Titles of Credit
These are the legal symbols of capital lent by contract of loan (bills of exchange, promissory notes, bonds, interest-bearing notes, certificates) or of companies (shares): commonly, only the representative symbols with fixed denominations of contracts with standardized clauses go by this name.
The holder of the first type of titles of credit (bonds, etc.) is a simple creditor, more or less privileged, of the person or entity that borrowed the money, and at the maturity of the loan is entitled to the full repayment of the capital lent plus a fixed interest at the agreed rate, without being able to claim any involvement or control over the financed enterprise. With the second type of titles of credit (shares), one becomes instead a partner and co-owner of the financed enterprise, bearing its risks, including total loss, but participating in its management through meetings and the appointment of directors and auditors; and instead of a fixed interest, one is entitled to the distribution of net profits (dividend).
### I. Various Types of Titles of Credit
Bonds, interest-bearing notes, and certificates issued by the State or state entities, provinces, or municipalities, as well as by public bodies, consortia, and sometimes even by large industrial companies, are generally bearer instruments and can be *consolidated* (i.e., non-redeemable, such as government annuities) or *temporary* (Treasury bills, industrial bonds, etc.), redeemable in five, ten, twenty, or more years according to various systems (at maturity, gradual amortization, drawing, with or without premiums). Industrial shares can also be *bearer*, *registered*, or of *mixed form*, with the registered certificate and bearer coupons, as is currently the case in Italy.
The bill of exchange represents circulating capital, has its own legal norm, and is traded by banks through *discount* and *rediscount* operations. The other titles of credit are bought and sold in the special markets called stock exchanges, which daily assign to each title a value (high, low, average, opening, closing, after-hours) based on the actual prices negotiated, listed in a stock exchange bulletin. Purchases and sales must be made exclusively
through authorized commission agents, known as stockbrokers, either for cash or on credit. This second type of contract lends itself to speculation (q.v.), as it can give rise to artificial financial maneuvers and degenerate into cornering. In commodity exchanges, titles representing goods (bills of lading, warehouse receipts, pawn notes, and the like) are bought and sold.
The bond type, having no real guarantees or only partial ones, is subject to monetary depreciation; shares, which represent real values, are better protected from this standpoint.
The history of economic progress is inseparable from the history of standardized contracts (i.e., each reduced to a single type) and the titles of credit that represent them.
### II. CAPITALIZATION TRADE
Overcoming the current severe economic crisis and establishing a lasting equilibrium between supply and demand in the market depend above all on the ability to channel large masses of savings into long- and very long-term investments; this makes the immense importance of an easy trade in titles of credit, particularly industrial ones (capitalization trade), evident. While cash trade and short-term credit trade are supported and guaranteed by a complex of intermediary-contracting-insurance institutions (banks, current accounts, bill discounting, etc.), so that they do not present significant risks, capitalization trade lacks almost entirely a corresponding technical-legal apparatus that assumes, among other things, the serious risks of this type of trade, arising from the difficult assessment of the quality of the titles, the prolonged immobilization of capital, and the inherent danger of depreciation (q.v.). Stock exchange prices say little about the actual value of titles, as they are exposed both to the nervous sensitivity of masses of uninformed operators and to the maneuvers of speculators.
A first, entirely empirical and modest step on the path that could give industrial titles a degree of marketability equal to that of money and bills of exchange is seen in the type of "shares of investment and financial companies," which to some extent insure the risks of investment; but they still gain little in terms of marketability and even less against depreciation. Real and significant progress is possible in this direction (English and American Investment Trusts and Trustees Associations): in this regard, the proposals of the Italian economic school (q.V. HALLESISMO) are of interest. Innovations in economic technique in this field are destined to yield far greater practical results than any grand scheme of economic policy, even on an international level, because they address the root causes and fundamental deficiencies of major economic imbalances.