The Lifecycle of the Substitute and Its Purchasing Power, 3

The debt, or credit, depending on which side one looks at it, is born the moment two or more parties agree on a commitment: some present−time purchasing power is exchanged with some promise to deliver some purchasing power in the future. The agreement takes place because the parties delivering present−time purchasing power trust the commitment of the other parties to deliver purchasing power in the future. Whatever reward for the trust and the involved risk of failure to deliver is part of the agreement. When the future becomes present and the commitment to deliver comes due, the debtor either fulfils it or not, or re−negotiates it, in full or in part. The goverment and the law usually back it all up by providing acknowledgement and enforcement.

Beginning: The purchasing power of the debt/credit is born when the creditor is willing to trust the potential debtor and accept it, even before the debt is incurred; it is owned by the debtor, and it is also called credit in that it consists of how much a potential creditor is willing to trust the debtor’s capability tu fulfil such commitment. The moment the debt is incurred, it becomes new additional purchasing power, created momentarily out of nothing in the present, appropriated by the potential debtor who then exchanges it for other purchasing power, out of the debtor’s promise and the creditor’s trust that the debtor will deliver the corresponding product to the creditor in the future. Regardless of which shape the creditor−debtor agreement takes, whether a receipt, a promissory note issued by an individual, a bond issued by a company or by a statutory corporation, or a government bond, the point is whether that debt, that commitment to deliver, is signed in a tradeable form or not. That makes a difference here: is the proof of debt a purchasing power exchangeable with third parties? If I lend you my quid on the basis of a handshake, the baker won’t accept the transfer from me to him of my assertion of your debt in exchange for a loaf of bread; if you scribble me a receipt, that has few more chances of better luck. Promissory notes, bonds and the alike, instead, are quite accepted by a plethora of negotiable instrument traders, even though with the exception of some bakers.