Pine Bluff daily graphic. (Pine Bluff, Ark.) 1893-1942, 1916-03-24
TALKS ON BANKING.
DISCOlaNIYNG 4 NOTE.

kIayments cannot be made in cash, for
in one form or another. Small pur-
chases and many of the daily ex-
penditures are cash transactions; but
business as a whole moves On credit.
the form depending upon the customs
characteristic Of that peculiar bust
ness. The most common form Of
credit is the book account, where
goods are sold and Charged" to the
grCcer's and tell him to charge IT.
You are opening credit with him in
the form of a book account. This is
common to all retailing transactions.
But in tie larger dealings, the credit
is in the form of a promissory note,
which S merely written promise to
pay a sum certain, in money. to a
designate ted person, firm Or corporation
at stipulated time. Hundreds of
thousands of these notes are made
every day, They are given, merchant
| to merchant, in payment Of debts re-
sulting from the sale of goods. and
While they settle the debt must them
selves be paid in money, in order that
! the Obligation may be FINALLY dis
charged, for a promise never liqui-
dates a debt.
If these promises could be treated
as mercy and passed from hand to
hand, they might answer very we'll,
| but they are of non-uniform denomi-
nation their goodness is matter not
commonl known, and even though
the maker might be as good as the
| government" few know it and few
would take the risk.
And il the holder could wait Until
maturity, he would get cash from the
rromiser. But he does not want to
| wait that long-he wants to turn his
evidence Of debt into money at once;
for with money-real money-lhe can
get better terms. and for certain pur-
Poses. such as paying laborers. he
must use cash. There must. therefore,
be some medium through which he
can turn this promise into money be-
fore it S due-for price-and that
| medium is the bank. rhe process of
doing this is called discounting, which
| in other words means buying the
paper. A simple illustration will ex-
| plain.
Suppose A sells a bill of goods on
three months credit. A does not want
to wait while B sells the goods and
gets the money to pay him. and there
fore offers to take BIS note for the
amount. But the note is not money,
and if A would use the money, he
must find someone who will give him
money for it. He might find some
one who, for the hope of gain, would
advance the money: but the logical
place to get this done is the bank, for
the bank always has money. 1t knows
men and their ability to keep their
promise, and can judge the quality
of the risk. A therefore offers the
note to his banker, who says in sub
stance: 81 think is good for this
amount. If you will endorse-prom-
ise to pay if he does mott will buy
that paper evidence of debt from you.'
Let US say it is for 800. due in three
months. The banker knows that at
the end Of three months he Will get
the 500. and so gives A $3.50 for it,
the $3.50 being interest on the money
TOP that time at per cent. Ordi-
laiily the banker would not give A
the cash but credit his account, with
the privilege of checking against it,
which is virtually the same thing.
| Now, what is the result? A sold
his goods and got his money at once.
B had three months to sell the goods
to get the money to pay the note when
the banker presented it at maturity.
A could use the $9S.50 to buy more
goods to sell to c, and the bank has
made profit of $3.50 for taking the
risk. That is what banks are for-to
take risks, to know men. to help bust
ness and make profits for itself. And
this it does to very marked degree.
We could not do business very we'll
without this help. 1t is one of the in
dispensable adjuncts Of business. The
promise Of business! men held in the
National Bank of the country alone
amount to over three billion dollars.
A. B. A.
Alabama's cotton. acreage for 1916.