CHAMBERS'S INFORMATION FOR THE PEOPLE. 



Of Credit as an Instrument of Exchange. 



The nature of credit has been already explained 

 incidentally ; we have now to regard it in its 

 bearings on exchange. 



Two persons resolve to exchange certain com- 

 modities with each other : one of these delivers 

 his commodity at the time ; the other does not 

 deliver his, but engages to do so at a future time. 

 In this case, credit is given to the second trafficker 

 for the goods he engages to deliver. A man con- 

 tracts to build a ship ; he receives payment in 

 advance, and engages to deliver the ship in a 

 given time. This man receives credit for the 

 ship. 



But more commonly, instead of credit being 

 given for a specific commodity, the value of that 

 commodity is expressed in money, and credit is 

 given for the money. A horse is exchanged for 

 ten quarters of wheat ; but the horse is reckoned 

 as worth 40 in money, and the wheat is reckoned 

 to be worth ^40 in money. The horse is de- 

 livered, but the wheat is not delivered : and the 

 one man is said to be due the other a sum of .40. 

 We put the illustration in this form, because 

 substantially, and taking all the transactions of 

 society together, the exchanges are of commodity 

 for commodity. Money is merely a stepping- 

 stone towards that object. The market may 

 embrace two persons or a thousand ; each finding 

 in the end that a little of his commodities finds 

 its way to each of the other 999 persons com- 

 posing the community ; nevertheless, the trans- 

 actions of each individual with his neighbour 

 were expressed in the money value of the several 

 commodities. 



When the exchange of the several commodities 

 is completed according to the prime object of 

 exchange, all the money values would compensate 

 or extinguish each other. If I exchange a .40 

 horse for ^40 worth of wheat, there is no need 

 for any money to pass between us, the debit 

 having compensated or extinguished the credit. 

 Or, in place of paying for my purchase directly, 

 I may sell my commodity to a third person, or 

 to a fourth, or to any person in the system of 

 exchange who happens to possess ^40 worth of 

 commodities wanted by the person from whom I 

 made my first purchase, and willing to sell these 

 to him. The exchange thus effected will extin- 

 guish the several money debits created by these 

 transactions, all without the need of money 

 actually passing. But whenever such exchanges 

 cannot be effected, as will directly or indirectly 

 compensate or extinguish these various money 

 debits and credits, the difference becomes a debt 

 exigible in money itself that is, the difference is 

 exigible in bullion. So complex, however, is the 

 system of commercial exchanges, that it is only 

 for the most part in the dealings of great bank- 

 ing-houses, and in the exchanges with foreign 

 countries, that balances fall to be settled in specie. 

 In general, and taking all the transactions of 

 society together, debits and credits extinguish 

 each other. The chief use of specie among the 

 ordinary population is to settle in ready money 

 small purchases from trades-people, to whom the 

 purchaser happens to be a stranger, or with whom 

 his transactions are too few to justify the trouble 

 of opening a credit account 



Credit is given in various forms, as bonds, bills, 

 bank-notes, credit accounts, open accounts, &c. 



4* 6 



Of Prices. 



Enough has been said to warn the reader 

 against the assumption that the price of a com- 

 modity is one and the same thing with its ex- 

 changeable value. Price truly measures its ex- 

 changeability with one commodity only namely, 

 money that is, gold or silver. Were mines of 

 gold discovered as prolific as coal-mines are of 

 coal, the value of money would collapse, and 

 prices would mount enormously ; yet the ex- 

 changeable value of commodities in general would 

 remain unaltered. 



As already explained, the exchangeable value 

 of money has hitherto within certain limits 

 maintained uniformity in a wonderful degree ; 

 and on that quality has rested its great usefulness 

 as a medium of exchange. Like other com- 

 modities, however, the exchangeable value of 

 money fluctuates. When bullion is scarce, prices 

 fall that is, the exchangeable value of gold 

 measured against all other commodities, rises ; 

 and when bullion is abundant, prices rise. 



The expansion or contraction of credit, which, 

 like gold, serves as a circulating medium, and 

 which is almost uniformly stated so as to be 

 convertible into money, affects prices just as they 

 would be affected by an abundance or a scarcity 

 of bullion. When credit is freely given, prices 

 rise that is, the value of the circulating medium 

 falls ; when credit is withdrawn, prices collapse 

 that is, the value of the circulating medium rises. 



Of Commerce. 



Since there is so great an amount of business 

 to be done in the exchange of commodities, it is 

 evident, from what was said about division of 

 labour, that the business will be better done, and 

 the labour of the whole society be more productive, 

 if some portion of the community devote itself to 

 the business of conducting exchanges. If in a 

 given town a hundred families are engaged in the 

 various kinds of production, and require for their 

 convenience a great many exchanges with each 

 other, it would be a saving of time and labour 

 if some individuals give up all other business, and 

 employ themselves entirely in the business of 

 exchanging. They would receive the various 

 products of the different producers, keep them on 

 hand, and offer them in barter to such as wanted 

 them j and, if in a rural district, they would carry 

 these productions to a city, and exchange them 

 for what might be wanted by their friends at 

 home. The men who thus employ themselves 

 in exchanges are merchants (and are usually 

 spoken of, in the language of commerce, as retail 

 and wholesale merchants). 



Retail merchants purchase in large quantities of 

 importers or wholesale merchants, and sell again 

 to consumers in such small quantities as they 

 may desire. The wholesale dealer could not 

 afford to open a barrel of sugar to sell a pound. 

 The consumer could not afford to purchase a bag 

 of coffee, or a barrel of sugar, or a whole piece of 

 broadcloth. Besides, in the varied stocks of the 

 retail dealer, the consumer has an opportunity of 

 inspecting, trying, and selecting his purchases. 



The wholesale merchant imports in large quan- 

 tities from abroad, or purchases in large quantities 

 from producers at home, and sells to the retail 

 merchant, who, as we have said, sells to the 



