Old Bookkeeping Methods, Part 1.

Every business whether large or small should keep a correct record of its activities and to facilitate the keeping of such record the science of bookkeeping has been evolved until today a well kept set of books will reveal every transaction of business down to the smallest detail. 

There are two kinds of bookkeeping commonly called single and double entry. 

Single entry method of keeping books is very unsatisfactory and the practice is rapidly disappearing as it has no advantages.  Books commonly used are the Day Book, Cash Book and Ledger. 

In the Day Book all transactions other than cash receipts and disbursements are entered daily with no regard as to debits and credits. 

Cash Book is used to record all transactions where cash is involved. Receipts being entered on the left side and disbursements on the right, difference between the total on left and that on the right side representing cash on hand and in bank. 

Ledger is used to keep a record of customers and creditors, few if any other accounts being kept, such as Inventory, Machinery, Expenses, etc. 

With this method in use it is impossible to balance books, locate errors, guard against embezzlement or theft, arrive at cost of doing business and numerous other elements which have an important bearing in a well conducted business. 

A Double entry system requires the keeping of an account with every element of the business, not only of the assets and liabilities, but also the Expense, Merchandise and Profit and Loss. Every debit must have an equivalent credit and vice versa. In this manner a balance is maintained.

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How To Collect Debts

"The man who is in debt carries a world of trouble." - Burke.

HOW TO COLLECT DEBTS.

Pay as you go, or a strictly cash business, is the best and safest method of doing business.  But certain conditions or customs in trade make this sometimes impractical or impossible and credit must be given.  Under this method dishonest, careless or unfortunate people contract debts, then refuse, neglect or are unable to pay them, and collections, peaceable or forced, become a necessity.

The requisite steps to collect such debts are a matter of great importance and should be understood by everybody, but they are not, and much unpleasantness and heavy losses are often the result.

Methods by Which Debts are Contracted

Goods are bought on credit, to be paid for at a definite or indefinite future time.  Labor is employed, to be paid for at certain periods.  Lands, houses and other property are purchased under contract of future payment.  Money is borrowed, under notes, mortgages or other securities, and many other transactions in business and trade call forth occasions or present temptations to contract debts.

Suggestions for Avoiding Debts

1. Do a Strictly Cash Business. — Better small profits and quick sales, than large profits and long credits.

Mark your goods as low as possible and adhere unswervingly to your cash principle. This is best for buyer and seller. It avoids collections and prevents losses. It saves the time and labor of keeping accounts. This enables the seller to sell cheaper and the buyer to buy for less than on credit.

2. Cautions. — Goods sent abroad should be paid for before the purchaser takes possession.

The time of credit should be as short as possible and the bills collected when due.  When working for others collect your wages weekly or monthly, in accordance with the agreement to pay, unless your employer is quite responsible, thus making your dues safe.

In renting lands or houses, a duplicate lease should be made, one for each party, the rent paid promptly when due, at the house or business place of the landlord, and the payment credited on the back of the lease.

In receiving or making payments, a receipt should always be made out; it is a voucher and may save trouble.

Hotel and boarding-house keepers cannot be too prompt and strict in collecting their dues, as their customers are mostly transient, making forced collections sometimes impossible.

Never loan money without requiring a note or a duebill, if the amount is small; this is safest even between the most trusted friends.

When the loan is large, have the note secured by a mortgage on real estate; but see to it that the same is not encumbered by previous claims, which would render your security worthless.  It is safest to require an abstract of title and then have your mortgage recorded immediately.

This precaution should also be observed where a chattel mortgage is taken on personal property.

If a small amount of money has been loaned without security and it can apparently not be collected without legal process, it may be best to drop the matter and consider the loss so much paid for a lesson in business prudence.

First Steps in Making Collections 

These depend very much on circumstances.  The debtor may have met with reverses or a misfortune, rendering him unable to pay at the time specified, and deserving of patience, others may be careless and need a sharp reminder, a third party, inclined to be dishonest, may need close watching.  Thus discretion is necessary as to the form and tone of the letters requesting payment.

The composition of a letter requesting payment of an account is often a perplexing task, particularly if the person or firm is capable of paying, but careless about it. Such a letter, to be perfect, must not only obtain the money due, but do so without giving offense. Such letters should not, as a rule, be blunt or abrupt, but should courteously and clearly state the reasons for the request. If it becomes necessary to suggest placing the account in the hands of a collector, the suggestion should not be put in the form of a threat but in such language as will show your reluctance about using such means.

Generally speaking, a statement of the debtors account is usually all that is necessary to remind him that payment is expected when due.

If necessary to request prompt payment, something similar to the following may be used:

                                                                                             New York, N. Y.,  May 1, 1916.

Mr. D. C. GOWAN,
         Oswego, N. Y.

Dear Sir:—Inclosed please find statement of your account for April, which we trust you will find correct.

We would appreciate it if you will kindly check same at your earliest convenience and send us a N. Y. Draft for the amount.

Yours truly,

Smithson & Dewsnap.

If the debtor is tardy a second request might be worded as follows:

Mr. J. G. Homes,
          Newark,  N.J.

Dear Sir:— We respectfully call attention to your account, which is now some time past due, and ask if you cannot favor us with your check by return mail.

or

Not hearing from you regarding the amount of your account, now past due, we take the liberty of drawing on you at three days' sight, and trust that you will kindly honor the draft when presented.  
Thanking you in advance, we are,           Yours truly, 
                                                               Connor & Blaine. 
 

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Examples of Writing A Business Letter.

EXAMPLES OF BUSINESS LETTERS

Letter containing a Remittance

Canton, Ohio, Feb. 10, 19-

MESSRS. WILLIAMSON & CATON,

                                                   Williamsport, Pa.

Gentlemen:-- Enclosed please find N.Y. Draft for Sixty-five Dollars ($65.00), in settlement of your invoice of January 13th, which you will kindly and return.

                        Yours truly,
                              PETER SCHRADER.

                

 Letter Acknowledging Above

                                                                     Williamsport, Pa., Feb. 12, 19-

MR. PETER SCHRADER,

            Canton, Ohio.

     Dear Sir: Yours of the 10th inst., containing N.Y. Draft for sixty-five Dollars ($65.00), came to hand this morning.
     We enclose bill properly receipted, and wish to thank you for prompt settlement of your account.

                       Yours respectfully, WILLIAMSON & CATON.

 Letter Ordering Goods

                         120 Penn St. Scranton, Pa., May 1, 19-

MESSRS. GEO. M. HILL & Co.,

        110 W. Jackson Blvd., Chicago, Ill.

    Gentlemen: Please ship by freight over the Penn. Line the following books:

     50 copies Handy Encyclopedia, Cloth Binding

     10 copies Handy Encyclopedia, Half-Morocco Binding

     27 copies The Business Educator, Cloth Binding

     13 copies The Business Educator, Morocco Binding

     10 copies Bible Symbols, Cloth Binding

  Enclosed you will find P.O. money order for Fifty-seven Dollars ($57.00) in payment of above. Kindly ship as promptly as possible, and oblige.          Yours for success,

EDWIN LEWIS, Agent.

Calling Attention to Error in Invoice

Hamilton, Ohio, Jan. 27, 19-

MESSRS, DAVIS & HOLT,

    Cincinnati, Ohio.

Gentlemen:-- I find in checking your Invoice dated the 10th inst. for shipment of biscuits that you have overcharged me 15 cents per box on the plain sodas.  I herewith return said invoice and ask you to kindly send me a corrected one.

Respectfully,

 JAS. DOYLE.

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Writing Business Letters, Continued; Opening Letters; Rules for Writing a Postal (Postcard).

 

Opening Letters

Letters are properly opened by inserting a knife or other convenient instrument under the flap at the end and cutting across the top of the envelope.

SOME SPECIAL POINTS IN BUSINESS LETTERS.

1. Be brief and to the point without being blunt or offensive.

2. Be courteous in your requests and polite in your demands.

3. Never write a letter with a lead pencil; always pen use and ink.

4. Avoid the use of flourishes.

5. Blots and errors due to slovenliness are inexcusable.

6. Avoid interlining; rather rewrite your letter.

7. Aim to write as legibly as you know how.

8. Never discuss or refer to matters of a social nature in a business letter.

9. Never write a letter when angry or vexed.

10. Write on one side of the sheet only.

11. When requesting information always enclose stamp for reply.

12. If your letter contains money or an enclosure always state the amount, or what the enclosure is.

13. Take a copy of all letters containing matters of importance. It may save you trouble.

14. Be prompt in acknowledging the receipt of a business letter, mentioning its date.

15. Never write an anonymous letter; it is the coward's weapon.

16. See that your letters are divided into paragraphs and properly punctuated.

17. Write as though your correspondent was at your side and you were talking to him.

18. Letters ordering goods should state plainly the articles wanted, giving full directions for shipping, and the name and address of the person ordering.

19. Money should be remitted by draft, P.O. order, express order or registered letter.

20. Money orders or other enclosures should be folded in the letter; not put in the envelope separately.

21. Do not use figures in the body of a letter, except to denote sums of money, dates, street or P. O. box numbers.

22. Do not forget to sign your name. 

23. &c means “and so on in the same manner.” Etc. is entirely different and means “and other things.” Use them only in their correct sense.

24. In requesting payment of money due you, avoid being offensive. Remember, it is better to have a person a friend, than an enemy.

25. Do not mix up an order for goods in the body of a letter. Either use a separate sheet, or make it a separate part of your letter with only one style or kind of goods on a line.

26. Use care and neatness in addressing your envelope, and if writing a number of letters be sure that John Smith's letter does not go in Tom Brown's envelope.

27. Never write a dun, or any matter of importance, on a postal card. To make a threat of any kind on a postal card renders it unmailable, and to use indecent language thereon is a criminal offense, under the laws of the United States.

28. A prompt acknowledgment of the receipt of an order for goods is a commendable practice.

29. Avoid abbreviations and the use of postscripts.

30.  Never write a threatening letter; in most of the States it is made a criminal offense by statute.

RULES FOR WRITING A POSTAL

1. A card should be dated either on the upper right-hand corner, or on the lower left-hand corner.

2. Always sign your name in full.

3. If you wish an answer, give your full post office address, unless it is well known by the person to whom you are writing.

4. Never write a demand or a request for on a postal. It is disrespectful to the person receiving it.

5. Never write an invitation on a postal. Society prescribes polite forms for this purpose.

6. Do not important matters to a postal card, for it is open to inspection, and the law does not provide for its return to the writer if it fails to reach its destination.

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Parts of a Letter.

The Complimentary Closing follows the body of the letter, on the line below the last line of the letter, and consists of the words of respect or regard used to express the writer's feelings toward the person written to. They are in a sense conventional and are often used without thought as to their meaning. The most common forms in business use are: "Respectfully," "Respectfully yours", "Yours very respectfully," "Yours truly," "Yours very truly," "Yours faithfully," "Sincerely yours," etc. "Gratefully yours" may be used if the writer is under obligation to the one written to, or "Fraternally yours" if a member of the same order or society.

In official letters a more formal style is used: as, "I have the honor to be, Yours very respectfully."

The complimentary closing should always be consistent with the salutation. For example: to begin a letter with a formal "Sir" and close with "Sincerely yours" would show very bad taste.

The Signature is the name of the writer or the firm or company he represents. It should be written under the complimentary closing and should end just at the right-hand edge of the sheet.

It should be written very plainly. Many writers have a habit of making their signature the most unintelligible part of their letters, presuming that because their name is familiar to themselves it is to everybody else.

A lady writing to persons with whom she is not acquainted should always prefix the title, Miss or Mrs., in parenthesis, to her signature.

Folding.-- The letter sheet should be folded so as to nearly fill the envelope. To fold a sheet of letter paper to fit the No. 6 or 6½ envelope, turn the bottom of the sheet up to the top, making one fold, then fold equally from the right and from the left, making the letter, when folded, a little narrower than the envelope. If the envelope is held with the left hand, back up, and the letter inserted as folded, all the receiver has to do when he opens the envelope is to withdraw the letter and turn back the folds, and he has it before him right side up. This is important.

Sealing.-- Be particular to seal your letter properly especially if it contains money or other enclosure.

A letter of introduction or recommendation should never be sealed when entrusted to bearer.

The Envelope Address.-- The name and title should be written on the center of the envelope lengthwise. When street and number are given, or the direction "In care of Mr. ______" they follow on the second line, the city or town on the third, and the state on the fourth or lower right hand corner of envelope.

The envelope should be placed before the writer with the flap farthest from him, otherwise it will be addressed upside down and the letter should not be inserted until after the address is written.

More than five million letters and packages reach the dead letter office at Washington every year because they are improperly directed, therefore great care should be exercised in addressing envelopes.

See examples of addressed envelopes.



The envelope used for business purposes should have either written or printed upon its upper left-hand corner the name and address of the sender, with the request to be returned in a certain number of days if not called for.



Opening Letters.-- Letters are properly opened by inserting a knife or other convenient instrument under the flap at the end and cutting across the top of the envelope.

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32 Common Faults in Writing and Speaking Corrected.

I admire the elegance of older grammar standards, but I have to wonder how anything was ever accomplished keeping a bus full (busful? ha) of rules together.

"I shall walk no further" should be "I shall walk no farther." Further refers to additional quantity.

"I have no farther use for it" should be "I have no further use for it." Farther refers to distance.

"Is that him?" should be "Is that he?"

"If I was him" should be "If I were he."

"Better than me" should be "Better than I."

"I am very dry" should be "I am very thirsty."

"Both of these men" should be "Both these men."

"He had laid down" should be "He had lain down".

"I have got the book" should be "I have the book."

"If I am not mistaken" should be "If I mistake not."

"It was her who called" should be "It was she who called."

"Lay down or set down" should be "Lie down or sit down."

"When I get off from a car" should be "When I get off a car."

"It spread all over the town" should be "It spread all over the town."

"If I was him I would do it" should be "If I were he I would do it."

"He is down in the basement" should be "He is in the basement."

"I know better; that ain't so" should be "Pardon me, I understand differently."

"I see him every now and then" should be "I see him occasionally."

"I never play it if I can help it" should be "I never play if I can avoid it."

"His works are approved of by many" should be "His works are approved by many."

"I went to New York, you know, and when I came back, you see, I commenced attending school," should be "I went to New York, and when I returned I commenced attending school."

"It is me" should be "It is I."

"We enter in" should be "We enter".

"I don't think so" should be "I think not."

"What are the news?" should be "What is the news?"

"He fell on the floor" should be "He fell to the floor."

"He is in under the wall" should be "He is under the wall."

"Two spoonsful of tea" should be "Two spoonfuls of tea."

"A new pair of boots" should be "A pair of new boots."

"I had rather ride" should be "I would rather ride."

"I only want five dollars" should be "I want only five dollars."

"Continue on in this way" should be "Continue in this way."

"I expected to have seen him" should be "I expected to see him."



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BUSINESS CORRESPONDENCE

The Materials.-- Good pen, ink, and paper. For business correspondence three styles of paper are in general use, viz.: commercial note, about 5x8 inches; pocket note, about 5½x8¾ inches, and letter paper, which is usually 8½x11 to 13 inches. The smaller sizes for short letters and the larger for long ones.

The envelopes most commonly used are Nos. 6 and 6½.

Parts of a Letter. -- for convenience in explaining the form of a letter we call the different parts by the following names:

1. Heading (Place and Date). 4. Body of Letter.
2. Address. 5. Complimentary Closing.
3. Salutation. 6. The Writer's Signature.

The following diagram will show clearly their position.



Heading.-- The heading indicates where and when the letter was written and should contain information the person written to will need in directing his reply. It should be written to the right-hand side of the sheet and about two or two and one-half inches from the top. There is no objection to using two or more lines for the heading if required.

The Address of a letter consists of the name and title of the person or firm to whom you are writing, the residence, or place of business, as the case may be, to which the letter is to be sent.

The inside address, as this may be called, will be the same as the address on the envelope, excepting that on the inside address the city and state may be written on the same line. Begin the address on the left-hand side of the sheet, one inch from the edge of the paper and on the line following the one on which the heading is written. The second line of the address should begin an inch farther to the right than where the first line is begun.

The Proper Use of Titles.-- Two titles of courtesy should not be joined to the same name; as, Mr. John Hartley, Esq.; nor should a title of courtesy be used with a professional or official title: as, Mr. J.B. Wilson, M.D., or Hon. Henry Weston Esq. One exception to this rule, however, is permitted where a clergyman's initials or first name is not known, to write Rev. Mr. (----), giving only the surname.

The Salutation is the complimentary form used to begin the letter. The forms most in use are Sir; Dear Sir or My Dear Sir. In addressing a firm, Sirs, Dear Sirs, Gentlemen or My Dear Sirs. If the person addressed be a lady, Madam, or Dear Madam. If she be a young, unmarried lady, Dear Miss, or it is quite correct to omit the salution where doubt exists as to whether she be married or not, or if the writer has no acquaintance with her.

Follow the salution with a comma and dash, and never write Gents for Gentlemen, or Dr for Dear, etc.

The Position of the Salutation depends somewhat on the number of lines in the address. The examples on next page will illustrate this and the form of letters in general.

The Body of the Letter is that part which contains the message or information to be imparted. In this, good form, penmanship, spacing and paragraphing should receive due care.

The body of a business letter should begin on the same line following the salutation.


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Correspondence

Correspondence is the interchange of thought by means of letters.

A large per cent of the world's business is transacted by correspondence, and in these days of rapid transit and cheap transportation friends and relatives become widely scattered and their only means of keeping in touch with one another is through letter writing.

To be able to write a good letter is therefore not only an accomplishment but an important necessity.

It is the opinion of competent judges that a man's habits and qualities as a business man may be fairly estimated from familiarity with his business letters, and his social correspondence is likewise an index to the trend of his thought, and his general character. It is safe to say that the majority do not appreciate the value of the ability to write a good letter.

First in Importance. -- Perhaps the matter of first importance in a letter is the expression of the proper ideas in the proper language.

Next to That an easy, graceful style of writing, with words correctly spelled, and sentences properly punctuated. Improper punctuation often renders the meaning unintelligible or the opposite of what was intended altogether.

Classes of Letters.-- Letters are usually divided into two general classes, Social and Business.

Social Letters are those that grow out of social and personal relations: as, letters of affection, friendship, congratulation, sympathy, introduction, condolence, etc.

Business Letters, as the term implies, are such as are written regarding matters of business of whatever kind.

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The Practice of Short Selling Sometimes Abused.

That the practice of "short selling", though ordinarily legitimate, is sometimes perverted so as to work an injury to the public is shown by the following extract from a message of Governor Sulzer of New York, sent to the Legislature in January, 1913:

"The subject of so-called 'short sales' is one requiring your serious consideration. A contract to sell property which a man does not own at the time, but with which he can provide himself in time for the performance of his contract, is a general transaction in various branches of business.

"The best views seem to be that short selling in and of itself is not wrongful, but the abuse of this practice works injury to the public.

"Your efforts should therefore be to draw a distinction, so that what will be condemned is the perversion of a legitimate form of business to improper ends."

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Gambling on Prices

Gambling on prices is betting on the rise and fall in market prices by means of pretended purchases and sales or pretended employment as a broker or commission merchant to make pretended purchases and sales. In other words, it is using the forms of buying or selling, or the forms of employment to buy and sell, where no real buying or selling or real employment is contemplated, the parties agreeing to settle with each other by the mere payment of differences of the prices of pretended purchases and pretended sales.

Thus is appears that in speculation and in gambling on prices the result depends upon an uncertain future event. The difference is that, in one the parties are engaged in legitimate business beneficial to both of them, while, in the other they are engaged in an idle and useless occupation beneficial only to the party winning and, when carried to excess, injurious to society.

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Selling Produce Short

Selling produce short is selling it for future delivery when the seller does not own the property at the time of the sale, but hopes to be able to buy it at a less price when or before the time for delivery arrives, thus making a profit from a fall in price. The short seller is therefore a speculator.

In a 'short sale' of stock the contract for future delivery employed is a contract of borrowing. The seller does not, at the time of the sale, own any of the stock sold, but he borrows the same amount of stock from one who does own it and delivers the borrowed stock to the purchaser. The seller must return the stock to the lender and for this purpose he must buy it at some future time. He hopes to be able to buy it at less price than he sold it and thus make a profit of the difference between the two prices.

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Abuses of the Stock Exchange.

The distinction between legitimate speculation in "futures" and gambling on prices is not generally understood and, therefore, to many people both are equally objectionable.

The difference between gambling and selling "short" -- the limit of legitimate speculation and futures -- is thus clearly pointed out by Mr. T. Henry Dewey, of the New York Bar, in a booklet he has recently published.


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Bank Loans to Stock Brokers.

"The making of bank loans to stock brokers is bottomed primarily on the confidence which the banker has in the broker as a person, and secondarily on the goodness of the securities offered. The modus operandi is substantially this: The broker, knowing from the clearing sheet of yesterday what payments he has to meet today, obtains from his bank in the morning authority to draw for this aggregate amount at an agreed rate of interest. As his checks come in during the day the bank certifies them and the banker sends to the broker the bank securities whose market value is greater by a certain margin than the amount borrowed.

"These loans are usually payable on call. As National Banks are forbidden by law to certify checks for a sum greater than the drawer of checks has on deposit, the practice in such cases is for the broker to execute a promissory note, which note the banker discounts, putting the proceeds to the credit of the broker, and attaching the security to it as it comes in during the day. While this method exposes the banker to some danger of loss in the interval between the certification of checks and the receipts of the securities, such losses seldom occur. There is an unwritten rule of the stock exchange that the bank must be protected at all hazards, both as a matter of personal honor and because the stock brokerage busines cannot be carried on otherwise."

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Capital

"Capital is the result of saving. If not the parent of civilization, it is the indispensable promoter and handmaid of it, since capital gives mankind the leisure and the means to take new steps forward in solving the problems of human existence. It is desirable that there should be facilities for investing the savings of the people without serious delay. Such facilities promote saving. It is desirable that investments should be convertible into cash without delay. The raison d'etre of a stock exchange is to supply a place where money can be invested quickly and recovered quickly, or investments made upon which the investor can borrow money if he so desires. It is an incidental advantage that the stock exchange informs all investors, and intending investors, daily and without cost to themselves, of the prices at which they can buy or sell the securities on the active list of the exchange. These prices are made by the competition of buyers and sellers in the market, who are acting under the spur of self-interest. There is no other way in which true prices can be made. If the quotations so made are not precisely the truth in every case, they are the nearest approach to it that mankind has yet discovered."

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The Stock Exchange.

"The Stock Exchange is a meeting place of the buyers and sellers of invested capital; that is, of incomes present or prospective. This is a comparatively modern institution because invested capital transferable by negotiable instruments is of modern origin. There were exchanges in the ancient world where traders met to deal in various kinds of movable goods. The Agora of Greece and the Forum of Rome, and the Fairs of the Middle Ages were such exchanges, but negotiable incomes (stocks and bonds) did not then exist. At the present time no person of intelligence keeps surplus money uninvested. He buys some interest-bearing security, or puts it in a savings bank, in which case the savings bank buys an interest-bearing security, or employs it in such manner as to yield an income."


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The Money Market

"The Money Market," explains Horace White, in a recent issue of The Annals of the American Academy, "consists of the loanable funds in the country. The money which people are using in their daily business, which passes from hand to hand in retail trade is no part of the money market. Such money is not marketable, because it cannot be recalled from the immediate service which it is rendering to society. The bulk of loanable funds of the country consists of bank credits which are bottomed on gold, and the magnitudes of such credits is limited by the amount of 'lawful money' held by the banks as reserves. Bank notes are not available as reserves of National Banks, although they are such for State Banks and Trust Companies.

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Trust Companies.

Trust Companies, in nearly all the States, have most of the characteristics of the State Banks. Besides having authority to execute trusts, they may receive deposits, lend money on real estate and any other security, and their reserve requirements are lower than for National Banks. In fact they are not a distinct class of banking institutions, but only State Banks with additional powers.

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Deposits, Discounts, Loans and Banks.

Deposits, Discounts and Loans.-- It is very important for merchants requiring credit accommodations of banks, that they place their deposits in the kind of banking institution that can most certainly and conveniently accommodate them in the matter of discounts and loans. Depositors are given preference over outsiders on the loanable funds of the bank in which their money is deposited.

The State Banks, that is to say, banks organized under the laws of a State instead of under the National banking act, are not, in most of the State, required to hold a reserve against savings and time deposits, and therefore, are usually in better position than the National banks to accommodate their depositors by advances to them on notes, drafts, bills of exchange, and collaterals of various descriptions.

The National Banks are required to maintain a certain portion of cash reserves to their liabilities, and when their reserves fall to a certain point they must stop loaning.
Under the new Federal reserve system (see page 462) only those National Banks that are not situated in a central reserve city may make loans on real estate, while in most of the States all State Banks may advance such loans. This makes patronage of State Banks generally desirable in locaties where loans on real estate are common.
Where, however, business is to be transacted with persons in other States, the National Banks have an advantage over the State Banks, since the residents of one State are not acquainted with the provisions of the banking laws of another State, while they know the general character of the provisions of the National Bank Act.




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In Time Transactions

In Time Transactions Credit is given either in goods or in money. By the former mode goods are supplied to a purchaser, for which the payment is deferred for some fixed period, or indefinitely, and the person who supplies them idemnifies himself for the delay by an increased price. By the latter mode, money is advanced, upon security or otherwise, and interest is charged upon the loan. Both these modes are used, in conjunction with each other, in the large transactions of commerce. A manufacturer, for example, sells to a merchant, for exportation, goods to the value of a thousand dollars. The merchant however is unable to pay for them until he has received remittances from abroad; and the manufacturer, aware of his solvency, is contented to receive in payment a bill of exchange due at some future period. But in the meantime he is himself in need of money to carry on his business, and instead of waiting for the payment of the bill when it shall become due, he gets it discounted by a banker or other capitalist. Thus, having given to one person credit in goods, he obtains credit from another in money.

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Origin and Nature of Credit.

Origin and Nature of Credit. — There can be no system of credit until there has been a considerable accumulation of capital; for, when capital first begins to be accumulated, those who possess it apply it directly in aid of their own labor. As a country increases in wealth, many persona acquire capital which they cannot employ in their own business, or can only employ by offering inducements to purchase in the shape of deferred payments. As soon as a sufficient capital exists, a system of credit has a natural tendency to arise, and will continue to grow with the increase of capital, unless it be checked by a general insecurity of property, by imperfect legal securities for the payment of debts, or by a want of confidence in the integrity of the parties who desire to borrow. When the society and laws of a country are in a sound state, and capital is abundant, credit comes fully into operation.

In a recently published article, the Hon. George B. Roberts, Director of the United States Mint, thus lucidly discusses the nature and value of credit as a substitute for money:

"There is a very common misunderstanding of the meaning of the word 'credit' when used as a banking term. Some people associate it wholly with advances of money or goods upon time, but credit is also a substitute for money in cash transactions. When a customer gives a merchant a check for a bill of goods and the merchant deposits the check for his own bank account and simultaneously draws against it, credit is being used, and a great convenience and economy are effected over payments of money from hand to hand. When payments are between distant localities the advantages are obviously greater. The great bulk of the payments between the East and West are accomplished by offsetting the purchases they make of each other. The great bulk of the bank deposits of the country are created in this way, and not by passing money over the counter. All of this involves the use of credit. This method of doing business will not be changed. The public will not go back to a greater use of money from hand to hand; on the contrary, it is certain that the various forms of bank credit will more and more become the means by which payments are made."

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