Granting credit is allowing time for the repayment of a value; it is surrendering in favor of another person one’s own enjoyment of the value; it is rendering a service; it is acquiring the right to an equivalent service in return.
After explaining what savings are and thus giving legitimacy to them, Frédéric Bastiat explores its obverse – capital. Unlike what some people think, savings are not hoarded, and this is even more true since the end of the gold standard. What those people do not understand when they enjoy a credit balance with their banker is that their fortune is not sleeping there but made to work indeed by the banker who is adding oil to the engine of the economy.
Savings constitute an essential support to capital formation, be it developed by the saver or by a borrower. What today’s quote is telling us is that the saver is postponing the enjoyment of his rights towards society while the borrower is enjoying them immediately. As a consequence, the saver can not only claim a return of his savings but also a payment for the value of the service rendered to the borrower who needed the rights and benefited from them during the whole borrowing period – the price of this service is called “interest”, or “price of money”.