One may well doubt if the function of a means of payment can be distinguished from that of a medium of exchange. At least, most writers seem to agree that the medium-of-exchange function is essential to money; but if the standard function be neglected, could we possibly define that which acts only as a medium of exchange as true money? Of course not. Deposit-currency (i. e., bank checks) certainly acts as a medium of exchange, and as a means of payment; but we should, in all common sense, be obliged to place such currency in a very different class from gold coin.
Therefore, every one must agree that the critical discussion of the meaning and functions of money is fundamental to scientific progress, and to all serious treatment of the main problems of money, such as the theory of prices.
III. Credit.
In regard to another unsettled problem of money, credit, it is to be said, not only that it has been very much misunderstood, but that it has been given very little real study. There is to-day no commonly accepted definition of credit: the element of futurity in a credit-transaction is generally admitted, but 'confidence' is by some regarded as the essential element; and yet 'confidence' can play its role only because futurity exists in the credit operation.
Nor is there any received opinion as to the real nature and functions of credit. We seem, in the whole field of credit, to be on the frontier of knowledge. In any true sense, the economic end of society is the possession and use of goods which satisfy wants. Credit has been devised as one of many means to aid in accomplishing this end. In its fundamental relations it has to do with goods and their increase. To some, however, it is related only to money. The truth of this concept, to my mind, depends upon the nature of money. If it be only a means to an end, and if it does not alter the elemental principles of value, but aids and cheapens the exchange of goods, then it is easy to understand that a borrower in reality obtains the use of goods, as the purpose of a loan, and that money and credit are but the instruments devised by society for effectually carrying out that purpose. Hence the credit operation, as regards extension or contraction, is primarily based on transactions in goods; its relation to money is a secondary, and incidental, connection. Credit being a transfer of goods involving the return of an equivalent in the future, forms of credit appear only as a consequence of transactions in goods. More transactions, not more money, cause an increase of forms of credit; and, by an interesting process of evolution, forms of credit—especially the deposit-currency of banks—act as a medium of exchange, obviating recourse to money. The belief, however, that credit depends on money,
