Hence the true definition of Credit as an Economic Quantity, or an article of commerce, is the Present Rigid to a Future Payment.

We shall now see the importance of the error we have just noticed. If a Debt were Money, or Goods, in the Debtor's possession, affected with the Negative Sign, and Pledged to the Creditor, of course if a man had no money or goods, he could not be in Debt, and insolvent, because he would have no Money or Goods that could be affected with the Negative Sign, or be pledged to the Creditor. But the Credit and the Debt are nothing but a legal Bond between the two parties, and are nothing more than a Personal Right to demand and a Personal Duty to pay: a man may have no Money and yet be in Debt £100.

The Creditor's Rigid to demand and the Debtor's Duty to pay exist quite irrespective of the fact that he has any money or not. If the Debtor cannot pay his Debt the Creditor's Right may lose its Value: but that does not destroy its existence, any more than a piece of Money would be annihilated, if placed in a situation where it could not be exchanged, and therefore, where it would have no Value. Smith himself says that if a guinea could be exchanged for nothing, it would have no more Value than a bill upon a bankrupt: but that would not destroy its existence as a material substance. So also in like manner, the Debtor's inability to pay does not in any way destroy his Duty to pay.

This Credit then being Property may be sold, exchanged, bequeathed, or presented as a Donation to any one, precisely like any other merchandise or like Money.

Hence by our very definition a Credit is Wealth. But the Debt is not Wealth, for it cannot be sold. Many persons would buy the Right to demand £100, but no person would ever dream of buying a Duty to pay £100. So far as regards Economics, or the Science of Exchanges, the Duty to pay is an absolute nullity: it is not a subject of sale or exchange. It in no way impedes the Debtor's Right to sell any money or goods he may possess; and it in no way prevents the Creditor from selling his Right: hence it is to be entirely neglected as an Economic Quantity: what its real effect is we shall see presently.

Now let us suppose that a Debtor owes £100, and is utterly insolvent. Then his Property is represented by - £100 i.e. the Duty to pay £100. The Creditor's Right is of course represented by + £100. Suppose that the Creditor presents the Debtor with his Right to demand as a Donation, as he may do to anyone else or to him. Then the Debtor has now in his own person both the Duty to pay £100 or -£100, and the Right to demand £100, or+£100: his Property is then - £100+£100: these two opposite Quantities, of course, cancel each other like + a and -a on the same side of an Equation; the Contract or the Obligation is extinguished: and the Debtor is now freed from his Debt. He is now £100 richer than before, though his Property is now = 0. And it is quite clear that this result has been obtained, - not by changing Money owed into Money possessed, as Peacock says, because there has been no Money at all in the case - but by the Gift or addition of a Positive Quantity which cancelled the Negative Quantity, and annihilated the existence of both Quantities. Like Polar Forces they were created together and they vanish together.

18. Hence it must be carefully observed that in Economics both Money and Credit, both the possession of actual Money and the Right to demand Money from some one else are denoted by + £100: but -£100 means solely the Duty to pay money: and of course it is only the Right which can cancel the Duty. The possession of Money can never cancel the Duty to pay it: for then, of course, no Debtor would ever be bound to pay his Debts. Hence it must be carefully observed in what case + £100 will cancel-£100 in Economics. It never does so when + £100 denotes actual Money: nor will it do so when the +£100 denotes a Right against any other person than the Debtor himself: because a person may hold another person's acceptance, and yet be under an Obligation on his own acceptance. It is only in the case in which his own Creditor transfers to him the Right of action against himself that + £100 can cancel the -£100, and simultaneously annihilate the existence of both Quantities. This consideration which the slightest reflection on the ordinary facts of the system of Credit will shew to be obviously true, is of the greatest practical importance.

Hence we see that the Release of a Debt is exactly equivalent to a Gift of Money, or to Payment.

This doctrine, which is expressly laid down in Roman Law, and is enforced by all Jurists, is of the greatest importance in commerce: but we must reserve its fuller consideration until we come to the extinction of Obligations, or Credit.

19. We shall now shew the strict propriety of calling Money and Credit Positive and Negative Capital.

We have already shewn that the true character of Money is that it is a Right to a future payment; and numerous Economists have said the same thing. Money is a Right, but Debt is a Duty. And this exactly corresponds with the common Algebraical doctrine that Quantities passing through 0, change their sign. Because when a man has spent all his Money, his Property being then 0, and then runs into Debt, he has exhausted all his Right to demand ( + ) and has incurred a Duty to

Now a merchant's Purchasing Power consists of his Money and his Credit. But he cannot purchase with his Credit without incurring a Debt: that is without incurring the Duty to pay for the goods he buys with his Credit.

If he buys goods with Money and sells them again with a Profit, he first replaces the Money he laid out, and the surplus is his Profit

If he buys goods with his Credit, and sells them as before, with a Profit, he discharges the Debt he has incurred, and the surplus is his Profit.

In either case his Profit consists in the excess of his Property at the end of the operation above what it was at the beginning.

If he trades with Money, he makes Capital of the realised Profits of the past: if he trades with Credit, he makes Capital of the expected Profits of the future. In both cases he makes Profits: hence by our definition both Money and Credit are Capital: but as they are Inverse and Opposite to each other if Money is Positive Capital, Credit is Negative Capital.

By a somewhat curious coincidence of thought the early Algebraists, not comprehending the meaning of Negative roots of equations, called them fictitious roots. Thus in the problem we gave of the father's and son's ages, the answer came out Negative, which merely shewed that the question should have been stated in the opposite way to which it was done: and it should have asked, when the father's age would be twice that of his son, instead of when it had been: and therefore as the Positive sign in that problem meant past time the Negative sign meant future time. But this root though Negative is equally a real root of the equation as the Positive one. So also many writers seeing the effects of Credit, call it fictitious Capital, and Money real Capital. But the fact is that, like the Negative, or fictitious, root of the equation, it is equally real as the Positive root, only inverse or opposite to it. Credit merely makes Capital of future Profits.

20. It is a matter of considerable interest to discover what is the proportion which Money and Credit bear to each other in modern commerce. The difficulties, however, which prevent private inquirers from arriving at any reliable information are very great, and those opportunities which are presented by Parliamentary inquiries into Commercial Crises are very rarely made use of for any but their immediate purpose. In the Report of the Committee, however, of the House of Commons on the crisis of 1857, there occurs an interesting statement by Mr. Robert Slater. Having analysed the operations of his house for 1856 he gave in the following statement as shewing the proportions in which each million of payments and receipts were made in money, bank notes, and other Instruments of Credit -