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unable to go into business, as is the case with women, children, old men, invalids, &c. Rich people perhaps have so much property that they do not care to trouble themselves with business, if they can get others to take the trouble for them. Even those who are engaged in business often have sums of money which they do not immediately want to use, and which they are willing to lend for a short time. On the other hand, there are many clever active men, who could do a great deal of work in establishing manufactories, sinking mines, or trading in goods, if they only had enough money to enable them to buy the requisite materials, tools, buildings, land, &c. A man must have some property of his own before he can expect to get credit; but with some property to fall back upon in case of need, and with a good character for honesty and ability, a trader can by credit obtain other people's capital to deal with.

84. Loans on Mortgage. Credit is given in many different ways; sometimes a man is assisted by a permanent loan from a relative or friend who has confidence in him. Enormous sums of money are lent, as it is called, upon mortgage. A man, for instance, who has built a cotton mill with his own money, pledges the mill as security for a loan, that is, he gives his creditor a right to sell the mill unless the debt is paid when required. The mill is called a mortgage or dead pledge, because it becomes dead to the former owner, if he breaks the conditions of the loan. There are many institutions, such as insurance companies, building societies, &c., which have a great deal of capital to lend on mortgage, and many rich people invest their money in the same way. Thus a very large part of the houses, land, factories, shops, &c., are not really owned by the people who seem to own them, but by mortgagees, who have lent money on them.

Generally speaking, the interest paid for such loans is 472 or 5 per cent per annum, when the security is quite good, that is, when the property mortgaged is sure to sell for more than is lent upon it. A considerable margin is always left to cover mistakes or alterations as regards the value of the property ; thus, if a house be said to be worth £1000, it will usually be security only for a debt of £700 or £800. When the security is not so good, because the ownership or the value of the property mortgaged is doubtful, the rate of interest charged will be higher, and may be six, seven, or more per cent. The surplus covers the risk, that is, compensates the lender, for the chance of losing what he lends. Mortgage loans are generally made upon fixed capital like houses, mills, ships, &c., which last a long time; but sometimes stocks of goods, such as cotton, wine, corn, &c., are mortgaged as security for temporary loans.

85. Banking. A large part of the credit given, in a civilised country, is given by bankers, who may be said to deal in credit, or which comes to the same thing, in debt. A banker usually carries on three or four different kinds of work, but his proper work is that of borrowing from persons who have ready money to lend, and lending it to those who want to buy goods. As a shopkeeper sells his stock of goods, he receives money for it. And, until he buys a new stock, he has no immediate need of this money. Those, again, who receive salaries, dividends, rents, or other payments once a quarter, do not usually want to spend the whole at once. Instead of keeping such money

in a house, where it pays no interest and is liable to be stolen, lost, or burnt, it is much better to deposit it with a banker, that is, to lend it to a banker who will undertake to pay it back when it is wanted. Generally speaking a merchant, manufacturer, or tradesman sends to his banker

every day the money which he has received, and only keeps a few pounds to give change or make petty payments. The advantages of thus depositing money with the banker are chiefly as follows :

(1.) The money is safe, as the banker provides strong rooms, locked and guarded at night.

(2.) It is easy to pay the money away by means of cheques or written orders entitling the persons named therein to demand a specified sum of money from the banker.

(3.) The banker usually allows some interest for the money in his care.

Bankers receive deposits on various terms; sometimes the depositor engages to give seven days' notice before withdrawing his deposit; in other cases the money is lent to the banker for one, three, or six months certain, and the longer the time for which it is lent the better the rate of interest the banker can usually give. But a great deal of money is deposited on current account, that is, the customer puts his money into the bank, and draws it out just when he likes, without notice. In this case the banker gives very little interest, or none at all, because he has to keep much of the money ready for his customers, not knowing when it will be wanted.

Nevertheless, while some depositors are drawing their money out, others will be putting more in, and it is exceedingly unlikely that all the thousands of customers of a large bank will want their deposits at the same time. Thus it happens that the banker, in addition to his own capital, has a large stock of money always on hand, and he makes profit by lending out this money to other customers, who need credit.

There are various ways in which a banker arranges his loans; sometimes he lends upon the mortgage of goods, houses, and other property, or of shares in railways and government funds, in the way described ; but this is not a proper way for a banker to employ much of his funds, because he may not be able to get back such loans rapidly enough when he needs them. One of the simplest ways of lending money is to allow customers to overdraw their accounts, that is, to draw more money out of the bank than they have put in.


But a banker naturally takes care not to allow overdrafts unless he has great confidence in his customer, or has received a guarantee of repayment from him or his friends.

86. Discount of Bills. The most common and proper way in which a banker gives credit and employs his funds is in the discount of bills, that is, in advancing money in exchange for a definite promise to pay it back at a stated time. Suppose that John Smith has sold a thousand pounds worth of cotton goods to Thomas Jones, a shopkeeper; several months will pass perhaps before Jones can sell the goods over the counter, and if he has not much capital, he agrees that John Smith shall give credit for the thousand pounds, but in the mean time draw a bill upon Jones.

This bill would very likely be somewhat in this form

LONDON, ist February, 1878. £ 1000, os. od.

Three months after date pay to me or my order the sum of one thousand pounds, value received.

JOHN SMITH. To Mr. Thomas Jones. John Smith is said to be the drawer of the bill; Thomas Jones is the drawee, and the bill amounts to a claim on the part of John Smith that Thomas Jones owes him the sum named. If the drawee acknowledges that this is the case, he signifies it when the bill is presented to him, by writing on the back the word “accepted,” together with his name.

Now if the drawer and drawee of a bill are persons of good credit, a banker will readily discount such a bill, that is, buy it up for the sum due, after subtracting interest at the rate of say five per cent. per annum for the length of time the bill has to run. The bill forms good security, because, when accepted, John Smith is bound to pay the thousand pounds when due, and if he fails, the drawee is liable. Such bills are often bought by one person after another, being endorsed by each to the next, that is, impressed with an order that the money shall be paid to the next person named. When due the last owner must claim the money from John Srnith, and if he refuses to pay, each owner has a claim upon the previous owners.



CREDIT CYCLES. 87. Industry is Periodic. Everybody ought to understand that trade varies in activity, from time to time, in a periodic manner. A thing is said to vary periodically, when it comes and goes at nearly equal intervals like the sun, or rises and falls like the tides. Now, in industry, as Mr. William Langton pointed out twenty years ago, there are tides almost as regular as those of the sea. Shakespeare says truly,

" There is a tide in the affairs of men,

Which, taken at the flood, leads on to fortune.” Some of these tides depend upon the seasons of the year; business is more active in the spring and summer, and falls off in winter. It is comparatively easy to borrow money in January, February, March, June, July, August, and September; October and November are particularly bad months; the rate of interest then often runs up rapidly, and the bankruptcies in these months are more numerous than at any other time of year. April and May are also dangerous months, but in a less degree. Men of business should always bear these facts in mind, and, by being prepared beforehand, they may escape disaster.

There is also a much longer kind of tide in business, which usually takes somewhere about ten years to rise and fall. The cause of this tide is not well understood,

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