The Washington herald., 1917-12-08
FROZEN DEBTS
BUSINESSlOSS
Holland Points Out Lack Of
American Enterprise.

IQo eSllIuale EcpOEIco 70 nave Deen
made by Lewis z. Pierson, chairman
Of the Board Of the Irving National
Bank and one Of the foremost mer-
chants In New York, and he alluded
indirectly to 1t when, in his recent
address before war conference OF
Michigan's business men, at Detroit
he spoke Of the waste which Is found
among other things In money that
is boarded instead Of being put into
channels Of commerce for which 1t
was intended and in commercial cred
II which Is tied up in these frozen
book accounts
Some have spoken Of these book
accounts as dead accounts" not to
be quickened until payment and
liquidation OF them are made. Could
some means be found whereby all
these frozen book accounts could be
made available for instant credit. then
the effect upon commerce, industry
and financial conditions in the United
States would be almost intellectually
beneficial. especially in this time Of
very great financing. The method
has been found. in the view of Mr..
Pierson, and also in that Of the Amer
ican Bankers Association. 1t Is ex-
emplihed by the method which is
called trade aeceptances. There still
remains, however, a long time, pos
sioly several years, before the peo-
pie can be well taught a lesson which
utilization of trade acceptances
teaches.
Merchants Begin Reform
Some Of the merchants of New
York who do extensive business be-
gan year ago to urge this method
upon their customers. A mercan-
tile house in New York whose cap-
ital is large and whose business is
extensive began q year ago to urge
their customers to accept orders
drawn upon them or what are
known as trade acceptances." At
first these merchants discovered
that many Of their customers look
ed upon this request as an imputa-
ton upon their credit. Others pro-
fesSed not to understand what the
meaning Of the trade acceptance is.
According to Mr.. Pierson it means.
il generally adopted, the ending of
the enormous waste represented by
commercial credit which Is tied up
in frozen book accounts. Gradually
the customers Of these merchants
began to get better understanding
or what trade acceptances meant
both Tor them and for the merchants
until now many OF the customers
willingly comply with the formula
necessary to perfect the trade ac-
ceptance. But II has taken nearly
a year to secure the adoption of this
plan by them.
when People Understand.
OF course bankers have always un-
dsrstood what l. meant by the plan,
but not until recently and especially
since Mr.. Pierson and active members
Of the American Bankers Associa-
ton have undertaken thoroughly wei
to inform the people how they will
be able. by simple act, In the ag-
gregate to provide the country with
stupendous stores OF credit that are
immediately available, has there be-
gun to be established with the people
good understanding Of the plan.
The public begins to understand that
a trade acceptance is an order to pay
which 10 drawn by the seller of a
commodity and Is accepted by the
buyer. 1t represents transactions in
merchandise only. A trade accept
ance Is a time bill of exchange and
serves the same purpose as a trans
FER Of gold itself in the cancellation
Of debts.
Its Use In Europe.
Perhaps by one or two concrete ex-
ampleS better understanding can be
gained Of the meaning of trade ac-
ceptance than by general or formal
statement. The great Bank Of France
at the time the war with Germany
broke out held acceplances OF this
kind, the aggregate of which was
three thousand million francs. Many
OF them were for as small sums as
IS IN American money. The market
man after having sold food to a Gus
toner, say Of s. value, offers to that
customer an order for s., payable 30
or so or even 80 days after date. The
customer writes his or her name upon
the order and in that way becomes an
acceptor. Instantly this piece Of
paper becomes as good as currency,
The banks gladly buy these docu-
ments. Many of them ind their way
to the general money market. The
customer knows that upon a certain
date the order must be paid at the
bank Indicated on the paper. The
market man, received what is equiv
alent to cash Immediately after the
sale was completed.
Method In Italy.
In Italy the larger amount of
small transactions are IIuuidated in
this way. There are few, IL any,
frozen or so-caIIed dead accounts.
Congress has so legisIated that the
Federal Reserve Banks are permitted
to rediscount these trade acceptances
Credit. has always been called the
life blood of business. The trade
acceptance makes it possible i'm
mediately to utilize vast amounts of
open accounts which In the past have
been carried as frozen or. for the
time being, as dead accounts. Here
tofore merchants and manufacturers
were obliged to carry open accounts
In large volumes. This entailed great
expense. It required a use of capital
that Is neither prudent nor profitable.
Therefore IL the trade acceptance
were generally adopted this condition
would be, relieved for there would be
substituted negotiable assets for these
open accounts. Mr.. Pierson fully
agrees with H. A. Black, of Alex
ander Brothers, Of Philadelphia, who
recently said that trade acceptances
are destined and well fitted to play
an Increasingly large part in our
credit and financial systems. When
their advantages and methods Of
handling have become familiar we
shall probably wonder why we did
30 long without them.
Capital Banks Favor Plan.
Every honorable customer knows
approximately when he can pay his
debt, small or large, to the merchant
or manufacturer from whom he has
bought commodities. He therefore
may set time upon the trade ac-