The San Francisco call., 1896-05-10
THE FUNCTION OF CREDIT.

The time was when the dealer and trader
in merchandise would go with the ship or
caravan or wagon train and personally SUI
perintend the disposition of his commodi-
ties on the cash down system. There was
no commercial credit in those days except
between neighbors, but that was before
the invention of the telegraph and the
railway. Faith in tie business integrity
of fellow merchants is now coined into
token money, so to speak. and public car
riers assume the responsibility of trans
porting articles of merchandise from initial
to distinctive points, and instead of the
owner or his messenger going with the
shipment to collect pay the shipper at
taches his bill of ading to draft upon the
consignee and his banker cashes it. Only a
few years ago the draft became the mer-
chants messenger. but SO great has the
credit system grown that its dimensions
are beyond the power of any one to COM
pute, and its ramitications are earthwide.
1t is said that our bank clearinghouse
system furnishes the equivalent of more
than twice the per capita money of the
country, and yet only the larger trade CEN
ters maintain such institutions, and their
clearings represent not more. than 30 per
cent of all the business transacted by the
people. Moreover, an examination of
clearinghouse reports will show that only
about 10 or Is per cent of the total clear
ings are settled with cash, and that very
often creditor bank will reclear its GER
tifcates, thus still further reducing the
amount OF actual money employed.
Our commercial exchanges add a still
greater volume of substitutes for money. A
country buyer of produce can conduct his
business with bills of lading attached to
drafts, so that the actual capital which he
employs may not be more that or 10 per
cent of the value of his shipments. The
time note becomes token money the
moment it is offered for sale or discount.
There is no way OF knowing how many
thousand million dollars, as represented
by credit drafts attached to shipping bills,
are moving to and from the business GEN.
tiers every day, but it is estimated that
fully three billion dollars worth of mer-
chandise are atioat in the ships of the
world every hour, and which is moving on
the faith of individual credit.
There is another kind of credit which
the United States enjoys more than any
other nation. This Government has out
standing large number of bonds, green
backs and national bank and treasury
notes, but the holders of these several
promises to pay have no security whatever
except the willingness and the ability of
the people TO redeem their pledges in
metallic money. Our national bank notes
are secured by Government bonds, but
there Is nothing behind the bonds except
the moral sense of the people. This is the
highest credit, for it is based wholly upon
the integrity of the people who authorized
the bonds. bank notes and Government
paper monty to be issued But the credit
of this Government, unlimited as it now
is, could be impaired by continuing a
policy that caused expenditure for main-
tenance to run in excess of income and
provided for deficits by borrowing money.
The Government, like the individual, for
feits its credit when it lives beyond its
Y1panS