our United States Notes again demonstrated the fact that Government credit should never be used as a basis of legal tender money. Tonight we are to discuss Reserves, which are the protection or guarantee of credits granted or debts created. ”

“ The annual amount of commercial transactions alone is about 4,000 millions. Admitting the average credit to be four months, and the mass of transactions to amount to 16,000 millions, a saving of two per cent. a year would be equal to 100 millions. Add to this that the creation of institutions of credit would make a saving once for all of 300 or 400 millions, by the substitution of paper for a portion of the metallic currency. ”

“ The intermediate employed in actual transactions is, in increasing degree, that form of currency called credit, the lowest order of currency, rather than money itself. Checks and drafts make up a progressively larger share of the circulating medium. The net deposit credits in the national banks in the United States—to say nothing of the other banks—are double the volume of the actual money in the country. And a large share of this actual money is really employed as reserves to support the credit circulation. More than 90 per cent. ”

“ This bonded debt was made the basis of a national bank currency for the redemption of which, at first in legal tender paper and coin, and later in gold, the people as debtors to the banks were in the last analysis responsible. In other words the national bank currency derived its sole value as a reliable medium of exchange from the fact that it was based on the public credit, and this public credit belonged to the people, but the private banking associations got the benefit for the private [Pg 249] gain of their stockholders, and the service rendered, cost the people many times its worth. ”

“ Another suggestion has been made; that paper currency, which has a fund assigned for its redemption by the state, which authorizes its issue, does not constitutionally fall within the description of "bills of credit." The latter words (it is said) appropriately import bills drawn on credit merely, and not bottomed upon any real or substantial fund for their redemption; and there is a material, and well known distinction between a bill drawn upon a fund, and one drawn upon credit only. ”

“ The facilitation of credit and the so-called circulation of debts as a substitute for currency, together with all schemes for mutual banking or schemes for the more rapid development of commerce, imply that valuables shall be temporarily placed at the disposal of others than their owners who meanwhile sustain a privation and also take a serious risk, but that these owners shall obtain no recompense beyond the bare return of their valuables unimpaired. ”

“ This is done in a very convenient manner by lending their own promissory notes payable to bearer on demand—the borrower being willing to accept these as so much money, because the credit of the lender makes other people willingly receive them on the same footing, in purchases or other payments. These notes, therefore, perform all the functions of currency, and render an equivalent amount of money, which was previously in circulation, unnecessary. ”

“ Important as is the subject of money and essential as is the need of a standard of undoubted goodness, it is overshadowed in practical significance by the problems of banking and credit. An investigation by the Comptroller of the Currency some years ago showed that over 90 per cent of the receipts of the national banks consisted of credit instruments, while probably 60 per cent of the trade of the country was carried on by credit rather than by cash transactions. A credit transaction is a transfer of goods or money for a future equivalent ”

“ PAPERS ON FINANCE AND COMMERCE. NO. VI. A very fallacious argument has been the rule, because gold has been considered “money,” that all currency is “credit;” this at first blush would seem to be still further strengthened by the proposition that gold is only merchandise. By no means, however, is all currency credit. All bank currency is credit. All currency that is not legal-tender for contracts and debts is credit; but a currency which is of itself legal-tender is money, because it is itself intrinsically valuable. All the uses one has for money it fills ”

“ Instead of deriving advantages and facilities from the lapse of time, its decline, since the year 1838, to its present point of depression, has been regular and more rapid than perhaps that of any other country on the globe possessing the same natural advantages. From possessing a currency nearly at par, with a circulating medium but little more than half a million, and with a credit unparalleled for a country of its age, we find ourselves in a condition utterly destitute of credit, without a currency, without means, and millions in debt. ”

“ Currency Act of 1764 4 George III, Chapter 34 An Act to prevent paper bills of credit, hereafter to be issued in any of his Majesty's colonies or plantations in America, from being declared to be to a legal tender in payments of money ”

“ After a nation has fixed what its money shall be, it then issues different forms of credit money all of which are directly or indirectly redeemable in the commodity to which a fixed and stable value has been given. ”

“ Our imports in the way of commodities such as hides, coffee, [Pg 328] rubber, wool, etc., etc., run into hundreds of millions of dollars annually, and these are financed generally through the medium of commercial credits established by the purchaser in favor of the vendor of the merchandise. Commercial credits, so called, are in effect a bank guarantee to the seller that his drafts covering certain merchandise, when drawn in accordance with the conditions prescribed in the credit, will meet with due honor on presentation to the accepting bank named in the credit instrument. ”

“ Every one of the checks, notes or drafts taken in the transaction is property, just as much as the note taken for a single sale of the goods would have been property. Indeed, every one of the five notes or drafts was just as much property as the goods themselves were, and could be bought and sold just as well as the goods themselves could be bought and sold. Now it must be evident to all of you that in the production, transportation and distribution of commodities, credit performs exactly the same function as money. ”

“ The credit which we are now called upon to consider, as a distinct purchasing power, independent of money, is of course not credit in its simplest form, that of money lent by one person to another, and paid directly into his hands; for when the borrower expends this in purchases, he makes the purchases with money, not credit, and exerts no purchasing power over and above that conferred by the money. ”

“ This means that credit transactions are a part of the productive process, and that they increase values. It is the function of credit to universalize the characteristic of money, high saleability. It is the function of credit to "coin," so to speak, rights to goods on shelves, lands, etc., etc., into liquid rights, bearing the dollar mark, which are much more highly saleable than the rights in their original form were, and which often become as saleable as money itself, functioning perfectly as money. ”

“ What are the economic differences between long and short time loans? How shall we draw the distinction between the "money-rates" and the long time interest rate on "capital?" Why can some things serve as collateral in the money market when others cannot? What sorts of credit are appropriate to commerce, to manufacturing, to agriculture? Is credit capital? Is an increase in credit an increase in values? The last two of these questions imply that we have a definition of credit. ”

“ If there is one thousand million dollars of redemption money in the United States—in its treasury, its banks, and among its people—then one thousand millions of credit money can be safely used and not more. ”

“ That in the exchange value between commodity money and all other property, credit money does not add anything—it facilitates—makes convenient the transaction of business. Just as your wheat certificates add nothing to the exchange value of wheat, or the things for which wheat are exchanged; yet they facilitate its exchange.
"This commodity money is the measure of values. Its quantity becomes the measure, and each dollar is a part of that measure. Credit money adds nothing to its value, it only facilitates the transaction of business based on that measure of values. ”

“ The custom of keeping the spare cash reserved for immediate use or against contingent demands, in the hands of a banker, and making all payments, except small ones, by orders on bankers, is in this country spreading to a continually larger portion of the public. If the person making the payment, and the person receiving it, keep their money with the same banker, the payment takes place without any intervention of money, by the mere transfer of its amount in the banker's books from the credit of the payer to that of the receiver. ”

“ In all these ways the banking power of a country is extended to several times the coin money in circulation, and that with perfect safety. But it is possible for banks to be tempted through the very perfection of their own credit. The note of an individual has no established market value. A deposit in the bank is valued as cash. It is possible to secure the credit of having a bank deposit by discounting an individual note. ”

“ Let the reader notice in passing, as a corollary from what has just been shown, that when forms of Credit like bank cheques come into growing use to make payments with and settle balances, they displace to a large extent commodity-moneys, like gold and silver, which would otherwise have to be employed. ”

“ Yes, madam, the mightiest financial scheme the world has ever witnessed, the grandest exemplification of the principle of credit that has ever been promulgated by man, was his invention. He farmed the whole revenues of France, and at one stroke annihilated the peculation of receivers-general, and secured the revenue of the nation. ”

“ If a banker can loan on a bill of lading or a warehouse receipt, or a trader can buy the same, or if a man can give a trust receipt to his banker agreeing that all his general shipments or stock in trade shall be the property of that banker until his debt is paid, it makes enormously for the rapid turning over of capital, and the extension of credit. ”

“ I hold that it is the duty of the bank to supply its customers with exactly that form of credit, either current credit in the form of notes, or book credits subject to check, which their business demands, and that both forms of credit must be kept as good as gold by giving gold if gold is demanded. ”

“ Nor is it accurately true that all forms of money are of equal efficiency in the support of credit. Not all forms of money, but only those of the higher levels in the money scale, are allowed to be counted as legal reserves.... ”

“ In the accounts kept by the landowners with the merchants who sold them goods, and the artizans who worked for them, there usually appear credit accounts in which the amounts due on account of produce of various kinds are deducted from the debt, leaving a balance to be settled by cash and by orders. ”

“ If he finds that it is either inconvenient for him to fill up his credit, or that he has no occasion for his coin, upon the rise in its value, he may then sell his recipisse to another, who has credit in bank equal to the value of the deposit ”

“ The bank or banks which hold the reserve may last a little longer than the others; but if apprehension pass a certain bound, they must perish too. The use of credit is, that it enables debtors to use a certain part of the money their creditors have lent them. If all those creditors demand all that money at once, they cannot have it, for that which their debtors have used, is for the time employed, and not to be obtained. With the advantages of credit we must take the disadvantages, too ”

“ The credit, which is rendered as secure as possible in all its stages by the accumulating securities of the drawer, acceptor, and endorsers of a bill of exchange, brings capital into activity,—it carries it directly to those channels in which it may be profitably employed,—it conducts it to those channels by a systematic mode of payment for its use, which we call interest, or discount;—and it therefore carries forward accumulation to its highest point of productiveness. ”

“ II. The object of credit is money lent; the basis of loan is the payment of interest. If money be wanting, credit will die; consequently, there must be a method found for augmenting and diminishing the quantity of money in proportion to the demand for it. ”

“ Now the one thing common to all these nations, and to all commercial nations, is the universal use of Credit, in the transactions of business. We conceive, therefore, that the existing condition of things may be most correctly and comprehensively described as a suspension of credit, and the consequent pressure for payment of immense masses of outstanding debt. ”