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By Root 1362 0

every theory of credit and especially for every investigation into the connection between money and credit and into the influence of credit on the money prices of goods. On the one hand are those credit transactions which are characterized by the fact that they impose a sacrifice on that party who performs his part of the bargain before the other does—the forgoing of immediate power of disposal over the exchanged good, or, if this version is preferred, the forgoing of power of disposal over the surrendered good until the receipt of that for which it is exchanged. This sacrifice is balanced by a corresponding gain on the part of the other party to the contract—the advantage of obtaining earlier disposal over the good acquired in exchange, or, what is the same thing, of not having to fulfill his part of the bargain immediately. In their respective valuations both parties take account of the advantages and disadvantages that arise from the difference between the times at which they have to fulfill the bargain. The exchange ratio embodied in the contract contains an expression of the value of time in the opinions of the individuals concerned.

The second group of credit transactions is characterized by the fact that in them the gain of the party who receives before he pays is balanced by no sacrifice on the part of the other party. Thus the difference in time between fulfillment and counter-fulfillment, which is just as much the essence of this kind of transaction as of the other, has an influence merely on the valuations of the one party, while the other is able to treat it as insignificant. This fact at first seems puzzling, even inexplicable; it constitutes a rock on which many economic theories have come to grief. Nevertheless, the explanation is not very difficult if we take into account the peculiarity of the goods involved in the transaction. In the first kind of credit transactions, what is surrendered consists of money or goods, disposal over which is a source of satisfaction and renunciation of which a source of dissatisfaction. In the credit transactions of the second group, the granter of the credit renounces for the time being the ownership of a sum of money, but this renunciation (given certain assumptions that in this case are justifiable) results for him in no reduction of satisfaction. If a creditor is able to confer a loan by issuing claims which are payable on demand, then the granting of the credit is bound up with no economic sacrifice for him. He could confer credit in this form free of charge, if we disregard the technical costs that may be involved in the issue of notes and the like. Whether he is paid immediately in money or only receives claims at first, which do not fall due until later, remains a matter of indifference to him. [3]

It seems desirable to choose special names for the two groups of credit transactions in order to avoid any possible confusion of the concepts. For the first group the name commodity credit (Sachkredit) is suggested, for the second the name circulation credit (Zirkulationskredit). It must be admitted that these expressions do not fully indicate the essence of the distinction that they are intended to characterize. This objection, however, which can in some degree be urged against all technical terms, is not of very great importance. A sufficient reply to it is contained in the fact that there are no better and more apt expressions in use to convey the distinction intended, which, generally speaking, has not received the consideration it merits. In any case the expression circulation credit gives occasion for fewer errors than the expression emission credit (Emissionskredit), which is sometimes used and has been chosen merely with regard to the issue of notes. Besides, what applies to all such differences of opinion is also true of this particular terminological controversy—the words used do not matter; what does matter is what the words are intended to mean.

Naturally, the peculiarities of circulation credit have not escaped the attention of economists. It is hardly possible