Credit and its big role in business

We shall find it convenient at this point to set aside for the moment these problems of money, properly so called, and turn to the related subject of credit. Nine-tenths of the business transactions in a country like the United States are performed with the aid of credit rather than of money. From the purely quantitative point of view, credit is vastly more important than money. And yet that should not blind us to the fact that credit without money is impossible. Proposals to do away with money and to use credit only as a means of payment reveal a complete misunderstanding of the nature of credit and of its relation to money. There is, in fact, so much confusion respecting the real nature of credit that we shall do well to observe that credit is in fact a very simple thing. Credit is merely the other side of debt! In a borrowing transaction what appears to the lender as a credit, appears to the borrower as a debt. Much confusion would be avoided if, in discussing monetary problems, we should use the word “debt” in place of “credit.” The real facts discussed would be unchanged. But the mode of discussion would necessarily steer us clear of a number of dangerous fallacies.

For example, who would be willing to say that we could dispense with money and get along very well by the use of debts as means of payment? The objection is obvious. A debt can hardly be a means of payment, for it itself is something to be paid.