SYSTEM OF CREDIT.

New Zealand Herald, Volume LXVI, Issue 20303, 10 July 1929, Page 9

SYSTEM OF CREDIT.

HELPING OUT CURRENCY.

PART PLAYED IN COMMERCE

MANY PROBLEMS FOR SOLUTION

An agreed postponement of payment in money was tho description applied to credit by Dr. K. P. Nealc, secretary of the Chamber of Commerce, in an address at Ihe luncheon of the Auckland Creditmen's Club yesterday.

Dr. Nealc said that there was no time in tho history of the world when credit was of greater importance than it was at present. Commerce by barter, which preceded credit, had presented many difficulties in tho early days of trade. It had provided no definite standard to which tho values of all commodities might be referred. The exchange of goods themselves depended upon the needs of one and the surplus of another coinciding. .So gradually tho nations began to adopt precious metals as common denominators of value, ami then, to prevent variations m the weight and quality of metallic currency, ingots and coins were impressed with guarantees of their value. Time, Confidence and Risk.

Currency thus simplified trading, but a new dillieulty arose in the case of big deals, where great amounts of money necessarily changed hands. There then emerged the system of credit, which gave money a hitherto unsuspected potency, since buyers were no longei called upon for immediate payment, and with the iirm establishment of property and contractual rights, expansion of credit in commerce was rapid, Tho word "ciedit" from the Latin credo, meaning "I trust, i believe," implied the ideas of lending, Lime, confidence and risk. Referring to real and personal credit, Dr. Nealo said that under real ciedit something of a saleable value was pledged as security, and it belonged to the field of bigger business and deals. Personal credit, on the other hand, was mainly resorted to in connection with the consumption of commodities, as in purchases from the grocer and baker. Workers gave credit to their employers in respect to their week's work where it was not paid for until the end of the working week, although the position was not generally regarded in that light. Many Forms of Credit,

Among the many forms of credit dealt with were production credit, public credit ill stocks and bonds, industrial credit when new manufacturing firms starting business borrowed capital from the public and old firms borrowed money to extend their operations. There was commercial credit, usually short-termed, covering goods bought and paid lor a month or so later, and agricultural credit, usually comprising long-dated mortgages. It was through the credit system that banks and like institutions won tho confidence of people with small savings, which wero lumped together and used to greater profit than they could ever be by the individual small capitalist. Credit operated as a selective agency among money-users, since batiks and the public loaned only ito those whom they believed would be successful with their finances. It created a financial bond between nations, which loaned to one another and thus made wars fewer. It developed new countries, stimulated savings through tlie banks and investment concerns, and minimised the wholesale and cumbersome use and wear of metallic currency. Modern Problems of Credit.

Most banks now issued notes in excess of the amount of their gold holdings, and that prevented stresses in the banking system which would otherwise accrue at extraordinary times of the year such as harvest-time in Canterbury, when the banks were called upon for large sums ot money to pay wages. Naturally credit has its disadvantages. It often enabled the concealment of a financially weak position to such a degree that the failure of a borrower brought down not onlv himself, but the Jender nlso. In recent years, too, there had been remarkable developments of the consumption credit system along the lines of time-payment and cash orders, with attendant problems awaiting solution. Today it not rarely" happened that people who could ill-afford them bought motorcars. for instance, on time-payment. When in financial straits they viewed 'with dismay tho possibility of losing all their earlier car payments should they cease to keep on paying, and the grocer and the baker perforce were made to suffer. These modern side issues of tho credit system in themselves, said Dr. Neale, would provide matter for art exhaustive address. Ho had sought merely to give an outline of the birth and_ growth of the scheme for "agreed postponement of payment in money."