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credit,granting of goods, services, or money in return for a promise of future payment. Most credit is accompanied by an interestinterest,
charge for the use of credit or money, usually figured as a percentage of the principal and computed annually. Simple interest is computed annually on the principal.
..... Click the link for more information. charge, which usually makes the future payment greater than an immediate payment would have been. The credit system is founded upon the lender's confidence in the borrower or in his collateralcollateral
, something of value given or pledged as security for payment of a loan. Collateral consists usually of financial instruments, such as stocks, bonds, and negotiable paper, rather than physical goods, although the latter may also be accepted as such.
..... Click the link for more information. and general possessions. Credit may be classified according to the industry using it, its quality or liquidity, or the length of time for which it is extended. Basically there are two kinds, business and consumer. The chief function of business credit is the transference of capital from those who own it to those who can use it, in the expectation that the profit from its use will exceed the interest payable on the loan. Thus business credit increases the productive power of capital. Consumer credit permits the purchase of retail commodities without the use of cash or with the use of relatively little cash. It is estimated that some 90% of all wholesalers' and manufacturers' sales, and more than 30% of all retail sales are made on a credit basis. In the larger banks, credit-analysis departments determine the amount of credit that may safely be given to loan applicants. Data as to credit risk are supplied by agencies organized for that purpose. The chief agency in the United States is Dun and Bradstreet, formed by a merger (1933) of R. G. Dun & Company (1841) and the Bradstreet Company (1849). If more credit is granted than the community can liquidate, there is inflation; if too little is granted, there is deflation. A lack of business confidence may cause credit to dissolve, thereby contributing to economic crises, panics, and depressions. In bookkeepingbookkeeping,
maintenance of systematic and convenient records of money transactions in order to show the condition of a business enterprise. The essential purpose of bookkeeping is to reveal the amounts and sources of the losses and profits for any given period.
..... Click the link for more information. , the credit side is the side of the account on which payments are entered; hence, the term credit is sometimes applied to the payments themselves. See credit cardcredit card,
device used to obtain consumer credit at the time of purchasing an article or service. Credit cards may be issued by a business, such as a department store or an oil company, to make it easier for consumers to buy their products.
..... Click the link for more information. ; debtdebt,
obligation in services, money, or goods owed by one party, the debtor, to another, the creditor. When contested, debts are collected by a civil suit upon which the judge renders a judgment, and an execution is levied on the debtor's property.
..... Click the link for more information. ; debt, publicdebt, public,
indebtedness of a central government expressed in money terms, often referred to as national debt. The debt is computed differently by nearly every nation.
..... Click the link for more information. ; installment buying and sellinginstallment buying and selling,
buying and selling of goods on credit, with the stipulation that payments shall be made at specified intervals in set amounts. The goods may be used by the buyer before or upon first payment, but legally belong to the seller until the last payment
..... Click the link for more information. .
See F. T. Juster, Household Capital Formation and Financing, 1897–1962 (1966); W. E. Dunkman, Money, Credit, and Banking (1970); F. Ando, An Analysis of Access to Bank Credit (1988).
(in Russian, akkreditiv).
Credit account A type of bank account opened upon instruction from the payer at the bank serving the other contracting party who is dispatching the goods, rendering services, and so forth. The opening of a letter of credit creates an opportunity for the other contracting party to obtain payment for the commodity, work, or services immediately upon fulfillment of the obligation under the conditions stipulated in the letter-of-credit draft. Letters of credit are used as cashless transactions in making payments by socialist organizations as well as in international payments relating to commercial operations.
Letter of credit A security empowering the individual in whose name it is written to receive the amount stated in the letter of credit at a banking institution (bank or savings office). The letter of credit is paid by the banking institution at the place where it is presented from the money deposited with a savings office or withdrawn from the account of its holder; with international payments it is paid in accord with an agreement between banks.
E. G. POLONSKII
one of the two sides of bookkeeping balance sheets (usually the right-hand side). In asset accounts a credit entry shows a reduction in the particular type of fixed or working capital, whereas in liability accounts it indicates an increase. In operating accounts the credit has various meanings depending on the purpose and structure of the account. For example, in production accounts the credit registers the prime cost of the output produced, whereas in comparable sales accounts it registers the proceeds from sale of the output.
economic relations among various people, social groups, and states that arise when value is transferred for temporary use on condition of repayment and, ordinarily, of payment of interest.
Precapitalist systems. In precapitalist systems usurious credit was typical; the usurers gave loans either to small producers (peasants and craftsmen) or to slaveholders and feudal lords. Extremely high interest rates were charged on the loans, and credit was not usually used for production. Usurious credit intensified the exploitation of borrowers by creditors and facilitated the breakdown of precapitalist forms of production. Although usury is typical of precapitalist systems, it continues to exist under capitalism and is particularly widespread in colonial countries and countries that have only recently been liberated from colonial oppression. In the early 1960's the total indebtedness of peasants in India to usurers (monetary debts and debts in kind) was estimated at 18 billion rupees.
Under capitalism. Capitalist credit is the movement of loan capital; it expresses both immediate and basic class relations. The immediate relations are those between financial (loan) capitalists and functioning (industrial and commercial) capitalists. In terms of basic class relations, capitalist credit is a focus of exploitation between the class of capitalists and the class of hired workers. Because the source of loan interest is surplus value, created by hired workers, the loan capitalists by charging interest participate with industrial and commercial capitalists in the exploitation of hired labor. Usurious loan money operated as capital only for creditors; in the hands of borrowers it served merely as a means of purchase and payment. Capitalist loan money serves as capital for both the creditors and the borrowers because the latter use it for investment in capitalist enterprises.
As capital circulates, temporarily free monetary capital inevitably forms. At the same time, industrial and commercial capitalists periodically need additional sums beyond their own means for purposes of expansion. Through credit the temporarily free monetary capital of some capitalists is transferred to the hands of others, thus resolving the contradiction between the temporary availability of unused monetary capital and the nature of capital as value that is constantly in motion earning surplus value.
The chief forms of capitalist credit are commercial credit and banker's credit. The participants in commercial credit are the functioning (industrial and commercial) capitalists who sell one another goods on credit, that is, with delayed payment; the instrument of commercial credit is the promissory note. The object of this credit is capital in commodity form, and the pur-chase transaction is accompanied by a credit transaction. The course of commercial credit is parallel to the course of active capital operating in production and commodity circulation: as production and commodity circulation increase, there is greater commercial credit and vice versa. Unlike commercial credit, banker's credit is a relationship between a financial (loan) capitalist and a functioning capitalist; the former is the creditor and the latter is the borrower. The substance of banker's credit is not commodity capital but monetary loan capital, which is separate from industrial and commercial capital. The credit transaction is not accompanied by a purchase transaction; it is an indepen-dent act by means of which loan capital is moved. Banker's credit has a specific course of development that does not coincide with the course of active capital. For example, during periods of crisis, when production decreases, the demand for banker's capital increases. Commercial credit is given directly by certain functioning capitalists to others; the banks ordinarily serve as middlemen between the actual creditors (financial capitalists) and the actual borrowers (functioning capitalists). Banker's credit thus assumes the form of bank credit.
In the capitalist economy, credit plays an important role and a dual one. It facilitates capitalist reproduction and accelerates its growth while at the same time deepening and exacerbating the contradictions inherent in capitalism. Capitalism needs credit primarily as an elastic mechanism for moving capital from some sectors to others and evening out the profit rate. Credit facilitates the large-scale efficient use of money by increasing the speed of its circulation, allowing the development of an extensive system of clearings, and replacing metal money in circulation with credit money (such as bank notes, bills of exchange, promissory notes, and checks). The development of credit accelerates the sale of goods and thus helps reduce stocks of commodities. By reducing handling costs, credit leads to a decrease in the proportion of monetary and commodity capital and to an increase in the proportion of productive capital, which increases the size and rate of profit for the capitalist class.
Credit plays an important part in the centralization of capital. First, it strengthens the position of large-scale capitalists in the competitive struggle with small ones. Second, the growth of corporations is closely tied to the development of credit. Credit also intensifies the concentration and accumulation of capital, which leads to an increase in the degree of worker exploitation. Thanks to credit the monetary savings and income of the non-capitalist classes and strata of society deposited in banks and savings offices also become a source of capital accumulation. However, by accelerating the development of capitalism, credit simultaneously deepens the basic contradiction between the social nature of production and the private capitalist form of appropriation. Capitalist credit loaned at high interest rates to workers as consumers is a secondary type of exploitation that supplements and intensifies the primary type carried out by the capitalists in the production process. Credit accelerates production growth during periods of industrial upsurges and thus intensifies overproduction and deepens economic crises.
In the age of imperialism. A number of new phenomena have arisen in the credit sphere in the age of imperialism: the consolidation and high concentration of credit leading to monopolization, the extension of credit periods, state assumption of control over a significant part of credit, and the transformation of credit into an important tool of state-monopoly capitalism. As the concentration of production progresses and reaches a new stage under imperialism, the credit requirements of capitalist enterprises grow and the amounts of credit per enterprise increase. Technical progress leads to a change in the structure of industrial capital—growth in the organic structure of capital and an increase in the share of fixed capital. Investments in fixed capital are to a significant degree facilitated by long-term credit, which increases in volume and importance.
Under imperialism, credit becomes monopolized. On the one hand an everlarger part of credit resources is concentrated at a few large banks; on the other hand an increasing share of credit is used by monopolized capital, which strengthens its position in the competitive struggle with unmonopolized enterprises. The processes of strengthening the state's role in the credit sphere are linked with the gradual transformation of monopoly capitalism into statemonopoly capitalism. The capitalist state uses an ever-increasing mass of credit resources. The state debt grows. State regulation of credit becomes a constituent part of state-monopoly regulation of the economy. The credit system is increasingly state-controlled.
The enormous concentration of capital investments in the key economic sectors that are technically the most progressive has become possible through the concentration and monopolization of credit. Credit plays an important part in maintaining the high rate of capital formation typical of most of the industrially developed countries during the 1950's and 1960's.
While accelerating the growth of capitalism's productive forces and the development of large-scale machine industry, credit at the same time fosters preparation of the material conditions essential for the transition from capitalism to socialism. The banking system created under capitalism becomes a powerful tool for building socialism after the victory of the proletarian revolution.
The bourgeois theories of credit. Capitalist economists have concerned themselves with the study of credit and its role and tasks in the process of capitalist reproduction. The principal bourgeois credit theories are the naturalist theory and the capital-formation theory.
The naturalist theory of credit, whose founders were the classical bourgeois political economists A. Smith and D. Ricardo, became widespread in the 19th century. It equated loan capital with real capital (embodied in means of production and goods) and assigned credit an insignificant part in the economic life of society, seeing it only as a means of transferring physical goods (above all, means of production) from one owner to another. For its time the naturalist theory of credit was progressive; it stressed that credit depended on production. Its main weakness, which was revealed by K. Marx, lies in the failure of its advocates to understand the uniqueness of loan capital as a special economic category that cannot be included under money or real capital and has its own specific movement. In addition, advopates of the theory underrated the role of credit in the accumulation and centralization of capital and, therefore, in the acceleration of the growth of capitalist production. The naturalist theory of credit was accepted by some vulgar economists in the 19th century (including J. B. Say and J. McCulloch).
The forefathers of the capital-formation theory of credit, the British economists J. Law (18th century) and H. MacLeod (19th century), considered credit to be a motive force in production growth. Credit was equated with money and capital and assigned a crucial role in increasing national wealth. The basic flaw of the view was its faith in the miraculous power of credit divorced from production. In actuality, as Marx proved, credit is based on production and is not capital by itself, although credit and banks provide active assistance in the functioning and development of capitalist production. In the 20th century, with the development of banking and the active intrusion of banks into industry, this theory became predominant. Its chief representatives, the German economists J. Schumpeter and A. Hahn, saw credit as the crucial factor in society's industrial development and believed that banks had a capability for granting unlimited credit, supposedly multiplying wealth. The capital-formation theory of credit is erroneous in its essence and is permeated with capitalist apologetics because it proclaims the idea of the endless flourishing of capitalism through infinite expansion of credit.
In the period of the general crisis of capitalism, the theory of the capital-formation role of credit has been combined with the idea, advanced by J. Keynes, of the control of steady growth in capitalist production by the state and the central bank of the country.
E. IA. BREGEL’
Under socialism. Socialist credit expresses economic relations that arise in the process of redistributing monetary resources. The physical expression of this process is the formation of a national loan fund that is then used for temporarily enlarging circulating assets and expanding the fixed assets of socialist enterprises and organizations.
In the socialist economy, credit relations take the form of bank credit only. Commercial credit given by certain enterprises to others existed in the USSR and a number of other socialist countries during the period of transition from capitalism to socialism.
Credit is constantly needed in the producing and distributing of goods. It is essential to those enterprises that create seasonal stocks of physical assets or incur seasonal production expenditures; the enterprises find it economically inexpedient to use their own circulating assets in these cases. Credit is also needed by those enterprises where disruptions occur in the rhythm both of sales receipts and payments during the circulation of fixed assets and working stocks. Further, credit needs arise in the process of settlements between the suppliers and purchasers of goods; a period of time elapses from the moment the goods are shipped or transferred to the purchaser until the money for the goods is received, and suppliers should use bank credit to ensure fulfillment of production plans during this time. Operating enterprises need long-term credit to carry out capital expenditures, which increase the efficiency of fixed productive assets and strengthen economic accountability.
Under socialism the source of credit is the money turned over to banks for safekeeping; they use it to provide credit to the national economy. Namely, the sources of credit are the money of socialist enterprises and organizations that is temporarily free in the process of the circular flow of productive funds and circulating assets, special-purpose monetary funds (including the production development funds of industrial enterprises, the material incentive fund, and the indivisible kolkhoz funds [the capital of the kolkhozes]), and state budget cash resources, which form because budget incomes exceed expenditures every year and temporarily free money appears. Also among the sources of credit are special bank funds formed through budget appropriations (such as the fund for granting credit for the capital expenditures of operating industrial enterprises and the fund for kolkhoz credit), deposits by the population in savings offices and banks, and the banks' own monetary funds and profits, which arise primarily because banks receive more interest than they pay.
In socialist society, credit is awarded to enterprises and organizations by banks. In the USSR three banks credit the national economy: Gosbank (State Bank) of the USSR, Stroibank (Construction Investment Bank) of the USSR, and Vneshtorgbank (Foreign Trade Bank). The banks ensure the most complete accumulation and the planned distribution of credit resources; in addition they keep track of how efficiently the resources are used in production and distribution.
Planned use of credit is organized according to the banks' credit plans, which on the one hand determine the volume and direction of bank loans and on the other, establish the necessary monetary resources. The credit plans of Soviet banks and the banks of the other socialist countries are closely coordinated with the financial plans of the enterprises and sectors of the national economy and with commodity turnover plans, the state budget, and other elements of the national economic plan.
Credit plays an important part in the socialist economy. It promotes accelerated turnover of physical assets and monetary resources. By giving special-purpose loans, the bank satisfies the enterprise's r -ed for additional money and by the same token creates conditions for the accelerated turnover of productive and circulating funds.
The development of credit promotes economic accountability, reduced production and distribution costs, and increased profitability. Because credit is repayable and is given for a strictly determined time, it stimulates the economically expedient use of money and improved organization of production and distribution. The fact that credit has a cost—that banks charge interests on loans—strengthens the material interest of enterprises and organizations in economizing on loan money and accelerating its turnover, which, in the final analysis, leads to the strengthening of economic accountability.
Credit promotes the rational and economically efficient use of money for capital expenditures. Using long-term credit for capital expenditures increases enterprise accountability for correct and efficient use of borrowed money and for timeliness in paying back bank credit.
The economic ties between industry and agriculture are growing stronger because of the development of credit. Strengthening these ties is one of the paramount factors taken into account in planning monetary circulation.
Finally, credit creates favorable conditions for the development of foreign trade links. Goods can be imported despite a negative trade balance, thus eliminating the need to use gold for payment. Credit also fosters an increase in the export of goods and helps consolidate the established markets and create new markets for the goods of the socialist countries. Credit is also an important factor in the continued integration of the socialist economies.
Development of the economies of the socialist countries is accompanied by an increase in the role of credit in the process of expanded reproduction. There are three principal trends in this growth.
First, the proportion of credit in the total sum of circulating assets increases, for two principal reasons: the development of the system of granting credit on the basis of shared participation and the expansion of credit for payment. After the credit reform carried out in the USSR in 1930–32, above-norm balances of physical assets and seasonal production expenditures began to involve credit. Beginning in 1933 bank credit began to participate in the formation of norm-controlled stocks of physical as-sets. The so-called credit for payment, which is given to purchaser-enterprises when temporary financial difficulties have deprived them of money needed for immediate payment of bills to suppliers, became widespread. With development of the system of short-term credit, the share of borrowed circulating assets in the total sum of circulating assets of state and cooperative enterprises and organizations (except kolkhozes) increased. In 1970 the share of borrowed circulating assets was 45.9 percent, whereas in the mid-1930's it was slightly more than 25 percent.
Second, the use of credit for capital investments in industry is expanding significantly. Until 1966 most of the credit for capital expenditures was given to kolkhozes and other cooperative enterprises and only a small part went to state industrial enterprises. With the beginning of the economic reform in 1966, the share of long-term credit in the total money being used for capital investments has been systematically increased. Capital expenditures for the rebuilding and expansion of industrial enterprises and for the introduction of new technology are paid for through the enterprises' own savings, depreciation deductions, and long-term bank credit. With the transfer of sovkhozes to full economic accountability, the sovkhozes' own capital and bank credit operate as sources of capital investment.
Third, the importance of credit in the international economic relations of the socialist countries is growing. The system of bilateral credit relations is being supplemented by a fast-developing system of multilateral credit. A special international organization, the International Investment Bank, has been established to organize multilateral credit. Credit links between the socialist countries and the developing countries are expanding. Credit given to the developing countries is a powerful force in the industrialization of these countries and the consolidation of their economic independence. The system of credit relations between the socialist countries and the developed capitalist countries is expanding. In the early 1970's it became a common practice for the socialist countries to conclude barter deals with the capitalist countries; in this case the credit received by the socialist countries (in the form of money, equipment, and technical know-how from abroad) must be paid back later with part of the output produced by the newly built enterprises. Such deals help accelerate the fulfillment of long-range economic plans and sharply expand the production capacities of a number of economic sectors.
The role of credit as an economic stimulator is steadily growing; as a result the influence of financial and banking agencies on mobilizing production reserves and increasing production efficiency is becoming stronger. The financial-credit mechanism is being used more extensively to accelerate technical progress and intensify production.
V. S. GERASHCHENKO
REFERENCESMarx, K. Kapital, vol. 3, sec. V, chs. 21–36. In K. Marx and F. Engels, Soch., 2nd ed., vol. 25, parts 1 and 2.
Lenin, V. I. “Kustarnaia perepis' 1894/95 goda v Permskoi gubernii i obshchie voprosy 'kustarnoi' promyshlennosti.” Poln. sobr. soch., 5th ed., vol. 2, sec. 8.
Lenin, V. I. Razvitie kapitalizma v Rossii. Ibid., vol. 3, pp. 175–79.
Lenin, V. I. “Iz ekonomicheskoi zhizni Rossii.” Ibid., vol. 6.
Lenin, V. I. Imperializm, kak vysshaia stadiia kapitalizma, chs. 2–4. Ibid., vol. 27.
Lenin, V. I. “Uderzhat li bol'sheviki gosudarstvennuiu vlast'?” Ibid., vol. 34.
Lenin, V. I. “Tezisy bankovoi politiki.” Ibid., vol. 36.
Trakhtenberg, I. A. Sovremennyi kredit i ego organizatsiia, 2nd ed. Moscow-Leningrad, 1931.
Trakhtenberg, I. A. Kreditno-denezhnaia sistema kapitalizma posle vtoroi mirovoi voiny. Moscow, 1954.
Bregel’, E. la. Kredit i kreditnaia sistema kapitalizma. Moscow, 1948.
Bregel’, E. la. Denezhnoe obrashchenie i kredit kapitalisticheskikh stran, 3rd ed. Moscow, 1973.
Atlas, M. S. Razvitie bankovskikh sistem stran sotsializma. [Moscow] 1967.
Bortnik, M. lu. Denezhnoe obrashchenie i kredit kapitalisticheskikh stran. Moscow, 1967.
Anikin, A. V. Kreditnaia sistema sovremennogo kapitalizma. Moscow, 1964.
Shenaev, V. N. Banki i kredit v sisteme finansovogo kapitala FRG. Moscow, 1967.
Kreditno-denezhnaia sistema SSSR. Moscow, 1967.
Denezhnoe obrashchenie i kredit SSSR, 2nd ed. Moscow, 1970.