The simplest form of credit took the shape in the beginning of a mere verbal promise. Two people approached each other to deal. One, we will assume, would beg to be allowed to postpone completing the bargain by promising to hand over the commodity he had agreed to give in exchange for what he had received. Such a proposition on being acceded to by the other would involve a postponement of payment. In other words one dealer had given the other credit - had trusted to his honour to deliver at a future time, in exchange for what he had received, the commodity or commodities agreed on. It is obvious that the more such a system of dealing widens, the greater the number of deferred payments, the more difficult would it be for both sides to remember how they stood; and that consequently in very early times credit must in the natural course of things have been confined within narrow limits or the greatest confusion and wrangling would arise. The next step would be the notching of a stick with small and large notches to indicate certain measures of commodities which were owing, upon the principle pursued at the present day in remote country villages where the "score" of the labourer for ale is recorded behind the door of the wayside inn. The introduction of names would then be suggested as affording facilities for assisting the creditor to distinguish between the accounts of his various debtors; and that important reform would soon extend itself into a system of bills of exchange, which have been gradually developed into the instrument which forms so useful a means of preventing friction in the interchange of commodities in the present day.

Before the age of paper money, there was a hard money period, which may be said to have come into use side by side with the growth and development of credit. Next to the instantaneous exchange of commodities, the discovery of one commodity which could be used as a convenient representative of value would naturally be hailed with delight for reasons with which all acquainted with the elements of political economy are familiar. To confer upon one commodity, so convenient and portable as gold, the power of purchasing all other commodities would at once be the means of saving a vast deal of time and labour. The introduction of the precious metals may, in fact, be called the greatest revolution so far which has been introduced to facilitate the interchange of commodities, not because the greater bulk of commodities are interchanged by their aid, because such is not the case, but because they have remained through centuries the basis upon which all credit instruments have worked; and without which, in present circumstances, credit instruments have no pivot round which to revolve.

In the early history of the barter system commodities would be exchanged by the individuals interested in the bargains coming on all occasions in contact with each other at the time of the exchange. Side by side with deferred or postponed payments would spring out another branch on the tree of development, having its origin in the gradual separation of clans or tribes. Competition in such early times would as now suggest to the instinct of those primitive traders the advantages probably to be derived from breaking new ground. The breaking off and separation of members of a tribe or clan would lead by degrees to the establishment of commercial relations between them according as one community desired the commodities cultivated and produced by another. Deferred settlement of exchange transactions would thus enter upon another stage of the complexity of the credit system, which after a certain lapse of time must be met by some agency to diminish the friction. Necessity has always had very uphill work in its capacity of parent to indispensable innovations, for it is wonderful how people will remain satisfied with old clumsy expedients before they can be induced even to recognise the benefits to be derived from improved methods that are offered to them. From there being one community and one market, there would be a development to two or more communities, and the establishment of several markets with a multiplication of deferred payments. From this point the imagination will fill in the picture, there being no record of the precise outlines of the development that followed. Various kinds of money as we know were used, particulars of which will be found in the chapters on currency and coins, before gold, silver, and copper came to be the three which all civilised nations ultimately adopted. From this focus the paper representatives of money, which have been invented to dispense with its agency, and that we know under the designations of bills of exchange, cheques, promissory notes, bank notes, letters of credit, book credits, clearing houses, etc, spread out like the rays of the sun. All these, which are mere representatives of tangible wealth, and expedients for dispensing with its aid, the value of which is assessed in the market where they may be negotiable as the bank notes and bills of exchange are, are nothing more than the various developments of the creditus system. To give credit means to give purchasing power, consequently the extent of the credit that can be safely given must depend in each individual case upon the difference between what is produced and what is consumed. A farmer who can lay by £5000 a year is entitled to more credit than one who saves only £1000, other things being equal. The whole fabric of credit rests therefore upon that one factor of the surplus produce of whatever kind that is not required for consumption. The elaboration of civilisation has greatly hardened the task of those whose business it is to judge of the credit that is to be given to mercantile houses, and hence the difficulties banks and credit establishments get into. Discounting in fact in these times is for the most part guesswork, and must become more so rather than less if a radical change is not introduced into the system upon which discounting business is conducted. Credit is confidence, and an element in business which is controllable only by those having the power and means of granting it. It is a question of seeing with one's own eyes. Few persons are satisfied to buy an expensive article without looking at it and handling it. To the practised purchaser a watch or a horse contains within itself the worth which is asked. A trial or an examination is all that is necessary to satisfy the purchaser that he has an equivalent for his money. The most practised bill-of-exchange buyer, who by his act of buying is only giving credit to the names written on the paper, in other words showing confidence in their ability to pay at maturity, often purchases bills that are not worth the paper they are written on without a suspicion of there being anything wrong. How is he to know? The most accurate information he ever obtains is that which announces to him the failure of a firm. Credit may be abused in several ways: