The mirror., 1923-11-29

in the credit market until the four months
have expired when it is again presented
this time for payment. In the meantime
the silk has been received at Chicago and
sufficient part of the proceeds collected
to pay the draft when due. Thus the money
for the goods was received before shipment
was made and the goods delivered and
resold before being paid for. Credit has
performed the apparently impossible.
Aside from the time element that enters
into most credit transactions the worlds
gold supply is wholly insufficient to meet
the demands of trade even if it were used
for nothing else. Credit in the form of
bills of exchange, notes and checks, settles
most trade transactions. Instead of hand
ing his jobber say $500 in gold retailer
may settle his bill with promissory note,
or depositor's check. For ordinary pur-
poses of trade such paper properly en-
dorsed, is just as good as the money it
represents and may pass through several
hands before being presented for payment.
Again the form of credit may be a
draft--an order upon some distant bank
to pay certain sum. Suppose million
dollars were to be sent from San Francisco
to New York to settle trade obligation.
If such an amount of gold were available
it would involve trouble, expense and risk
to express it across the continent, also a
loss of interest while the gold was with
held from trade. A bill of exchange is
obtained from the San Francisco bankers
and in few days the New York creditor
receives the amount. As far as he is con-
cerned the transaction is closed. This ap-
plies even more forcefully where amounts
are to be sent to far-away countries.
Bank notes are but form of credit;
promise to pay on demand. They are re-
garded as money! are used as such, and
accomplish the same results as gold, al
though they possess no intrinsic value
whatever. 1t is important to note in this
connection that credit itself is not, under
any circumstances, money, or wealth. The
metal in fve-dollar gold piece is worth
approximately five dollars, whatever its
form, it possesses that actual value. Credit
is merely an evidence of debt and in times
of financial panic rapidly loses in COM
mercial value when everyone is clamoring
for gold. 1t is because credit obligations can
not be liquidated in gold that panics occur.
In the same way the paper currency of
a country depreciates when the govern
ment is unable to redeem it in gold on
demand. The present value of the Ger
man paper mark is ample illustration.
Broadly speaking the supports and fun
damentals of credit are: confidence, based
on integrity, and the law of contracts.
Daniel Webster's definition being more
explicit it is herewith quoted:
"Credit is the vital air of modern COM
merce. 1t has done more, thousand
times, to enrich nations than all the mines
of the world. 1t has excited labor, slim
ulated manufactures, pushed commerce
over every sea, and brought every nation,
every kingdom, and every tribe among
the races of men to be known to all the
rest; it has raised armies, equipped navies,
and, triumphed over the ~-oss power of
mere numbers, it has establi"hed national
superiority on the foundation of intelli-
gence, wealth, and we'll directed industry"