From the creditor's point of view, credit represents the trust he has in the debtor; from the debtor's point of view, credit is borrowing power, the power he has to induce the creditor to put economic goods at his disposal for a period of time, on the promise of repayment at maturity. The power of the borrower coincides in all respects with the trust of the creditor, the one being but an opposite aspect of the other.

A government enjoys higher borrowing power than other borrowers. The war loans of 1914-1919, towering into scores of billions, exceeded all previous credit operations. Such credits indeed were quite beyond the estimates of the most sanguine financier before 1914; the way the people of the belligerent countries have loaned to their governments is amazing. Nevertheless there are limits to a government's credit, however elastic they may seem under the spur of patriotism, efficient publicity, and appeal, and practically every existing government has at some time experienced a want of unhesitating financial support.

The emphasis here is on the breadth of government credit. People visualize the state only dimly and consequently are prone to feel it is quite omnipotent. Since it draws its powers from the people and is held to be as just as their ideals, it is believed to be not only able but also willing to keep its promises. It takes a catastrophe to shake this confidence. Credit instruments of the state, in small round denominations and payable on demand, are, because of this high confidence in the government, most likely to be freely accepted by any citizen of the country and to pass readily from person to person at par, rousing scarcely a thought of having them redeemed in metallic money. One man buys goods from another, but instead of paying standard money, or giving his note, or having the debt charged on a book account, may pay with a note issued by the government, which note has come into his hands by some previous business transaction. That is to say, the first man was for a time the creditor of his government and now the second man becomes creditor. This ready shift in the ownership of a government note and in the personnel of the creditor constitutes its circulation. So long as the government note circulates freely it performs all the functions of money and is popularly and rightly understood to be money.