credit transaction is a trade lengthened
in time; one party fulfils his part of the contract, the other party
promises to give an equivalent at a later date. The equivalent may be
in any kind of goods; for example, in barter one may part with a horse
on the promise of a cow to be received later; or a small horse on
the promise of a large one; or a flock of sheep on the promise of
its return at the end of the year with a part of the increase of the
flock. A simple standard in which to express the debt is the thing
borrowed, as horse, sheep, wheat, house. Again, the thing to which
the value of debts is referred may be a thing quite different from the
goods borrowed and, with the growth of the monetary economy and the
use of the interest contract, money comes more and more to be used as
the standard. At length the law declares that, in the absence of any
other agreement, the amount of a debt is to be payable in terms of the
unit of standard money, which thus is made legal tender as well as
the customary standard of deferred payments. A _standard of deferred
payments_ is the thing of value in which, by law or by contract, the
amount of a debt is expressed and payable.

Sec. 7. # Increasing importance of the standard.# Until the use of money
develops, the use of credit is difficult and limited; it becomes
easy when the value of all things is expressed in terms of a common
circulating medium. It therefore generally is true that the importance
of money as the standard of deferred payments increases with the
use of money as a medium of trade. The volume of outstanding debts
expressed in terms of money now very greatly exceeds the total value
of the circulating medium. Changes in the general level of prices
have, therefore, great effects upon all existing debts. The value of
all debts changes in the same proportion as does that of the standard
unit of money; when this rises or falls in value, it means increase
or reduction, in the same ratio, of the purchasing power of every
creditor. It is as if he had in his possession metal dollars equal
in amount to the face of the debt, and they had changed by so much
in purchasing power. The debtor's interests in such changes are, of
course, just the reverse of the creditor's interests.

Outstanding contract debts may be roughly divided into two classes:
short-time loans, running less than a year; and long-time loans,
running for a year or more.[9] Fluctuations are rarely rapid and great