Credit

Abstract

While the volume and complexity of credit transactions has grown immensely over the centuries, the act of credit extension and debt creation, or lending and borrowing, as such, is probably as old as human society. To extend credit means to transfer the property rights on a given object (e.g. a sum of money) in exchange for a claim on specified objects (e.g. certain sums of money) at specified points of time in the future. To take credit, or go into debt, is the other side of the coin. Credit and debt have always posed some special problems of understanding for economists, beyond those associated with the production, trade and consumption of ‘ordinary’ goods like wheat or cloth, or factors of production like labour services. There exists, of course, a wide array of different forms of credit contracts in today’s economies. Classifications are customary; for example, according to types of debtors or creditors (domestic or foreign, public or private, etc.), length of contract duration, type of security put forward by the debtor, or the use of the loan by the borrower. However, this essay will attempt to concentrate on the essential features common to all or most groups of credit transactions, rather than enumerate and describe the differences between specific types and forms of credit.