The Credit System

The emergence of elementary forms of credit long preceded industrial capitalism. Forms of money lending and interest payment generally appeared in various precapitalist societies in the practice of usury. Centuries before capitalism became the dominant mode of production, rudimentary bills of exchange functioned as convenient means of economising on the costs (and reducing the risks) of sending money to distant places. After the sixteenth century, as mercantile capitalism reached maturity, bills of exchange (or commercial bills), which were the chief form of payment in the operations of foreign trade, were increasingly employed as an important means of facilitating commodity transactions among merchants in the domestic economy. Modern banks appeared in Western Europe as institutions of finance that gave credit by employing their own liabilities, such as customers’ deposits, in the discount of commercial bills. Unlike the money-lenders of old, the banks’ ability to extend credit was not limited by their own capital. The capitalist market economy penetrated the core of Western European society in the course of the protracted primitive accumulation of capital that took place during the mercantilist era, and it firmly established itself as the main arena of social reproduction during the English industrial revolution. Against this background the forms of credit further developed their organic connections with each other and with real accumulation, emerging finally as a credit system, an integral mechanism of the domestic economy. The representative paradigm of a capitalist credit system appeared in the age of liberal nineteenth-century capitalism in England.