But the state of things we have supposed never exists.It scarcely happens, even to return to the sort of transactions we set out from, that a butcher, a brewer, a baker, dealing together, effect all their business either by direct barter, or by cash.The butcher would, in very many cases, be satisfied with the implied promise of the brewer and the baker, that, at some future time, they will give him a quantity of the commodities they respectively deal in, or of money, or some equivalent to it, equal to the price of the beef each received.
This mode of effecting the object, constitutes the system of credit, the second of the two systems by which exchanges are carried on.It has an existence in every country, and in most civilized countries, as is well known, the great bulk of transactions are carried on by the aid of it.
Were the actual or implied promise, which the party receiving the commodity makes to him giving it, always fulfilled, it would in itself be unattended with any loss, and might possibly be so managed as-almost entirely to supersede the use of coined money as a medium of exchange.
The amount of the whole purchases made by any individual within a limited time, is, in general, about equal to the sales he effects within the same time.If, therefore, in any community, all the exchanges, which are not direct barter, were to be transacted by credit, and were the obligations to pay granted by all persons engaged in business in it to expire at the same time, when that time came round, every individual would hold obligations to receive, to about as large an amount as he had granted to pay.If then each individual had granted obligations to pay, to the same persons as he had received others from, the business would be at once concluded by a reciprocal delivery of obligations.But this can scarcely ever happen;almost all the obligations to receive payment, which any individual holds, will be from other persons than those to whom he himself has granted obligations.
The affair might however be managed, and the same end arrived at, by a transfer of obligations from hand to hand.A has bound himself to pay Bfifty pounds, B to pay C fifty pounds, and C to pay A fifty pounds.If, then, A pay B, by giving him C's obligation, B can discharge his debt to C with it, and thus the debts and credits of the whole three be settled.
By operations more complicated, but conducted on similar principles, nearly the whole system of exchanges of any community might be managed.
There are two obstacles to this mode of effecting exchanges by credit.
The first arising from its inherent complexedness and difficulty, the second from the liability of the contracting parties to fail in fulfilling their engagements, from dishonesty, miscalculation, and accidents impossible to be foreseen.These restrict its application in general to transactions for large amounts, little doubtful in themselves, and which from their nature can be easily systematized and arranged.Such appears to have been the viremens, or transfers, at Lyon.(51) Such also are the transfers effected by the London bankers.In Russia, however, it would seem to be applied to transactions much more various, and complicated.Mr.Storch informs us that the creditors and debtors of the province of Kief, and several others adjoining, the proprietors, capitalists, merchants, those who want funds, and those who want to dispose of them, meet in the month of January, in the town of Kief, to make such transfers, and that in 1804, the amount of their exchanges was upwards of twenty millions of rubles, or about three millions seven hundred thousand pounds sterling.
Transfers similar to these are made, he adds, at Reval, and many other towns in the empire.(52)There is another method by which the system of credits might be conducted, and which may be illustrated by an example taken from a country already referred to, where the causes exciting to its introduction, and giving prevalence to it, operate very powerfully.In many parts of North America, but more especially in new settlements in Upper Canada, the scarcity of cash, and perhaps other circumstances, often lead traders to adopt a peculiar plan of business.Every dealer provides himself with a general assortment of all sorts of commodities in demand in the settlement he inhabits, and reckons on being paid for them in the shape of grain, potash, pork, beef, and other commodities, in the formation of which his customers are engaged.
But in this sort of barter, one article will generally fall short or exceed the value of the other, a pound of tea will not exchange for a hog, nor a quarter of wheat for a dozen pounds of sugar.To obviate the difficulty, the merchant opens an account with each of his customers, charging him with the goods furnished, and giving him credit for the produce received, and in titis way perhaps all the transactions between the two are managed, either by barter or credit, without the assistance of a dollar of cash.
Nor is this all, a great variety of other transactions are also effected, through his intervention.Any person who may have furnished him with an overplus of produce, or who bus credit with him, can through his means settle most accounts or balances due on accounts.He may thus pay the laborers, and the artificers, and tradesmen, he may employ, by an order on the shop, or as it is called, store, of the country dealer.Besides these, the transactions of the storekeeper extend to the giving out of the raw produce of the country, to individuals in the settlement, tradesmen, etc.who may not themselves have enough, and to the receipt in return of various articles, such as axes, shoes, boots, made-up clothes; and in this way through his books, a very large portion of the business of the settlement is transacted.It is not difficult to conceive, that the whole might be so transacted.
