Credit Versus Cash: A Case Study

Abstract

In many of the so-called “under-developed” areas of the world, we find in operation a very simple system of exchange, related to the modern Western economy through external market connections, but not partaking of many of its principal characteristics. This mode of exchange, which I shall call “barter-credit,” is characterized by an almost complete absence of the use of cash in economic transactions, although monetary units are used as referents in bookkeeping procedure. Payment is made, instead, in the form of credit. But, lacking modern exchange and banking facilities, this credit is not easily transferable or negotiable. Also, since the enterprises associated with such a system of exchange are invariably lightly capitalized, debt positions are supported by little security. A debt is not a promise of money, but rather a commitment to future delivery of a marketable commodity. Business relations are personal and monistic, that is, primary producers and middlemen usually sell to and buy from only one correspondent.