Commercial Credit

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The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.

Commercial Credit


credit granted by the seller of an article to the buyer in the form of a postponement of payment.

Under capitalism commercial credit is “the credit which the capitalists engaged in reproduction give to one another. It forms the basis of the credit system” (K. Marx, in K. Marx and F. En-gels, Soch., 2nd ed., vol. 25, part 2, p. 21). Commercial credit is essential because of the circulation of capital. The time gap between production and circulation and the seasonal nature of production and marketing for many goods force functioning capitalists to give one another postponements of payment until the purchaser capitalist sells his goods and receives money to pay for the goods bought on credit. Commercial credit relations are recorded by the purchaser’s promissory note or by an entry in an open account, which reflects the purchaser’s obligation to repay his indebtedness at established times. The volume of commercial credit is limited by the dimensions of the reserve capital of the capitalists acting as sellers and depends to a significant extent on market conditions. Commercial credit is closely linked to and intertwined with bank credit.

Commercial credit makes it easier to sell goods and accelerates their turnover, thus temporarily reducing the discrepancy between the productive capabilities of capitalism and the limited nature of the market. However, by creating an artificial solvent demand, commercial credit intensifies the general instability of the capitalist economy. The system of credit obligations creates a chain of capitalists who do not have direct relations with one another. The breaking of just one link in the chain, the bankruptcy of a single company, leads to a series of nonpayments and collapses.

With the development of capitalism the total sum of commercial credit grows steadily. This growth is due especially to the overall increase in production and to the aggravation of the problem of sales. In the United States commercial credit indebtedness more than quadrupled after World War II, going from $34 billion in 1946 to $169 billion in 1966.

Commercial credit was used extensively in the USSR during the transition from capitalism to socialism. It was granted primarily by state and cooperative industrial and commercial enterprises to one another. Banks monitored commercial credit and limited the activity of the private sector, regulating the amount, sectors of application, terms, and rates of interest of commercial credit. The use of commercial credit made it possible to mobilize nonbank monetary resources, but at the same time it made it more difficult for banks to check on the economic and financial activity of socialist enterprises and narrowed the opportunities for credit planning. In 1930 commercial credit was abolished and all credit relations were limited to direct bank credit. Commercial credit was also used in a number of the socialist countries, including Czechoslovakia, Poland, and Rumania, in the first stage of building a socialist economy.


The Great Soviet Encyclopedia, 3rd Edition (1970-1979). © 2010 The Gale Group, Inc. All rights reserved.
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