CHAPTER VII. THE THEORY OF CREDIT. PRELIMINARY REMARKS. SECTION I. INVESTIGATION OF THE NATURE OF CREDIT. SECTION II. OF THE TRANSFER OF CREDIT, OR DEBTS. SECTION III. OF THE LIMITS AND EXTINCTION OF CREDIT. SECTION IV. OF COMMERCIAL CREDIT. SECTION V. THE THEORY OF BANKING. SECTION VI. ON BANKS OF CREDIT FONCIER. PRELIMINARY REMARKS. What the We have now arrived at the consideration of the great subject of Credit, the great marvel of modern commerce. Steam Engine is in Machinery, what the Differential Calculus is in Mathematics, that is Credit in Commerce. In the preceding chapter, we discussed the Theory of the Coinage in which Values were originally estimated. But in this country, and in some others, Credit has superseded Money as a Medium of Exchange to an extent of which few people have the most distant conception: and it is just as impossible to have a correct idea of the Theory of Prices without a thorough knowledge of the mechanism of the System of Credit, as it would be to understand the phenomena of production without considering the effects of machinery. To understand the subject of Credit, the most important. branch of Commerce and Mercantile Law, properly, it is necessary to give a succinct account of the history of Roman Law relating to the creation, the sale or transfer, and the extinction of Debts. Roman Law started from exactly the same principle regarding the transfer of Debts, as is the present Common Law of England; and after many centuries, being moulded by a long series of illustrious Lawyers, was brought to a state of simplicity and perfection, which was declared to be Law, by the Legislation of Justinian, soon after the beginning of the 6th century. These doctrines were adopted and confirmed in the Revised Code, called the Basilica, promulgated by the Basilian dynasty in the 10th century. The Code of Justinian, therefore, on the subject of Credit, was the Common Commercial Law of Europe, except England, and except where it may have been modified by special legislation in different countries. The Common Law of England with regard to the transfer of Debts, is exactly what Roman Law was at the time when the Romans abandoned Britain, as stated in the Institutes of Gaius. While Equity, which was for many hundred years administered by Churchmen distinguished for their knowledge of the Civil Law, adopts the more advanced doctrines of the Pandects. At the present time, Credit is by far the most gigantic species of Property in this country, and the trade in Debts is beyond all comparison, the most colossal branch of commerce. The subject of Credit is one of the most extensive and intricate branches of the Law of Property. The merchants who trade in Debtsnamely BANKERS- are now the Rulers and Regulators of commerce: they almost control the fortunes of States. As there are shops for dealing in bread, in furniture, in clothes, and, every other species of property, so there are shops, some of the most palatial structures of modern times, for the express purpose of dealing in Credit: and these shops are called BANKS. And as there are corn markets and fish markets, and many other sorts of markets, so there is a market for buying and selling Foreign Debts, which is called the ROYAL EXCHANGE. Thus Banks are nothing but Debt shops, and the Royal Exchange is the great Debt Market of Europe. It was out of discussions on the Nature of Credit that the modern science of Political Economy took its rise, and yet it is the subject which has been least understood by Economical writers. Considering the mighty part which Credit plays in modern commerce, and the effects it has had for weal or for woe upon nations, we should naturally have expected that Economists would have thoroughly worked out the subject, and would have been unanimously agreed upon its nature and effects. So far is this from being the case, that on no subject whatever, if possible, are they more utterly at variance with each other, and with them selves. To understand the subject of Credit properly, requires a thorough settlement of nearly all the Fundamental Conceptions in the science, which has hitherto been almost entirely neglected: and in the following chapter we shall see the benefit and the utility of having given so much labour to generalize the Fundamental Conceptions of Economics. It requires a knowledge of some of the most abstruse branches of Law: and indeed to explain some cases in Credit was too much for some of the most eminent judges on the bench. In one case Lord Eldon said"I think that I argued the case of ex parte Walker, and I must say that the speculation about paper certainly outrun the grasp of the wits of the Courts of Justice. This sort of circulating medium puzzled as able a man as ever sat here-Lord Thurlow. What was to be done then? The Court was puzzled and distressed. At last however we came to an anchorage in that case—ex parte Walker. I have no difficulty in saying that I never understood it. I am satisfied that though no doubt the Court understood that judgment, yet none of the counsel did." Truly says Daniel Webster "Credit is the vital air of the system of modern commerce. It has done more, a thousand times, to enrich nations, than all the mines of all the world. It has excited labour, stimulated manufactures, pushed commerce over every sea, and brought every nation, every kingdom, and every small tribe among the races of men to be known to all the rest; it has raised armies, equipped navies, and triumphing over the gross power of mere numbers, it has established national superiority on the foundation of intelligence, wealth, and well directed industry." So also an able French writer, M. Gustave du Puynode, says '-" However fruitful have been the mines of Mexico and Peru, in which for a long time after Columbus, seemed buried the fortune of the world, there is yet a discovery more precious for humanity, and which has already produced more wealth than that of America: that is the discovery of Credit, a world altogether imaginary, but vast as space, as inexhaustible as the resources of the mind." These descriptions are undoubtedly true; but unfortunately there is a reverse to the 1 Speech in the Senate of the United States, 18th March, 1834. medal. If credit in modern times, when rightly used, has produced all these wonderful effects; when misused, it has produced catastrophes of a corresponding magnitude. False theories of Credit, and the abuse of Credit, have produced monetary cataclysms, which have shaken nations to their foundations, and whose direful effects have only been equalled by those of the volcano and the earthquake. It, is, therefore, of the deepest national importance to investigate and establish the true Theory of the subject. The investigation of this subject, moreover, opens up another most interesting branch of inquiry. For considerably more than a hundred years Mathematicians have been in the habit of calling Debts "Negative Quantities." But very few have given any explanation of what they meant by calling a Debt a "Negative Quantity," and those who have attempted it, from the want of knowledge of the principles of Law and the facts of commerce, have completely failed in giving an explanation which can be received as suitable for Economic Science. It is well known that, though Mathematicians have been in the habit of using the Algebraical Signs for many hundred years, it is only within the present century that the Theory of these signs has been completely worked out. We must therefore explain the Theory of Algebraic Signs, and the principles of their use in Mathematics and Natural Philosophy, and then give an exposition of the Facts of Commerce, and then discover what interpretation of these Signs is suitable for the circumstances of Economics. And when we have combined these things together-an exposition of the facts of commerce-an exposition of the Law of Credit-and shewn the application of the Theory of Algebraical Signs to these facts, we shall find a most beautiful exemplifiation of the use of these signs, strictly conformable to their use in Natural Philosophy. We shall find that the Doctrines of Law, the Practice of Commercial men, and the Theory of Signs, agree with each other. We shall be able to carry the Theory of Credit even to a greater state of perfection than it was left by the Roman Lawyers; and we shall be able to give a complete solution of questions which they did not leave quite in a satis |