We have seen how money came to displace the crude and clumsy barter system, making possible that division of labor and specialization which marks modern industrial society. In time, however, as exchanges increased in number and magnitude, the carrying and counting of money became burdensome. Men who had frequent dealings with one another began to keep accounts and to sell goods without demanding immediate payment of money, agreeing rather to settle balances at certain intervals. Thus credit was introduced.

Credit is a postponed money payment. It is a promise to pay money or its equivalent at some future time. Fundamentally money and credit are not two different things; credit is merely the name given to a common and important use of money, a deferred payment of money. A steel manufacturer sells a machine to a customer and agrees to give him sixty days in which to pay for it. The implication here is that it will be paid in money, and the promise to pay is regarded as the full equivalent of the thing being sold. If the promise to pay is put in the form of a promissory note, it immediately becomes a valuable medium of exchange. The manufacturer can transfer ownership in the note or title to it to a banker or someone else, and so it may pass from hand to hand in satisfaction of many exchanges. But credit has value as a medium of exchange only as it is convertible into money or its equivalent.

It must not be inferred from this brief statement of the evolution of exchange that nations or peoples have consciously passed through these three economic stages, barter, money and credit. Some of the very early civilizations used money and even credit of a simple kind as well as barter in their trading. On the other hand, the economies of money and credit have not wholly displaced barter in our own day. In many rural sections of the United States the custom still obtains of taking such farm products as butter and eggs to the country store to be "traded" for groceries and other domestic supplies, and payment of labor "in kind" is still quite common. But in a general way it may be said that the evolution of society from a primitive to a higher civilization has been accompanied by an evolution of the system of exchange from simple barter to the complex credit system of to-day.