Chap. II : Of private Credit

Private credit is either real, personal, or mixed.

Real security, every body understands. It is the object of law, not of politics, to give an enumeration of its different branches. By this term, we understand no more than the pledging an immoveable subject for the payment of a debt. As by a personal security we understand the engagement of the debtor's whole effects for the relief of his creditor. The mixed, I have found it necessary to superadd, in order to explain with more facility, the security of one species of banks. The notes issued by banks upon private credit, stand upon a mixed security: that is, both real and personal. Personal, as far as they affect the banker, and the banking stock pledged for the security of the paper: and real, as far as they affect the real securities granted to the banker for the notes he lends, which afterwards enter into circulation.

The ruling principle in private credit, and the basis on which it rests, is the facility of converting, into money, the effects of the debtor; because the capital and interest are constantly supposed to be demandable. The proper way, therefore, to support this sort of credit to the utmost, is to contrive a ready method of appretiating every subject affectable by debts; and secondly, of melting it down into symbolical or paper money.

In former times, when circulation was inconsiderable, the scheme of melting down the property of debtors, for the payment of creditors, was impracticable; and accordingly we see that capitals secured on land property were not demandable. This formed another species of credit, different from any we have mentioned; which differed from public credit in this only, that the solid property producing the income, was really in the hands of the debtor; whereas the fund which produces the public revenue is not in the hands of the state. This subdivision we have omitted, as its basis, in both cases, rests solely upon the regular payment of the interest. Of this nature are the contracts of constitution in France, and the old investments of annual rent in Scotland. There are few nations, I believe, in Europe, where some traces, at least, of this kind of security do not remain.

In order, then, to carry private credit to its greatest extent, all entails upon lands should be dissolved; all obligations should be regularly recorded in public registers; the value of all lands should be ascertained, the moment any security is granted upon them; and the statesman should interpose between parties, to accelerate the liquidation of all debts, in the shortest time, and at the least expence possible.

Although this method of proceeding be the most effectual to secure, and to extend private credit, yet it is not, at all times, expedient to have recourse to it: this has been abundantly explained in the 27th chapter of the second book; and therefore I shall not here interrupt my subject with a needless repetition.