Finance, Credit, Investments – Economic Categories

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According to the specification of the research object, scientific works in the theories of finances and credit are characterized to be many-sided and many-leveled. The definition of the totality of the economic Page Design Pro relations formed in the formation, distribution, and usage of finances, as money sources are widely spread. For example, in “the general theory of finances,” there are two definitions of finances:


1) “…Finances reflect economical relations, the formation of the funds of money sources, in the process of distribution and redistribution of national receipts according to the distribution and usage”. This definition is given relatively to the conditions of Capitalism when cash-commodity relations gain universal character;

2) “Finances represent the formation of centralized ad decentralized money sources, economic relations relatively with the distribution and usage, which serve for fulfillment of the state functions and obligations and also a provision of the conditions of the widened further production.” This definition is brought without showing the environment of its action. We share partly such explanation of finances and think expedient to make some specification.

First, finances overcome the bounds of distribution and redistribution service of the national income, though it is a basic foundation of finances. The formation and usage of the depreciation fund, which is part of the financial domain, belongs not to the distribution and redistribution of the national income (of newly formed value during a year) but the distribution of already developed value. This latest first appears to be a part of the value of main industrial funds; later, it is moved to the cost price of a ready product (that is to the value too), and after its realization, it is set the depression fund. Its source is taken into account beforehand as a depression kind of the consistency of the ready products cost price.


Second, finances’ main goal is much wider than “fulfillment of the state functions and obligations and provision of conditions for the widened further production.” Finances exist on the state level and on the manufacturer’s and branches’ level too, and in such conditions, when most of the manufacturers are not stating.


V. M. Rodionova has a different position about this subject: “real formation of the financial resources begins on the stage of distribution when the value is realized, and concrete economical forms of the realized value are separated from the consistence of the profit.” V. M. Rodionova makes an accent of finances, as distributing relations when D. S. Moliakov underlines the industrial foundation of finances. Though both of them give quite substantiate discussion of finances, as a system of formation, distribution, and usage of the funds of money sources, that comes out of the following definition of the finances: “financial cash relations, which forms in the process of distribution and redistribution of the partial value of the national wealth and total social product, is related to the subjects of the economy and formation and usage of the state cash incomes and savings in the widened further production, in the material stimulation of the workers for satisfaction of the society social and other requests.”

In the manuals of the political economy, we meet with the following definitions of finances: “Finances of the socialistic state represent economic (cash) relations, with the help of which, in the way of planned distribution of the incomes and savings the funds of money sources of the state and socialistic manufactures are formed for guaranteeing the growth of the production, raising the material and cultural level of the people and for satisfying other general society requests .”The system of creation and usage of necessary funds of cash resources for guarantying socialistic widened further production represent exactly the finances of the socialistic society. And the totality of economical relations arisen between state, manufactures and organizations, branches, regions and separate citizen according to the movement of cash funds make financial relations”. As we’ve seen, definitions of finances made by financiers and political economists do not differ greatly.

In every discussed position, there are:

1) expression of essence and phenomenon in the definition of finances;

2) the definition of finances, as the system of creating and using funds of cash sources on the level of phenomenon.

3) Distribution of finances as the social product and the value of national income, a definition of the distributions planned the character, main goals of the economy and economic relations, for servicing of which it is used.

I refuse the preposition “socialistic” in the definition of finances; we may say that it still keeps actuality. We meet with such traditional definitions of finances, without an adjective “socialistic,” in modern economical literature. We may give such an elucidation: “finances represent cash resources of production and usage, also cash relations appeared in the process of distributing values of the formed economical product and national wealth for the formation and further production of the cash incomes and savings of the economical subjects and state, rewarding of the workers and satisfaction of the social requests.” in this elucidation of finances like D. S. Moliakov and V. M. Rodionov’s definitions, following the traditional inheritance, we meet with the widening of the financial foundation. They concern “distribution and redistribution of the value of the created economical product, also the partial distribution of the value of national wealth.” This latest is very actual, relatively to the process of privatization and the transition to privacy, and is periodically used in different countries, such as Great Britain and France.

“Finances – are cash sources, financial resources, their creation and movement, distribution and redistribution, usage, also economical relations, which are conditioned by entering calculations between the economical subjects, movement of cash sources, money circulation and usage.”
“Finances are the system of economic relations, which are connected with firm creation, distribution, and usage of financial resources.”

We meet with absolutely innovational definitions of finances in Z. Body and R. Merton’s basis manuals. “Finance – it is the science about how the people lead spending `the deficit cash resources and incomes in the definite period of time. The financial decisions are characterized by the expenses and incomes which are 1) separated in time, and 2) as a rule, it is impossible to take them into account beforehand neither by those who get decisions nor any other person”. “Financial theory consists of numbers of the conceptions… which learns the subjects of distribution of the cash resources systematically relatively to the time factor; it also considers quantitative models, with the help of which the estimation, putting into practice and realization of the alternative variants of every financial decision take place”.

These basic conceptions and quantitative models are used at every level of making financial decisions. Still, in the latest definition of finances, we meet with the following doctrine of the financial foundation: the main function of the finances is to the satisfaction of the people’s requests; the subjects of economic activities of any kind (firms, also state organs of every level) are directed towards fulfilling this basic function. For our monograph’s goals, it is important to compare well-known definitions about finances, credit, and investment, to decide how and how much it is possible to integrate the finances, investments, and credit into one total part.


Some researchers think that credit is the consisting part of finances if it is discussed from the position of essence and category. The other, more numerous group proves that an economical category of credit exists parallel to finances’ economic category. It underlines the impossibility of the credit’s existence in the consistency of finances. N. K. Kuchukova underlined the independence of the category of credit and noted that it is only its “characteristic feature the turned movement of the value, which is not related with a transmission of the loan opportunities together with the owners’ rights.”

N. D. Barkovski replies that money’s functioning created an economical basis for apportioning finances and credit as an independent category and gave rise to the credit and financial relations. He noticed the Gnoseological roots of science in money and credit. The science about finances has business with the research of such economical relations, which lean upon cash flow and credit. Let’s discuss the most spread definitions of credit. In modern publications, credit appeared to be “luckier” than finances. For example, we meet with the following definition of credit in the finance-economical dictionary: “credit is the loan in the form of cash and commodity with the conditions of returning, usually, by paying the percent. Credit represents a form of movement of the loan capital and expresses economical relations between the creditor and borrower”.

This is the traditional definition of credit. In the earlier dictionary of the economy, we read: “credit is the system of economic relations, which is formed while the transmission of cash and material means into the temporal usage, as a rule under the conditions of returning and paying percent”. In the manual of the political economy published under reduction of V. A. Medvedev, the following definition is given: “credit, as an economical category, expresses the created relations between the society, labor collective and workers during formation and usage of the loan funds, under the terms of paying present and returning, during transmission of sources for the temporal usage and accumulation.”

Credit is discussed in the following way in the earlier education-methodological manuals of political economy: “credit is the system of money relations, which is created in the process of using and mobilization of temporarily free cash means of the state budget, unions, manufacturers, organizations, and population. Credit has an objective character. It is used for providing widened further production of the state and other needs. Credit differs from finances by the returning character, while financing of manufactures and organizations by the state is fulfilled without this condition”.

We meet with the following definition of “the course of economy”: “credit is an economical category, which represents relations, while the separate industrial organizations or persons transmit money means to each-other for temporal usage under the conditions of returning. Creation of credit is conditioned by a historical process of fulfilling the economical and money relations, the form of which is the money relation”.

Following scientists give slightly different definitions of credit:

“Credit – is a loan in the form of money or commodity, which is given to the borrower by a creditor under the conditions of returning and paying the percentage rate by the borrower”. Credit gives the temporally free money sources or commodity as a debt for the defined terms by the price of fixed percentage. Thus, a credit is a loan in the form of money or a commodity. In the process of this loan’s movement, definite relations are formed between a creditor (the loan is given by a juridical of the physical person, who gives certain cash as a debt) and the debtor. Combining every definition named above, we come to the idea that credit is giving money capital of commodity as a debt, for certain terms and material provision under the price of the firm percentage rate. It expresses definite economical relations between the participants of the process of capital formation. The necessity of the credit relations is conditioned, from one side, by gathering a solid quantity of temporarily free money sources. From the second side, the existence of requests of them.

Though, at the same time, we must distinguish two resembling concepts: loan and credit. The loan is characterized by o Here, the discussion may touch upon transmission of money, and also things form one side (loaner) to another (borrower): a)under the owning of the borrower and, at the same time, b) under the conditions of returning same amount or same quantity and quality of the things;

o The loaning of money may bear no interest;

o Any person may take part in it. With the difference with loan, credit, which is somehow a private occasion of the loan, represents: o One side (loaner) gives to the second one (borrower) only money, and _ for temporal usage; o It may not bear any interest (if the assignment doesn’t foresee something); o In it, a creditor is not any person, but a credit organization (at the first place, banks).
So, a credit is the bank credit. It is not correct to use “credit” and “loan” as synonyms to our minds.
Banking crediting is the union of relations between the bank (as a creditor) and its borrower. These relations touch upon:

a) Giving a certain amount of money to the borrower for a definite purpose (though we meet with the so-called free credits, aims, and objects of crediting are not appointed in the assignment);

b) It’s opportune returning;

c) Getting a percentage rate from the borrower for using the sources at his/her disposal.
The essential foundation of the credit essence and its important element is an existence of trust between the two sides (in Latin “credo,” from which comes the word “credit,” which means “trust”).
From the circulation of money forms (in the abstraction, historical process of formation economical relations and social budget and banking systems expressed by them) comparing different definitions of finances and credit, the paradox conclusion appears: credit is the private occasion of finances. And truly, from the position of movement of the money forms, finances represent the process of formation and usage of the funds of cash means. Such movements are often fulfilled without returning, but sometimes, it is possible to give loans from the budget for the investment projects of other needs. Also, when a manufacturer or corporation uses their cash funds, and we mean the finances of industrial subject, such usage may be realized as inside the manufacture or corporation (there is no subject about returning or not returning of the usage), so gratis under conditions of returning. This latest is called commercial form because of transmitting the sources to others. Still, even on this occasion, it is the element of the manufacture and corporation’s financial system.

From the point of cash means movement, the main character of credit is the formation and usage of the funds of cash means under the conditions of returning and, as a rule, taking the value percentage. If gating the credit value doesn’t take place (even in the exceptional occasions), according to the movement form, credit becomes a private occasion of finances, as from the net financial funds (consequently from the state budget) the loans which bear no interests may be used. If gating credit value takes place, credit is discussed to be financial modification by the appearance form.

From the historical point of view, finances (especially in the state budget) and credit (beginning with usury, later commercial, and banking) were developing differently for considering credit to be the part of finances. From the genetic-historical point of view, previous loaners, before giving a loan, needed gathering the permanent capital not returning, the net financial foundation. The banks analogously needed concentration of the important own capital for influx the consumers’ means and for getting higher percentage rate under the conditions of returning. Herewith, exactly on the financial basis, in the sort of financial fund (which later partially becomes loan fund), part of the bank capital appears to be the reservation (insurance) part of the fund, which by nature is financial and not a loan. Notwithstanding the essential distinctions between finances and credit form the genetic-historical perspective, credit appears to be formed from finances and represents their modification.


We meet with cardinal distinctions between these two categories from the essential position of expressing economical relations of finances and credit. This is mostly expressed by the distinction of the movement forms, notwithstanding they are returnable or not. Finances express relations in the distribution and redistribution of social products and part of the national wealth. Credit expresses the appropriate value in the section of the percentage given for the loan. In contrast, according to the loan itself, only a temporal distribution of money sources takes place. Herewith, there is a lot of common between the finances and credit as from the essential point of view, according to the form of movement. Simultaneously, there is a significant distinction between finances and credit as, in essence, so in the form. According to this, there must be a general economic category, which will consider finances and credit as a total unity. In the bounds of this category itself, the separation of the specific essence of the finances and credit would take place.

Funding of the cash means is common to the researched economical categories. It takes place in any separate finances and credit system, which have been touched upon during the analyses of defining finances and credit. Word combination “funding of the cash sources (fund formation)” reflects and defines exactly the essence and form of the economical category of a more general character, those of finances and credit categories. Though in economic texts and practice, it is very uncomfortable to use a terminus consisting of three words. Also, “unloading” with an information hardens its influx greatly into the circulation even in the conditions of its strict substantiation and thoroughness.
In the discussing context, we consider:

1) wide and narrow understanding of economical category of the finances;

2) discussing finances in narrow understanding under general traditional meaning;

3) discussing finances, as the funding of the cash means, in wide understanding, which concerns finances – in narrow meaning and credit – incomplete meaning.
Termini “funding” and its equivalent “fund formation” are used by us as the purposeful structuring of cash means, which is based on two poles – accumulation of money sources (gathering) and its usage for the definite purpose in the way of financing and crediting.
We have established a new terminus – “finance-investment sphere” (FIS). Analyses about the interrelation of finances and credit made by us give us an opportunity of proving that in the given termini, the word “financial” is used with the meaning of funding cash sources, its purposeful structuring. In this process, we consider at the same time financial, credit, and investments’ economical categories.

Let’s sum up the middle results of discussing the new concept – “finance-investment sphere” and discuss its investment consisting parts. The concept of “investments” was brought into the native economical science from the West. In the Soviet economical science, they for a long time used in the place “investments” the termini “capital placement,” which expressed the usage of the industrial factors in the sphere of real industrial activities during realization of capital projects. From one glance, this terminus in its concept is identical to the “investments.” Consequently, it is possible to use them as synonyms. Though the termini “investments” and “investing” have the advantage towards the termini “capital placement” from linguistic and philological points of view because they are expressed with one word. This is economical and comfortable in working with the termini “investment” itself, but it also allows termini formation. More concretely: “investment process,” “investment domain,” “finance-investment sphere” – all these termini are much more acceptable.

Changing native economical termini with foreign ones is purposeful if it really matters (by keeping parallel usage of the native termini for the inheritance). We must not change native economical termini into foreign ones altogether, when by ordinal traditional language easy to explain private and narrow concrete processes and elements get their own termini. The “movement” of these termini is approved in the narrow professional bounds, but their “spitting out” into the economical science may turn economical language into the tangled slang.


Let’s discuss termini – “investment” and “capital placement’s” usage in the economic literature.
Investments are the placement of funds into the main and circulation capital to get profit. “Investments in material assets – are the placements of funds into the mobile and real estate (land, buildings, furniture, and so on). Investments in financial assets are the placements of funds into the securities bank accounts and other financial instruments”.

We don’t meet with the termini “investments” in the earlier economic dictionary. Still, we meet the combined termini “investment policy” – the union of the industrial decisions, which guarantee main directions of the capital investments, the activities of their concentration in the determinant suburbs, on which the reaching of planned rates of development of the society production is depended, balancing and effectiveness, getting more and more production and profit of the national income for every lost Ruble.” For today, in the most actual definitions, the capital investments are bounded only by financial means, when not only financial but also the investment of natural, material-technical, and informational resources takes place. Labour resources take an actual place in the investment process. They themselves fulfill this or that investment process.

A positive side of the discussed definitions is that they connect investment policy and capital placements (investments):

  • – economic development according to the key directions to the concentration;
  • – providing high rates of economic growth;
  • – raising economic effectiveness, which is expressed:

a) by growing the throw off of the production and national income for every lost Ruble;

b) by fulfilling the branch structure of the investments;

c) by improving their technological structure;

d) by optimization of their further production structure.

Compared with such definition of the investments (capital placement), the definition of investments in the dictionary attaching the “Economics” seems to be unimproved: “investments – the expenses of gathering production and industrial means and increasing material reserve.” In this definition, current expenses (production expenses) are mixed with the investment (capital) expense. Also, not the investment expenses but (though the appropriate expenses follow the investments) exactly advancing. It differs from the expenses by that the means (means) are put by returning the advanced values, also, under the conditions of growth, to which the concept advanced capital is corresponding. The advancement may be realized in the money, natural-material and informational forms.

Except for the termini “investments,” there are two more termini related to the investment. They are shown below.

“Human capital investment” – any activity provided for raising the worker’s labor productivity (in the way of growing their qualification and developing their abilities); at the expense of improving the workers’ education, health and raising the mobility of the working forces.” It is handy to use the mentioned termini. However, it needs one correction: the human capital investments do not concern only workers and the servants, representatives of every kind of labor.
“Investment commodity, capital goods – a capital.”

In the official manuals of a political economy of the reformation time, the capital investments are discussed as “expenses for creating new main funds and widening, reconstruction and renewing the active ones.” In this definition, the investments (capital placements) during the separation of the forms (types) of further production of the main funds are bounded only by main funds (without increases of the circulation funds and insurance reserves):

a) creating new ones;

b) widening;

c) reconstruction;

d) renewing.

Also, the concept of the industrial gathering appears, at the expenses of a widening of basic, circulation funds and also insurance reserves takes place”. You’ll meet the definitions of investments from “the course of an economy”: the investments are called “placements of a fund into the basic capital (basic means of production), reserves, also other economical objects and processes, which request the long-termed influx of material and cash means. “According to the division of capital into physical and money forms, the investments too must be divided into material and cash investments”. They apportion investment commodities, which belong to industrial and nonindustrial building objects, vehicles purposed for changing or widened technical parks and furniture, increasing reserves, and others.

“They call the total investments of production an investment product directed towards keeping and increasing the basic capital (basic means) and reserve. Total investments consist of two parts. One of them is called the depreciation; it represents important investment resources for renewal until industrial usage, wearing out and repairing the basic means. Second, consisting part of the total investments is represented by net investments – capital investments to increase basic means”. Depreciation is not a compensation resource of wearing the basic funds out. Still, it is the purposeful financial source of such resources. Human capital investment is “a specific kind of investments, mostly in education and health protection.”

“Real investments are the investments in the economical branches. They are also kinds of economic activities, which provide influx the increases of real capital, that is increasing material values of the industrial means.” We can agree with such definition with one specification that material and nonmaterial values belong to the real capital (wealth), consequently science-researching experimental-construction results, various information, education of he workers and others. Such service as organization of the excitable games also redistributes social wealth from one private person to another (except charity).

“Financial investments represent placement of funds into the shares, obligations, promissory notes, other securities and instruments. Such investments, of course, do not give increases of the real material capital. Still, they help to get profit, consequently at the expense of changing the securities course in the time of speculation, or distinguishing the course in different places of sale and purchasing”. We share wholly such a definition. Hence it follows that financial investments (if real investments do not follow it) do not increase real material wealth and real nonmaterial wealth. According to this context, the expression below is essential: “we must distinguish financial investments, which represent placement of the funds in the ways of selling and purchasing the securities to get profit and financial investments, which become cash and real, moved to real physical capital.”

In the “economical course” quoted before, long and short-termed investments are separated. Recognizing the bonds between them, the authors ascribe short-termed investments to “one month or more” investments. If we get such conditioned criteria, we can call the investments that overcome some months’ terms long-termed ones, which is very doubtful, and we disagree with it. A long-termed character of the fund placement is a significant feature of the investments (short-term doesn’t combine with the concept of investments). Principally, it would be better to point out quick compensative, middle termed compensation, and long-termed compensative investments:


  • – less than 6 months – quick compensative;
  • – from 6 months up to the year and a half – middle termed compensatively;
  • – more than the year and a half – long-termed compensatively.

We stopped at defining the investments in the capital work “economical course” for the special purpose. The author tried to discuss the concept of investments systemically and quite completely; herewith, the book is published just now. We’ll return to discussing the defining economic category of “investments” in different publications in the following chapter. The definitions given here are quite enough for having a notion of the level of lighting up the given category in the economic literature. What conclusions may be made according to the definition of the mentioned economical category in the published works, except the made notions and specifications?

There is quite a deep, concrete, and thoroughly defined concept of “investments,” different definitions in the economic literature; but mostly in every works about the investments discussed by us until now, there is not opened the essence of investments as an economical category. In every monograph, even if it has a title investment, as an economical category, there is given only the definition, a concept of investments. But, as the Academician Vasil Chantladze explains, “a concept is a discussion, which proves something about the distinguishing feature of the researched object. A concept out of many essential characteristic features represents only one, and essential in it is only – definition”.

But the categories are much wider; it is “a key, the most fundamental concept of every science.” Economical categories theoretically represent real, objectively existed productive relations. A category is the defining of occasions of existed characters, connections, relations of the objective world. Generally, any educational process is fulfilled by the categories, which give opportunities for dividing the processes and occasions semantically, expressing the definitions of a subject, and realizing their specific peculiarities and economical relations of a material world. Our goal is to substantiate investments – as an economical category and as a financial category in the narrow understanding.

Here we apply for another manual thesis made by the academician Vasil Chantladze: “every financial relation is an economical one, and every financial category is, and economical one, but not every economical relation and an economical category is the financial relation and financial category”. In the process of defining the investments, it is important to take in mind the sides of resources, expenses, and incomes, because investment, from one side, is the result of the manufacture’s activity, and, from another one, – a part of income, which, in this case, is not used for usage. On another occasion, it is advisable to discuss investments in two aspects: as a category of reserve and flow, which will reflect exactly the connection between “placement of funds” and “investments.”

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