History of Credit and Money

# Chapter 1: Barter - Direct exchange of 1 commodity for another. - The complicated money and credit exchange system of today is the product of a long process of evolution. ## Money (Common Medium of Exchange) - Fish Hooks - Sea shells - Beads - Cows - Slaves - Corn - Tobacco - Cattle (Perria)...

# Chapter 1: Barter - Direct exchange of 1 commodity for another. - The complicated money and credit exchange system of today is the product of a long process of evolution. ## Money (Common Medium of Exchange) - Fish Hooks - Sea shells - Beads - Cows - Slaves - Corn - Tobacco - Cattle (Perria) - Hoe knives (Chinese) ## (2) The Need For Money - Money originated in man's rational effort to meet the necessity of finding some medium of exchange. - To overcome the short comings of barter. ### A. Aristotle - Money is barren. It does not breed. ### B. Thomas Aquinas - Roman Law ### C. The Doctorine of "Damnum Emergens" - Suffering of a loss by the lender. ## (3) The Growing Need and Demand for Money - Price is money. - Justum Pretium > Just Price # (4) The Birth of Credit ## Credit - Credere (Latin) "To trust" - People have to trust one another. ## A. Nature - Credit is akin to a 2-way street. - Two parties > Creditor & Debtor - Debtor - - Creditor - is a transfer of goods, services, or funds giving the user the right to obligations that must be discharged in the future. # (5) Other Meaning of Credit ### A. Banking - An entry in the books of a bank showing its obligation to a customer. ### B. Bookkeeping - An entry showing that the person named has a right to demand something but not necessarily money. ### C. Commerce - An exchange Transaction # (4) The Use of Credit - The Life-blood of business. ## Advantages of Credit 1. Increase wealth 2. Convenient 3. Expand Purchasing powers 4. Enables immediate Consumption of goods. 5. Expand Economic opportunities 6. Spread Progress 7. Birth of new industries. 8. Buying becomes more convenient ## Disadvantages of credit 1. Encourages speculation 2. Contribute to extravagance & carelessness 3. Over-expansion 4. Causes one businessman to be dependent upon others. # (7) Cost of Using Credit - Everyone uses credit understandably has to pay for it. ### A. Interest - Factor affects interest rates is competition. ### B. Operating Expense - Expenses ### C. Risk - He can never be certain that the debt will be paid. - Lenders deal only with people who are known to pay their debts. ## (8) Cost of credit to the individual - Discounts are allowed to individuals in ordinary credit transactions. ## (9) How Credit Affects Prices - Increases and decreases in credit affect prices in very much the same way as increases and decreases in the supply of money. # (10) Impact of Credit Upon The Creditor and Debtor - A rise in the value of money (fall in prices) generally speaking harms the debtor - commodities. # Chapter 2: Credit Money - Central Notes are credit money. - Work as a medium of exchange, called money. # Credit of Limited Acceptability ### A. Promissory Note - Unconditional promise in writing to pay a definite sum of money in the future. ### B. Bank Credits - Deposit Currency - Bank must have onhand cash # According To Form ## (1) Direct Loan - Lender may give the borrower the exact amount as contained in the promissory note. ## (2) Discount - Lenders collect the interest in advance and gives the balance to borrowers. ## (3) Overdraft - Accommodation is specifically offered by Commercial banks that honor checks issued even if the amount withdrawn is in excess of the net balance in bank. # According to type of user ## (1) Consumer or personal Credit - Extended to individuals for purposes of funding personal needs. - Payment for tuitions. ## (2) Retail Credit - Consumer credit may either be a charge account or installment credit. - Good credit standing. ## (3) Installment Credit - Paying for such purchases with a small down payment followed by equal monthly installments. ## (4) Mercantile or Commercial Credit - Usually extended to commercial & trade investors. It is used to finance the purchase of inventories. - Short term credit. ## (5) Bank Credit - Commercial banks extended short-term credit to businessmen for working capital purposes of raw materials. ## (4) Investment Credit - Businesses usually obtain long-term funds through intermediary financial institutions, such as investment banks, savings banks, insurance companies. # According to Maturity ## A. Short-term Credit - Type of loan, payable in 1 year. ## B. Intermediate or medium-term credit - 1 year but not exceeding 5 years. ## C. Long-term Credit - 5 to 10 years beyond. # According to security ## 1. Unsecured Loans - Backed up solely by the integrity, ability, and willingness of the borrower to pay. - A single name paper - a person in note will be responsible for payment. - Double-name or multiple-name proper - two or more person's names in note that are liable for the repayment of the obligation. ## 2. Secured Loans - Guaranteed by the assignment of some tangible assets, which may be sold by the lender in the case the borrower fails to pay. # According to purpose or use ## (1) Agricultural Credit - Loans granted to finance the cultivation, development, and improvement of agricultural land. ## Types of Agricultural Credit ### 1. Time Loan - Short-term loan secured by ordinary and regular collateral, usually farm lands. - Development and improvement of land. ### 2. Crop Loan - For production of crops. - Secured by Chattel mortgage on the standing crop. ### 3. Commodity Loan - Finance Marketing and Distribution of harvested crops. - Secured by quedans or warehouse receipts. ## (4) Commercial Loan - Short-term loan finances the production and distribution of commodities by wholesale or retail. ## (5) Industrial Credit - Finance manufacture of goods, construction of plant buildings, installation of equipment or machinery. ## (4) Consumer Credit - Loan granted for individual for personal use. - Purchase of goods or services, small investment purposes, tax payments, etc.