Accepting for the moment the definition and analysis of credit, furnished in the foregoing chapter, the question now presents itself, How does a credit system operate or in what way does it differ from a system of direct exchange? It is clear that the essential difference between such direct exchange and the credit or indirect type of transfer is found in the fact that the parties to the transaction have not realized the values growing out of it, so that in every such transaction there is:

1. Uncertainty of actual or eventual settlement, which raises a question of security.

2. Uncertainty of payment in, or convertibility into, money, which raises a question of what is called liquidity or liquidating power.