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The Pamphlet Collection of Sir Robert Stout: Volume 30

Hard Times and Long Credit

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Hard Times and Long Credit.

Waipawa: Printed at the Mail Office, Ruataniwha Road.


Hard Times & Long Credit

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When Fortune Smiles.

When a country or a colony is commercially prosperous; that is to say, when men who are engaged in business pursuits have no difficulty in passing large quantities of orders through their hands, or otherwise transacting business and reaping fair profits, credit is strengthened, and each one is willing and even anxious to pass entries on the most liberal terms. Traders of good business ability enter cheerfully into liabilities because the brisk flow of profits into their hands justifies them in the belief that they can shake them off when they fall due. Farmers borrow money on security of their freeholds, because they find that land carefully improved is capable of yielding twice or even perhaps thrice as much interest as that which is the current rate on borrowed money. Banks seek for an outlet for their surplus capital by giving accommodation to those who appear to be safe customers. And capital is generally in such free and lively circulation that the world rolls merrily along, and properties rise in value, and towns and villages spring up, and progress and prosperity reigns on all sides.

Good Times Intersperse with Bad.

Were this state of things always to be depended upon to last perpetually, there would be no need for this paper; no necessity for reform. But unfortunately, times of prosperity are interspersed with those of depression; good times and bad follow each other in cycles; and the brief periods of commercial activity are too often chased away by the more lasting ones of stagnation and trouble, just as the sunlight flits across the meadow and is followed by the gloom that the threatening thundercloud casts upon the once brilliant scene. And it is in these times of depression that men begin to ponder over the past; consider the present; and try and catch a glimpse of the future;

Depression Now Reigns.

For years past, the colony of New Zealand has been plunged in a depression both wide-spread and deep. Scarcely any single class has been quite free from its influence; whilst by far the majority have joined in one loud and long complaint against it. "Business is going to the dogs," says one; "Things are overdone in New Zealand" mutters another, whilst all agree that the openings and opportunities that used to exist in business circles are now no more.

And so thoughtful men have set themselves to the task of ascertaining the cause of all the trouble; whilst even those who are not deep thinkers try and find out for themselves some more or less likely reason and remedy for the state of affairs that things have fallen into.

The Same Complaint Everywhere.

It so happens that whilst we, in New Zealand are complaining, nearly all the other nations and colonies admit that they are in just the same con- page 2 dition of depression, so that our small voice, though raised to its highest pitch, is more like the echo of a universal dirge than an individual sound, having a cause and an object of its own. The bi-metallists are forcing their noble and self-evident theory before the public, with a view to shewing the fallacy of demonetising silver and the general relief which would be sustained by all kinds of traders if that metal were once more recognised as a legal tender. And the "over-competitionist" and "over-productionist" wailers sing their mournful song—in spite of all the proofs that have been brought forward to shew the falsity of those pleas,—and say that too much competition is at the bottom of all the mischief, and too many manufactories are flooding the market and swamping the normal condition of trade.

What is the True Cause.

Now, the general reading public, snatch at these tempting theories, perhaps rightly, perhaps wrongly, like drowning men at straws, and agitate on the strength of them with fierceness and determination. But so far, they have not succeeded in extricating themselves from the sea of trouble which threatens to submerge them, and indeed have rather dragged down the straws than raised themselves to the surface.

While we may admit that it is necessary for some persons to enquire into such questions as bimetallism Ac., still I feel sure that there is a cause a terrible and rapidly increasing cause, that is quite as much to blame for all the troubles and miseries of depression as the present false and artificial relations of gold to silver, although the adjustment of values in the latter respect may be a necessary reform at an early date. I refer to the system of giving long credit; the system that encourages men to put off the "evil day" to the utmost possible extent in their power; and I believe it can be shewn that to that long credit system is due a large proportion of the unsound financial position of many traders; the poverty and distress of the workers; the miserable condition of perpetual indebtedness which so many find themselves in;—in a word the depression of the day. My readers will understand that I quite recognise the necessity of adjusting the currency and of bringing about many other reforms; but I bring this question of long-credit prominently to the front and place upon it the utmost importance, because it affects the personal interests and transactions of every man and women, and reforms, to be effectual and lasting, must begin at home.

The Way to Effect Reform.

It is quite clear that to bring about a reform of a really universal (as far as concerns this colony) nature, legislation must be the weapon upon which we must rely. Without it, there can be no hope of the pernicious system of long credit being done away with. A few determined individuals might combine and refuse to do business except on cash principles, but they would soon find out that that was paramount to closing their establishments altogether as the credit giving firms would soon secure all the trade. And even if a widely organised association were formed, similar to those which the fire insurance associations combine themselves into, there would always be Outsiders, men who would decline to be bound down to any rules whatever, no matter how fair or necessary, and these outsiders would soon be the cause of the combinations being broken page 3 up. Neither is it of the slightest use preaching to the people, who would only consider it a gross piece of presumption if their private affairs were made the subject of what they might rightly call an unwarranted attack.

Legislation, and nothing else, will abolish the practise of giving long credit; and to that we must turn our attention. The present Statute of Limitations renders it possible for credit to be allowed for periods not exceeding six years. This length of time must be reduced. This and this alone will effect a reform.

Some Objections to my Scheme.

Now, I am aware that at first sight it will occur to many who are really sound traders or who may be business men, and who always pay their debts honorably even if a little late in the day, that a reduction in time as to the Statute of Limitations would be inconvenient to them, and would fall upon them hardly, and without provocation. And I am ready to admit that for the first few months, or perhaps even for a moderate length of time, it would cause a little scraping together of cash or debts if it were necessary to pay off all liabilities at a short notice.

The Advantages Preponderate.

But, the amendments which I propose and which I trust public opinion will soon agree are necessary to be made in the present law—these need only be brought on gradually, and persons would therefore be able to prepare for the new state of things by degrees. Once raise the condition of general business to that of short credit, and every one would be placed on an equal footing, and the new system would not be a bit more oppressive than the present one.

Figures to Prove Facts.

Let us see what are the advantages of paying cash for everything one consumes, or buys for sale again.

Interest is saved. This is an item that seldom figures in the calculations of the average man in a small business. Strange as it may seem to say so, yet it is true that fully one half of the small traders do not take into consideration the annual value of the money that is locked up in their concerns. They pay interest for every bit of the accommodation which they receive either from the merchant, or from the bank, yet they are willing to give unlimited credit to their own customers and charge nothing for that accommodation whatever. Perhaps the following may be taken as a fair sample of a country storekeeper's transactions, on the scale of £100:—He will buy £100 worth of goods from a merchant. Three months credit are allowed and he gives a bill payable at the end of that time for £100, together with the bank rate of discount, say 9 per cent. In marking the goods for sale, he uses the invoice which came with them, and adds his profits to the prices stated in it. For the sake of convenience, we will suppose that the average profit on all the goods amounts to 20 per cent. Then our typical friend will argue thus:—I paid £100 for the goods, and since I sell them at an advance af 20 per cent, my profit is £20, which is very fair. And as I turn over £2000 worth of stock every year, therefore my income is £400. But let me state this gentleman's affairs for him, and then we will see if there is anything in the short-credit system which I want to see introduced in the colony of New Zealand:—

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Statement of account 'with reference to business of A.B., a country storekeeper, per £100 of turn-over.

Dr. £ s. d.
To cost of goods from merchant 100 0 0
Interest on Bill at 3mos. at 9 p.c. 2 5 0
Interest on purchase money lying locked up in business, supposing that an average credit of 12 mos. be given to customers viz. 9 p.c. on £100 for 9-mos 7 15 0
Allowance for bad debts &c., 10 p.c. on £120 12 0 0
Total 122 0 0
Cr. £ s. d.
By Profit on Sales 20 0 0
Capital Recouped 100 0 0
Actual Loss 2 0 0
Total 122 0 0
Balance of Loss 2 0 0
So that, instead of our friend making an actual profit of £20 on his outlay of £100, under the circumstances above slated he really loses £2, and this without making the slightest allowance for such charges as rent for buildings, salaries, his own time, and such smaller items as freight, an occasional bankruptcy, deterioration of stock through becoming out of fashion or going bad &c &c. It may be said that 12 months is a long time to allow for accounts to be paid in, but I doubt whether it is longer than many, or perhaps 'most business men have to give. Neither do I think that 10 per cent is too much to allow for money not collectable. No doubt in some businesses the profits will exceed 20 per cent, but the figures given above will none the less show the difference which interest on capital really makes to the concern. Now, if the Statute of Limitations were reduced to 6 months, business men would see that their money was coming in pretty well at the end of the first quarter, and no debt would, excepting in exceptional cases, be allowed to run for longer than six months at the most. The majority of purchases too, would be paid for in cash, and thus the allowance for bad debts would be largely reduced, in fact it would hardly be necessary to make any allowance at all. Let us examine A. B's business under a cash system, and see what his profits are under those more favorable conditions:—
Dr. £ s. d.
To Cost of goods from merchant 100 0 0
To Interest on capital lying idle for 4 months, 9 p.c. on £100 3 0 0
To Balance profit 17 0 0
Total 120 0 0
Cr. £. s. d.
By capital recouped 100 0 0
By Profit on sales 20 0 0
Total 120 0 0

These figures may be taken as sufficiently accurate to show the difference that the item of "interest" makes in the business of the world. And it must be added that this item can never be eliminated, for whether the trader works on his own or on borrowed money, that money is still worthy of its hire, just as much as the laborer who does his eight hours work every day.

Further Advantages.

There would be fewer bankruptcies. Most people have noticed a very common trait in human character which urges a man to purchase articles more freely when he is promised that long credit shall be given. Who has not been induced to buy something that either he does not want or cannot afford; and how many of us have never consented to purchase some article that could very well have been done without, simply because of an irresistible promise that there would be page 5 "no hurry for the money, you know?" Am I right in contending that the credit system is entirely to blame for such purchases being made? Is it not true that the thought that the money need not be forthcoming for weeks or months, induces numbers of people to enter into liabilities far beyond their means? to say "yes" when they should have said "no?"

I know that the experience of all my readers will prompt them to admit that if every purchase that is made under the sun were paid for in cash, or at any rate entered into with the knowledge that payment must be forthcoming within a short lapse of time men and women would stop to consider whether their means would permit of such an indulgence; with the result that a very large number of purchases would not be made. It may be argued that this would be a bad thing for the tradesman or merchant who would otherwise have sold these goods; and I can already fancy that these outspoken ideas will be resented in business quarters, since they have a tendency to promote caution and restrict reckless expenditure. But what benefit is there in selling goods if they are never to be paid for? Would the sound trader rather sell indiscriminately to all and every of those who condescend to take his stuff, and run a risk of a hundred to one of them never being paid? Or would he rather pass fewer entries, sell to fewer customers, and be sure of collecting certain money and reaping certain profits? The latter, assuredly, and it is the latter course that I am advocating, and which forms the heart and soul of this paper. So we are friends after all; and it is to be hoped that I shall not be again misunderstood. And it is only logical to conclude that if more caution and discrimination were exercised in the purchase of articles by the general public; and if the exercise of those faculties led men and women to habits of thrift; then everyone would learn to live within his means, and there would be no bankruptcies. Putting aside the expense that the country is put to over the official management of bankrupt estates; or if not the country, at any rate the creditors in those estates, the business world would be raised into a condition of soundness that it is at present difficult to imagine.

Condition of Commerce to-day.

Hard times, intensified a hundredfold by the pernicious system of giving long credit, if not caused by it, have plunged the business man of to-day into such a wreaking sea of unsoundness and financial demoralisation, that it almost sounds visionary to talk of a time when there shall be no more bankruptcies, and when every man will, when making purchase, leave an equal value in the shape of coin of the realm, on the counter. "The millennium will first approach." I fancy I hear a reader exclaim, and I do not deny that it may; but I only take leave to maintain that the state of things that I depict could be brought into existence at any time if the determination were only present in men to work for the reform.

The Wrong Culprit is Blamed.

Daily we see knots of idlers talking in the streets and laying the blame of all their want of work and troubles to the wealthier classes; daily we hear of reformers who have small minds and those filled to bursting with one idea, i.e., that of making all land common property; daily we meet with honest and steady workers, quite the reverse of the above, whose untiring labors page 6 fail contemptibly to win for them and their families the most meagre rest or comfort. And while they blame first this and then that, as being the cause of all the hardships of bad times and all the miseries of depression, they are blind to the baneful system of giving long credit, which, though one of the real culprits, goes free and flourishes, in ever-increasing maturity. Yes; the present laws between creditor and debtor are so flimsy and untangible, that it is perfectly astonishing how rational men can have let them be so for so long!

A Fundamental Question Answered.

Why should credit be given? Why does the purchaser of goods require time to pay for them in? It will be said—because he himself has engagements to meet, and a reasonable breathing time is only fair. True; but supposing those who are in his debt pay him in cash also. Then would it not be as easy for him to pay ready money as to pay many months afterwards? Certainly it would, and it is a general system of cash transactions that I am advocating. As a matter of fact, if every one were to pay on delivery of the goods purchased, there would be no harder struggles to meet liabilities than there are at the present time.

A Better Class of Traders the Result.

A better class of traders would spring into existence;—The limitation of the credit system would have a disastrous effect on those business people who occupy a position in the commercial world on false pretences. I refer to unsound traders. These are the gentlemen who give credit indiscriminately, because if they are never paid at all it is their creditors and not themselves that are effected. They have succeeded in forcing themselves into the positions which they occupy under nothing less than false pre tences. Confiding merchants, whose offices are hundreds of miles away, supply them with goods, believing that their obligations will be duly met Armed with stocks so cheaply obtained the mushroom trader immediately hangs out his sign as a vendor of cheap goods, which he assures the public are to be obtained fifty per cent under market quotations. He also confides to the community that his stay in their midst will be short, and advises them to take advantage of it while they may, Of course we all know that the gentleman will stay on just so long as he is able to sell goods, and that one reason he can undersell the legitimate shop-keepers is that he does not intend to pay for his goods, or at most, he will only pay so much in the pound. In fact it is just a repetition of the old story of the two street vendors of brooms. One boasted that he sold cheap, and admitted that he stole the sticks as well as the heads, and then put them together; whereas the other stole them ready made. The mushroom trader steals his wares from the merchants readymade, and then proceeds to dispose of them as quickly as possible. No reasonable offers are refused, according to his own admission, and it comes to this that the ready money raised in this way serves to stave off the more pressing demands of dissatisfied creditors, and it is in reality the money of other creditors that is thus made use of.

A Nice Distinction.

My readers must not confuse the this sort of trading with dishonesty. The distinction may be a nice one, page 7 but still it exists, and anyone who will study the transactions of business of this era will gradually find out that fraud is quite a different thing to smart financial manipulation. And to assist him in his task I may as well add that it is a fraud of the most culpable kind if a man suffers from repeated misfortunes and eventually finds a load of debt forcing him downwards and removing further and further the goal of freedom which he has for long struggled to attain. But it is fair trading of the most honorable nature for an individual of good address to plunge into a sea of speculations which no sound man would touch, to reassure doubting minds by a lofty eloquence that it will all come right in the end, and to avert a crash as long as possible, until at last the huge column of smart financial manipulations grows too formidable for itself and destroying its own equilibrium, topples over and falls with all the majesty of a great convulsion. I repeat that the distinction is extremely nice, though an expert can draw it after long practice.

They would Maintain Fair Prices.

And not only would a better class of traders compete with each other, if the long credit system were abolished, but goods would maintain fair prices. This is of course only comparatively speaking, for it is easy to see that shopkeepers could sell goods cheaper, if paid for them in cash, owing to the value of the interest on their money thus saved. But there would be no shoddy traders, and consequently articles of commerce would be sold only at those prices at which traders could realise legitimate profits for themselves. Business men would be cheered by brighter prospects, and at least one circle of the community would thank the legislature for abolishing the baneful system of giving long credits. No tradesman can hope to sell articles at one price, when an opposition store is offering the same goods at ten per cent less money. What is the result? Simply that all prices are cut down absolutely to that level below which it is impossible to do more than cover expenses and scrape a bare margin to allow for losses. If the losses are heavy, then the tradesman's profits are nil. If he is fortunate in collecting all or nearly all his money, then he makes a small profit. So precarious a means of livelihood is driving good men out of business and the merest up-starts are taking their places, much to the discomfort of the purchasing community.

No More "Extraordinary" Bankruptices.

And this brings me to another most extraordinary feature of business life of the present day, which would at once be abolished if the long credit system were done away with. I refer to bankruptcies in which the assets are figured as being greater than the liabilities. To the uninitiated, it is difficult to account for the phenomenon of a man declaring his inability to meet his engagements when his means are greater than his debts. It is like saying "a munificent providence has endowed me with more than I require, yet I cannot pay your dues." Why can he not pay? Because owing to the wretched system which prevails, he cannot call in his outstanding assets, and consequently has to fall, whereas he should be in a position to pay 20s in the pound at any moment if long credits were abolished, and man paid man as liability became due.

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The Effects of Limited Credit.

What would be the effects of a limitation of credits on individuals P How would a short credit system suit the book of the majority of people of the present day? I take it that it would raise them to a position far more safe, far more sound, than that in which they now stand. It is impossible to get over this fact, viz., that if a debt is to be liquidated at all, the sooner it is paid the better. The exchange or capital value of money is closely bound up with its value in usance, or daily circulation. Every moment it lies idle something is lost: the original debt is in reality increased. It may be said that the majority of people would be the gainers by not paying promptly, as they would gain the interest on their money. But what if they are creditors themselves? It must be admitted that in most cases individuals have have assets as well as liabilities, so that they are not really gainers, as the amount lost on the overdue assets balances the interest gained by not paying for interest, and as private individuals are equally careless as to the daily value of money, it follows that this amount is practically discarded, and is to all intents lost to the community. Surely the times are hard enough without adding to their sting by doing away with an appreciable item of value, in the shape of the interest on money?

The Question of Monopoly.

There is another effect which the contraction of credit would have upon the commercial world and even the general public, indirectly. It would, for a time at any rate, foster monopolies. If the law between debtor and creditor were so altered as to make it impossible for debts to be recovered after a very short space of time, merchants would be extremely cautious as to whom they dealt with. In fact no transactions would take place at all, excepting with men of known integrity and means. In one sweep, then, half of those who have hitherto been doing business in a small way would be forced out of trade altogether. Now, it is as well to look at the question from all points of view, and I willingly admit that, for a time, those who found themselves able to stem the tide and still continue trading, would not fail to take advantage of the great absence of competition which the abolition of the unsound traders would bring about. The consequence would be a general rise in prices, and the public would suffer. But for how long? Until things found their level. For a brief period a few shillings or a few pounds would have been extracted from the pockets of the purchasing community, but the great equaliser, competition, would not suffer that passing moment of respite to live for long. Capital always has been and always will be seeking investment; its nature is so peculiar and unresting; so active, so searching, that idleness is to it a slow death, and to live it must be always employed. Men holding capital will see an opening for it in that very trade which they consider unsound and over-competed at the present time, and the internal strife between the traders will soon bring about a fall in prices, until the state of things, so far as the purchasing public are concerned, is just the same as it is at present. There will be only this difference:—That whereas a merchant can sell an article for a pound to-day, and has to wait six months for his money, making a nett profit perhaps of 2s; he will then be able to dispose of the same article for several shillings less, and still make his 2s. In a word, merchant, storekeeper and purchaser, will all be page 9 the better for the shortening of credit.

The Only Real Cash Traders.

Did it ever occur to the reader that publicans seldom seem to be suffering from bad times? Just steal into the bar and peep into their well-filled tills; ask them what their credit balances are at the banks, and see if they do not average up hundreds per cent greater than those of traders in goods; look at their traps and race-horses; their gaily dressed ladies; their robicund countenances and rounded persons. Do these smack of hard times? The answer may and probably will be,—" Oh! but see what profits publicans make on the liquor they sell!"—and the answer is wrong. That is not the whole secret, or even the greater part of the secret of the success of the liquor-selling class of traders. The great advantage which they have over the ordinary tradesman is that they sell for cash. There is no long credit for them, and there are no hard times; and it might safely be said that the absence of the former is very much the cause of the absence of the latter.

Hard Times Don't Affect Publicans.

Let the argument be logically extended, and it will be seen that hard times ought to press just as heavily upon one class of traders as on another. Liquor is taxed, and very heavily too; houses in good positions are not to be had without high rents being paid for them and in every respect the traders in liquor are similarly placed as their fellow-traders in any other article of commerce. And yet, as we have said, the publicans are most certainly a more prosperous class of traders, and feel times of depression less than any others.

The Cash System Saves Them.

There can be no denying the fact that were the retailers of liquor to submit to a credit business being carried on, their profits would be docked to a degree just equal to that which all other retail tradesmen have to put up with. Competition is so keen and searching that no single trade can possibly remain for very long a more profitable one than any other. No sooner is it known that A's business is carried on with more success than B's than a dozen others force their way into the scramble, and a civil war ensues amongst the traders which ends favorably, perhaps to the purchasing public, but most disastrously to themselves, and still more so to the unfortunate creditors who of course suffer in the long run. No competition would prevent publicans from perpetuating their successful cash system, unless some outside influence militated in their favor. Is there any such influence which props up the liquor trade? which pampers the very branch of commerce which sober men strive daily to stamp out and destroy? Yes! there is an influence, a powerful and irresistible influence; the law of the country actually protects the liquor trade, whilst it turns a deaf car to those who are struggling in all the turmoil and strife of legitimate business!

The Law Protects them.

Debts incurred for liquor are not recoverable in courts of law, consequently publicans are paid in cash. I want to see the same favorable legislation extended towards trading of all kinds, and the result will be some- page 10 thing similar to that which we notice in the liquor trade. It is undoubtedly a matter for congratulation that the law does not sanction credit in regard to the retail sale of liquor. If a man addicted to drink could get drunk "on tick" there would simply be no limits to indulgence.

And even if the publicans tried to maintain the cash system, does the reader believe they would succeed? One man might announce his intention to sell for cash only; but the opposition house would give credit, especially if the proprietor had been started in business with somebody else's capital. It would not be long before all engaged in the liquor traffic would be on precisely the same footing as those in other trades; customers would walk up to the bar, take refreshment, have it debited against them and be expected to pay for it at the end of the quarter; the publicans would sit down in something like the despair that many and many a trader has done and will continue to do. The accounts will be fired at the thick hides af the moneyless customers, but no cash will pour in to fill the growing vacuum in the cash-box.

Oh! Credit! Credit!

If people would only reason with themselves they would say "What fools we are! "We flatter ourselves we are knowing traders and smart men of business, and we cry out against the hard times. But we blind ourselves to the very factors of those hard times; we permit abuses and monopolies to exist, and to be perpetuated by the sanction of the State; and though, by the removal of a small and unpretentious evil—the six years Statute of Limitations—we could hurl the terrible structure of hard times to the ground, we refuse to better ourselves and go on day by day in the same old groove of long credits, bankruptcies, social sufferings and debt, until the financial condition of society will soon be rotten and disgraceful!"

Accommodation Bills.

There is another kind of credit which is just as pernicious as, or even more so than what is considered the legitimate credit in trade. I refer to the use of Accommodation Bills. It may be that no one will plead guilty to having created this kind of credit, but we all know that hundreds of traders find temporary shelter from the storm of trouble in the haven which the Accommodation Bill provides. Herbert Spencer calls the manufacturer of an Accommodation Bill a forger, and indeed, when his action is examined it is impossible to shield him from that accusation. Practically, an Accommodation Bill is a forgery. It is an error to suppose that forgery is limited to the production of documents that are physically false—that contain signatures or other symbols which are not what they appear to be; forgery, properly understood, equally includes the production of documents that are morally false. "What constitutes the crime committed in forging a banknote? Not the mere mechanical imitation. This is but a means to the end; and taken alone, is no crime at all. The crime consists in deluding others into the acceptance of what seems to be a representative of so much money, but which actually represents nothing. It matters not whether the delusion is effected by copying the forms of the letters and figures, as in a forged bank note, or by copying the form of expression, as in an Accommodation Bill. In either case a semblance of value is given to that which actually has no value; and it is in giving false appearance of value that crime consists. When A and B page 11 agree, the one to draw, and the other to accept a bill of £1,000, for "value received;" while in truth there has been no sale of goods between them, or no value received; the transaction is not simply an embodied lie, but it becomes a living and active lie. Whoever discounts the bill does so in the belief that B, having become possessed of £1000 worth of goods, will, when the bills falls due, have either the £1000 worth of goods, or some equivalent with which to meet it. Did he know that there were no such goods in the hands of either A or B, and no other property available for liquidating the bill; he would not discount it—he would not lend money to a man of straw without security.

Their Baneful Influence on Trade.

Herbert Spencer's remarks as to the tendency of artificially obtained credit to lower prices and ruin legitimate traders are so trite and so pertinent to the subject of this paper that I cannot refrain from appending them:—"Forgers of credit are habitually instrumental in lowering prices below their natural level. To meet emergencies, they are obliged, every now and then, to sell goods at a loss; the alternative being immediate stoppage. Though with each concern this is but an occasional occurrence, yet, taking the whole number of them connected with any business, it results that there are at all times some who are making sacrifices—at all times some who are unnaturally depressing the market. In short, the capital fraudulently obtained from some traders, is, in part, dissipated in rendering the business of other traders deficiently remunerative; often to their serious embarassment."

Only a Matter of Degree.

The penetrating mind of this same writer is led to the conclusion that all those who make use of credit, even to the smallest degree, must be included in the list of transgressors against nature's laws, proportionately of course as they sin—" If however, the whole truth must be said, the condemnation visited on these commercial vampires is not to be wholly confined to them; but is in some degree deserved by a much more numerous class. Between the penniless schemer, who obtains the use of capital by false pretences and the upright trader who never contracts liabilities greater than his estate will liquidate, there lie all gradations. From businesses carried on entirely with other people's capital obtained by forgery, we pass on to businesses in which there is a real capital of one-tenth, and a credit capital of nine-tenths; to other businesses in which the ratio of real to fictitious capital is somewhat greater; and so on, until we reach the very-extensive class of men who trade but a little beyond their means. By insensible steps we advance from the one extreme to the other; and these most pardonable transgressors cannot be wholly absolved from the criminality which so clearly attaches to the rest.

The Real aim of Credit Seekers.

"To get more credit than would be given were the state of the business fully known, is in all cases the aim; and the cases in which this credit is partially unwarranted, differ only in degree from those in which it is wholly unwarranted. As most are beginning to see, the prevalence of this system has not a little to do with our commercial disasters. Speaking broadly, the tendency is for every trader to page 12 hypothecate the capital of other trailers, as well as his own. And when A has borrowed on the strength of B's credit; B on the strength of C's; and C, on the strength of A's—when, throughout the trading world, each has made arrangements which he can meet only by direct or indirect aid—when everybody is wanting help from some one else, to save him from falling; a crash is certain. The punishment of a general unconscientiousness may be postponed but it is sure to come eventually."

The Law must be Altered.

To bring these remarks to a conclusion, I may repeat what has been before alluded to, viz., that unless the law of the land is so altered as to assist the community in doing away with the credit system, it is vain to hope that any improvement will be brought about. To live in the commercial world and withstand the most ordinary competition, it is imperative for each man to adapt himself to the customs of the majority. No simple trader, or even a band of traders, could possibly limit the term of credit. The cooperation of all the trading fraternity must be invoked or the project must fall to the ground.

And how can unanimous action be relied upon? Only by legislation. If the limit of credit between debtor and creditor be reduced to six months, instead of being allowed to stand at as many years, then settlements would be made promptly, and hundreds and hundreds of people would be saved from that dangerous practice of purchasing articles with the intention of not paying for them until some indistinct date in the far off future.


It cannot be expected that a single pen, unaided, is powerful enough to effect so great a reform as the one which constitutes the subject of this paper. But all reforms have small beginnings, and I have faith enough to believe that these remarks will set a certain circle of readers thinking, with the result that perhaps a first step in the desired direction will soon be taken.

Let commercial men consider the question in this way:—It is only a question of degree; accounts may be paid for either at once or not at all. These are the widest extremes that it is possible to imagine. I maintain that it is better to liquidate them at the moment they are incurred than to allow them to run on and increase and become so old and forgotten that they stand a chance of never being paid at all. This is the text of my address. I invite the serious attention of men who occupy public positions in the colony to it, feeling sure that a reform of some kind is urgently needed, and that this is the best and simplest way of bringing it about.

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