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 among Jurists as to the When a merchant has But a strong division of opinion exists case of the Debtor in the Obligation. 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 N : a merchant agrees to take a Bill at three months in exchange for the goods, the Bill is payment for the goods and that there is no Duty to pay, and therefore no Debt, until the time has come for the payment of the Bill It is a maxim of English Law that "Credit unexpired may be pleaded under the General Issue:" which means, that if a trader has bought goods at an agreed upon Credit, and an action is brought against him for the money before the period of the Credit has expired, he may reply that he is not in Debt at all So Mr. Pitt Taylor says "In addition to these examples, it may be observed that whenever the Defendant can show that, in fact, no Debt ever existed before action brought, he may do so under the plea of never indebted.' Thus, for instance, if the action be for goods sold and delivered, he may defend himself under this plea, by proving that they were sold on Credit which was unexpired when the action was commenced " And this is undoubtedly the correct view: when a merchant agrees to take a Bill at three months for his goods, he has received what he agreed to take in exchange for them. He is, therefore, Paid for them. It is the usual mercantile expression to say that the goods have been paid for by Bill. Consequently, there is no Debt, or Duty to pay money, until the Bill has become due Analogous cases will prove the correctness of this view Suppose that a tenant takes a house, or an apartment, and agrees to pay the rent quarterly. Suppose that after he had been a week in the house the landlord came and demanded his Rent the tenant would reply that he owed the landlord Nothing: that the bargain was that the tenant was to have the use and enjoyment of the house for three clear months before any Rent became due and consequently, that no Duty to pay, or Debt, arose until that time had come : The case of a trader who gives a Bill at three months in exchange for goods is exactly similar. The bargain is, that he shall have possession of the goods for three months before the Duty to pay for them comes into existence. Consequently until the three months have expired there is no Duty to pay: and therefore there is no Debt lease of 19 years, he So when a farmer takes a farm on a becomes bound to pay the Rent half yearly. But the agreement is that he shall have the use of the farm for intervals of six months before each instalment of Rent becomes due. And it would be just as absurd to say that a farmer is in Debt at the present time for the Rent he has agreed to pay 19 years hence, as it is to say that a merchant is in Debt at the present time for Money which he has only agreed to pay three months hence In each case the successive payments are intended and meant by both parties to be paid out of the Profits which are to be earned in the interval The importance of the consideration consists in this-It is often supposed that when a person is under an Obligation to pay a sum of Money at a future time, the amount of the sum to be paid in future is to be subtracted from his present Property: or that it is a diminution of it; and it is expressed by the sign Minus, or. But this is evidently a vital error. The Debtor's Duty to pay has no present effect it is no subtraction from his present Property it is a mere Memorandum that he has to make an exchange at some given future time : Advantage of adopting the Conception of Economics as the Science of Exchanges or of Commerce 15. We now see the advantage of adopting and firmly grasping the conception of Economics as the Science of Commerce or Exchanges. Because all the phenomena of Credit: which are a hopeless puzzle and perplexity while it is treated as the "Production, Distribution and Consumption of Wealth," become perfectly clear and simple when it is understood to be the Science of Commerce or Exchanges : 66 In every case of a Loan" of Money, or a Sale of Goods "on Credit," a Right of action is generated: which is a Saleable Commodity which may be bought and sold like any material chattel and it has Value, because it will be paid in money. This Right of action may be exchanged for goods exactly like a piece of money any number of times, and so effect any number of exchanges until it is paid off and extinguished: and when it is so it is another exchange And it may be sold and exchanged for other Rights of action: as when a Bill at three months is sold to a banker in exchange for his Credit, which is a Right of action payable on Demand. Debts are only generated by Exchanges and after effecting any number of Exchanges they are only extinguished by Exchanges. Thus the whole series of operations consist in Exchanges. Debts, as we have over and over again pointed out, are a species of merchandise and are the subject of the most colossal commerce in modern times. While they exist they are independent Quantities as much as any other chattels and Economics has only to do with them while they exist : : On an Erroneous Idea as to the Nature of Credit 16. The Three Ambiguities in the Theory of Credit which we explained in the first chapter show how abstruse and complicated the subject is. There are other forms of error respecting it which now require the student's attention It has been asserted that Credit adds nothing to the resources of the world, because it is neutralised by something else Any person practically conversant with commerce, and seeing that the enormously greater portion of commercial operations are effected by means of Credit, would think it strange doctrine that Credit adds nothing to the resources of a nation, or of an individual because Credit is exactly the Purchasing Power which an individual or a nation has over and above Money Some writers, however, have been misled by a very manifest error Thus Henry Thornton, an able man, a banker, and one of the authors of the Bullion Report, says-"Paper constitutes, it is true, an article on the Credit side of some men, but it forms an exactly equal item on the Debit side of the books of others. It constitutes, on the whole, neither a Debt nor a Credit " So another eminent Banker, M. Cernuschi, says-"The balance sheet of every individual contains three accounts: existing goods, Credits, and Debts. But if we collected into one all the balancesheets of every one in the world, the Debts and the Credits mutually neutralise each other, and there remains but a single account existing goods "The totality of goods, therefore, forms the general inventory. There is the first matter of exchange. The Debts and Credits are subsidiary matters. Debts and Credits are reciprocally trans |