ABSTRACT
The system of credit has two divisions: commercial credit and bank credit. In this chapter I study the latter and its development. Although the system of bank credit, or banking as we call it, has evolved differently across the world, it shares a common essence in economic terms. I have first attempted to draw this out. Before moving on to presenting its growth in India, I will briefly narrate its development in England for this had a bearing, although with important differences, on the evolution of modern banking in India.
In Chapter 3, we discussed the progress of commercial credit whereby, through its principal instrument, bills of exchange, traders were able to buy commodities by creating debts, payable at some point of time in the future. Let us now explore the other principal component of credit: bank money. Once again, Macleod’s (1863) work more than any other, brings out the essence of and differences between money, credit and banking. I have, therefore, drawn extensively from his work.
