the purchase of the raw material and the sale of the manufactured product.

In

In the case of a store carrying a stock of say $100,000, the amount of capital is dependent upon the length of time required to consummate a sale of the stock. most retail businesses the goods are sold before the wholesale merchant is paid, when the money received from their sale is used to pay the wholesaler, in which case a comparatively small capital is required. The ratio is further affected by the amount of bills payable and bills receivable. Capital should always be sufficient to allow for a 20 per cent. depreciation in the value of the stock.

Capital to be available need not be kept uninvested, because good investments are readily converted into money at a profit; hence the large holdings by business. men of bonds and stocks which have a ready market.

Capital, if insufficient for the accomplishment of the object aimed at, is often lost, sometimes only partially, other times wholly. The most fruitful source of bankruptcy is the undertaking of too great enterprises with insufficient capital. Especially is this true where the enterprise is away from the large money centres. On the other hand must be borne in mind the danger of allowing capital to remain inactive, which is attended in the aggre gate with almost as serious results, although perhaps not so apparent in individual cases.

Unemployed capital enforces idleness, which means a decreased production of values, consequently a diminished demand for other values. Active employment of capital on safe lines means just the reverse.

Credit. Credit is the belief, founded upon a promisethat is, contract, expressed or implied-by which the possessor of a given value surrenders it to another, without at the time of such transfer himself receiving an actual equivalent, but instead thereof a promise, expressed or implied, to deliver a stated value at a future

time. Credit is trust, confidence; it is a reliance upon a written or implied obligation on the part of another—a trust in man's honesty.

The very first element of credit would seem to be the conviction that the person to whom a credit is extended is and will be in a position to fulfil the promise on which such credit is based, as no sane man would extend credit to a person whom he knew to be incapable of meeting the obligation incurred; this would not be credit, but benevolence or foolishness, as the case may be.

The importance of credit and its proper regulation in financial matters can hardly be too strongly dwelt upon. It is the corner-stone of all financial systems; and no matter how much money there is in a country, there can never be enough to take the place of credit. Hence any impairment of credit causes more disturbance in commerce and finance than the locking up or taking out of circulation of hundreds of millions of bullion or other values.

Credit is equal in amount to nearly 90 per cent. of the aggregate of all marketable values, for the reason, speaking broadly, that credit will be extended to that amount, with the pledge of the values as security, and money is only called upon to do what credit cannot. Money (coin) is only equal in volume in the United States—that is, that portion of it in circulation-to about 3 per cent. of annual marketable values. The statements frequently made to show the rapidity of the circulation of money, the most common of which is that the annual clearings of the clearing houses of the country aggregate about $62,000,000,000, would seem to indicate that each dollar (the amount in circulation being little more than one and a half billions, one third of which is currency) had changed hands about forty-five times; but when it is remembered that clearing houses are simply creations of banks-themselves emporiums of credit-for the purpose of facilitating their methods of setting off credits against debits, and

debits against credits, it will be perceived that it does not at all show the rapidity of the circulation of money, but rather, as compared with credit, what an insignificant part money plays in the business of the nation. The only function money performs in the clearing-house business is the settlement of balances, which average in New York less than 3 per cent. of the clearings, and it is probable that a ratio of one to twenty is maintained throughout other business operations, as that is the relation money bears to credit, and there is no good reason to believe that money circulates any faster than does credit, especially if we bear in mind what a large part of our money (see Paper Money) is simply credit.

In commerce, money as an intermediate value is used largely as the auxiliary of credit, or, to use a bookkeeping term, "to make the petty cash disbursements," and to make change between values; and no matter how rapidly it might be made to circulate, as its circulation to be of most use must be largely at those seasons of the year when practically the whole agricultural interests of a country are debtors, and debtors to an amount greatly in excess of the whole currency of the country, it is evident that then it can only assist credit.

To illustrate the credit system of the country:

The planter or farmer obtains his supplies during the growing of his crops from the factor, on credit, pledging the crops as security. These supplies the factor has purchased from various merchants, on credit, securing such advances or credit by his paper (notes). The merchant obtained the same from the wholesale dealer, on credit, securing such credit by a transfer of the factor's notes. The wholesale dealer bought the same from the producer or manufacturer, on credit, either his own or his bank's, depositing with the seller his paper, or that of others in his possession,-in each instance the credit being based primarily on the crop to be produced by the farmer.

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When the crop is grown and about to be harvested, then the large money centres advance the local banks, on a rediscount of paper, the sums necessary to harvest such crops, which sums the local banks advance to the farmers, and the farmers pay to the laborers, who in turn pay it to the local tradesmen, who reimburse the wholesaler, and so on until it reaches the original holder of the commodity which the laborer purchased, and for which he has been paid in money; but this is but a small item in the general transaction.

Transportation companies now bring the crops to market; the factor gives the company his check, which it deposits in its bank, a large part of which is consumed, perhaps, to take up advances made by the bank during the summer months. The crop is sold by the factor, who draws upon the purchaser; the factor deposits his draft to his credit in his bank, and after deducting from the proceeds of the sale his advances, interest charges, insurance, etc., remits the planter the balance to his credit, often in a check. The factor gives the merchant his check, which he in turn deposits, and draws his own against in favor of the persons to whom he is indebted, and so on until the persons who first extended the credit are repaid, and then not in money, but in credits, or in the ownership of a value, their credits when obtained being largely used to enable them to purchase other values, which they again transfer on credit. The laborers and small tradesmen are practically the only persons paid in money.

Careful financiers and good business men rarely extend credit secured by anything less than a real value of greater amount than the credit given, the exception to this rule being in the case of corporations, whose continuance is a matter of considerable certainty, and whose earnings are capable of close estimate. The earning capacity of an individual is not a proper basis for credit, for it may cease at any moment.

Purchases of bonds are simply credits to corporations, secured by their plant, franchises, and a first interest on their net earnings.

Credit being, next to value itself, the most important thing a person can possess, cannot be too carefully guarded. Its worth is so well recognized that men are anxious to purchase the credit of others whose credit is widely known, and banks, corporations, and individuals sell their credit to those whose credit is not so good or generally recognized. In fact, the largest source of revenue of many private bankers is a sale of their credit in various forms, such as letters of credit and bills of exchange.

Interest.—Interest is the charge made by the lender to the borrower for the use or opportunity to use capital, money, or credit, and is stated in terms of money. This charge when paid at the time the loan is made is deducted from the amount of the loan and is known technically as "discount." The rate of either interest or discount charged is called "per cent." The sum on which the charge is made, the amount of the loan, is the "principal."

loans but on debts. form of a loan by

Interest is charged not only on overdue, whether converted into the the consent of the creditor to their payment at a future date, or when, without such consent, a debt remains unpaid after it is due.

Interest due on debts, in the absence of an agreement expressed or implied by the custom of trade, is collectible at the prescribed legal rate, and no higher rate can be collected.

The distinction between the current or market rate of interest and the legal rate must be borne in mind. The legal rate is an arbitrary one fixed by law, whereas the market rate is governed by the conditions and principles about to be explained.