These definitions, apparently so contradictory, are not altogether irreconcilable. They represent different points of view rather than real differences in meaning. Certainly nothing but credit is described by any one of the three definitions, and certainly there are shades of the meaning of the term that are aptly described by each of them. As is so often the case when a word in common use is defined for scientific purposes in several ways, we find that one definition fits certain classes of things covered by the term better than others. There are certain debts for example, in which the element of trust is paramount, others in which that of time is more important, and again some in which the element of claim or demand is the distinguishing thing. But it is also true that there are no cases of the existence of credit where all three of these features do not appear, the one or the other varying in importance as the case may be. To fully understand a thing so many-sided as credit, it is necessary to examine it from several points of view.

If we start from the etymological meaning of the term we cannot avoid the conclusion that one of the chief elements of credit is trust. Certainly without universal credit (which he calls "customary credits"), from that of the commonly so-called credit transactions, which he calls " formal credits." It is with the latter only that we are concerned here. They are legally enforcible. They rest in the economic sense "on a psychological trait of faith in the uniformity and reasonableness of other men's voluntary acts," that intangible, unmeasurable feeling or frame of mind known as confidence, trust, or faith, on which Knies pours so much scorn, no debts would have come into existence. As Professor Cohn well says, "Credit rests on the development of opinions and institutions which arise with the general advance of civilisation."1 Modern usage has not yet eliminated this original meaning from the term. It cannot be altogether incorrect to make this a part of the definition. It is customary enough to conceive that credit or faith is reposed by the creditor in the debtor, and that it varies in amount, although never exactly measurable. But there are many credit transactions in which the element of trust shrinks into insignificance. An advance on a warehouse receipt, a Lombard loan, a pawn-broker's advance, all of these and many like them are credit transactions, but the element of personal confidence plays little part in these. The creditor in these cases never has to consider the character of the debtor nor his ability or willingness to pay. After he has satisfied himself as to the value of the security, all that he has to consider is the time the debt has to run. It must be admitted, then, that there are a number of cases of credit transactions in which the paramount element is that of time. The first two of the above-stated views of the nature of credit are, therefore, reconcilable in this way.

1 Grundlegung, p. 653.

They may be regarded as essentially the same with a difference in the emphasis, and it is correct to change the emphasis when different kinds of debts are considered. Both of them may be covered by one definition, which may for two reasons be called the subjective definition: (1) Because it takes into consideration feelings, opinions, i.e. trust, confidence, belief. (2) Because it looks at credit from the natural point of view of the creditor who entertains that trust.

Subjective Definition. —From the subjective standpoint credit is the confidence or trust reposed by one person in the ability of some other person to fulfil a promise at some future time. The emphasis will fall upon the feature of trust or upon that of time according to the nature of the particular debt in point.

But that is not all : we have yet to dispose of that view which identifies credit with the claim which the creditor has on the debtor. In one aspect this view seems absolutely contradictory to that which we have adopted. So much so that Knies ridicules it, considering it quite as absurd as the reasoning of John Law. He says it makes the debtor give credit : i.e. he gives the claim, and the claim is credit. But McLeod's reasoning is not so easily disposed of. He has taken what may be well called the objective view. He has sought out embodied credit. His, too, is the natural point of view of the debtor. The opposition, therefore, between the two views is more apparent than real, and arises from the fact that this is from a different point of view. There are two sides to the shield. The debtor sells a claim, which is a more or less tangible thing having a present value, just as many another claim has ; as, for example, a patent right or a copyright. The debtor is concerned only with the value of that claim. The creditor, however, looks beyond the claim and desires to know whether he can trust in the ability of the debtor to make the claim good. By a very natural analogy, too, the language of business says that the debtor enjoys good or bad credit, as though the trust reposed in him by others, in whose minds it exists, really became an attribute of him. There is still more ground for McLeod's view, for, as has already been remarked, it is often the nature of the claim created that adds to, or detracts from, the credit. Any man in ordinary times can obtain credit if he comes prepared with collateral security and is ready to create a claim that is good on that in case his other resources fail him. It is clear, then, that the view of McLeod is important, and also that it is supplementary to that already adopted. It reveals many phases of credit that cannot be seen at all from the subjective point of view. The two views taken together make a complete explanation.

Objective Definition. — From the objective standpoint, credit is embodied in claims which are accepted by the creditor in payment. These objective claims have a value like every other exchangeable commodity, and are recorded in the various " instruments of credit."

If these two definitions are accepted, we can proceed to point out wherein public credit differs from ordinary or private credit. The peculiar conditions which distinguish public credit from ordinary credit arise from the fact that the debtor is the State. The State, being above the law, cannot be compelled, as the private individual can, to pay its debts. Public credit is therefore subjectively defined as the confidence or trust reposed in the ability and willingness of the debtor (the State) to fulfil its promises at some future time. Objectively the claim (in this case the bond) shrinks to the character of an unsupported although generally accepted promise. There are, to be sure, some important cases in which the claim is apparently supported by something more definite than the mere promise of the debtor; as for example, when the revenues from certain productive enterprises are pledged for the support of the debt charges. But even in these cases, the creditor has no real resource against intentional bad faith. In general the subjective standpoint gives a better view of public credit than the objective, because the claims cannot be enforced.

The fact that the debtor is the State has other important consequences. (1) The State has sovereign power and can compel its subjects to lend to it ; or, on the other hand, the creditor may make advances on rather poorer terms than he would otherwise accept, from motives of patriotism. (2) The debtor State lives forever, and hence can make perpetual debts. (3) Its affairs are all open to inspection, and the would-be creditor has full opportunity to know its ability to pay. (4) Public credit may be divided into various parts, according as it is the credit of the central government or of some subordinate department that is being considered. The consideration of the relations of the different parts of the government in this respect belongs to the field of public law rather than to that of public finance.