13. Practical working of acceptances.—In some quarters objection has been made to the use of trade acceptances on the ground that they appear to re flect on the debtor's credit. At first glance there seems to be some ground for this complaint; yet its advantages to both buyer and seller are capable of ready proof, and it is the experience of the houses that have adopted its use that once the practice is started with a customer, little difficulty is experienced in keeping it up. Moreover, the reform has produced an agreeable regularity in the liquidation of invoices according to terms of sale, and has thereby prevented the formerly common friction occasioned by the debt or's taking unearned cash discounts -or by the credi tor's charging interest on past-due accounts.
14. An approved form of acceptance.—In re sponse to the request of members for a model form of trade acceptance which they might use in their busi ness, the National Office of the Credit Men's Associa tion got in touch with the Federal Reserve Bank of New York, and as a result the association, with the approval of the bank, drew up the following form: The bank, according to the Credit illen's Bulletin, calls attention to the importance of the maker's stat ing definitely in the body of the bill, the place of pay ment, or, better still, the fact that the bank at which payment is to be made is in the same city or town as the home office of the drawee to whom the bill is addressed.
15. Capital or investment further di vision of credit is that which is designated as capital or investment credit. Economists commonly dis tinguish between "consumption goods" and "produc tion goods." The value of the former consists in the fact that they satisfy some personal and immediate want, and that their usefulness generally ends with the tingle act of consumption, while production goods are valuable as a help to produce other goods. A common illustration of such goods is the blacksmith's anvil, forge and tools.
Capital goods are not always used by their owner, however. The owner of the capital invested in a busi ness may take no active part whatever in the con duct of that business. His interest in the enterprise may be only that of obtaining income in the form of dividends or interest payments. Railroad stocks and municipal and government bonds are good illus trations of such investments. Since investors in se curities of this nature are generally moved by a desire to receive a regular and certain income, certainty and regularity are the chief elements in the ex changes that take place in the field of capital invest ment.
Deriving its name from the investment feature of the transaction, we speak in such cases of "capital" or "investment" credit. The credit instruments that result from these transactions are called "investment securities," and that form of credit is generally known by the term "long-time investment." 1 16. Relation of banking credit to commercial credit. —Up to a certain point banking credit and commercial credit are practically identical, since it is chiefly by means of commercial credit transactions that business is created for our banking institutions. Not all banks, however, carry on a commercial banking business.
Those that do are called commercial banks. They are organized for the purpose of serving the business community in facilitating the exchange of commodi ties by means of credit instruments bought and sold by the banks.
That the presence of confidence is an essential ele ment in credit is again seen in the relation in which such banks stand to the business community. On the one hand the depositing of funds with the banks is the community's expression of confidence in the sound ness and integrity of the latter, while on the other hand, every loan granted by the banks may be viewed as an expression of the bank's confidence in the com munity.
The banker, having learned by experience what portion of his deposits it is necessary to keep on hand in order to meet current demands for cash, is able to use the remainder of his deposits as a basis for credit which he places at the disposal of manufacturers and merchants in exchange for their notes, bills of exchange, warehouse receipts, etc.
The foregoing discussion shows how banking credit is turned into commercial credit, and how the latter by that process becomes enlarged. For upon its de posits as a basis, the bank is able to create a large volume of credit, and by the process of discounting commercial paper to exchange its own well-known credit for the less known and therefore less generally acceptable credit of its customers.
To appreciate the significance of the last state ment we have but to remember that a promissory note or a warehouse receipt is not usually a convenient means of paying commercial debts. But when such credit instruments are discounted by the bank and the amount is placed to the discounter's credit in the bank, checks drawn against this credit are entirely acceptable to the business community. By such "swapping of well-known credits for less-known credits," as such transactions have been called, the purposes of trade are the better served.