The Great War has indeed worked wonders in revolutionizing previous methods and customs adhered to by the people of this country for long periods of time, and has forced developments here and there, which otherwise would have been years in getting a national hearing. This is no less true of the trade acceptance, which, as a result of the war, has had its reintroduction into the system of American credit and finance.

With the exception of the natural leaders in advanced commercial and financial methods, measures appealing to the thrift of the general business man have been without favoritism, and, were it not through the efforts of the former, whose wide experience and knowledge lead them to the adoption of the most improved methods of business, the rapid progress which has already been made in this particular field, would as yet have had to be an expectation rather than a materialization.

American merchants and business men have hitherto adhered to such great extent and have become so accustomed to the practice of conducting their business by means of the "open book account method," or, the more favorite term used in comparison with the trade acceptance method, "on account," in spite of its cumbersome, uneconomical and inelastic ways, that efforts looking forward to the substitution of better credit methods have been looked upon with suspicion.

Unlike the American, the European nations have built up so strong an acceptance business that this method is used by them as freely as we here use the open account or bank check.

Yet this great differentiation in commercial methods between the merchants of Europe and those of this country has not until a short while ago influenced the latter to adopt this better and more economical form of credit instrument. Their answers to the arguments in exposition of the trade acceptance have been that the open account system is good enough for the present.

Many of us remember how, when the automobile first appeared in this country, the wisest men would walk the streets and characterize the users of it as ridiculous. But it is doubtful whether these dis-claimants of the automobile would make the same statement today.

It is an established fact that this country has been most ready to adopt in the field of specialization, methods which have proved themselves to be far in advance of those heretofore existing. In this respect, the American has by far outstripped the European.

It is with this idea in view, that the present work on acceptances has been prepared;-not for those who will not learn; but for those, who, when they discover an improved method, do not hesitate to adapt it to their needs.

It is estimated that the annual turnover in the trade and commerce of this country with present day prices amounts to more than sixty billions of dollars. Can we, therefore, overlook a saving, no matter how small a percentage, on this huge sum, in recording, in account-keeping, in expenses incident to the conduct of business, in interests, discounts, bad debts, illiquidity and unproductiveness of this huge sum of money.

The Acceptance; Its Use And Importance In The Credit Systems Of Europe.

The one great feature which distinguishes the credit systems of Europe and of America lies in the mode of financing the trade of the relative countries. In England, France and Germany, as well as the other countries of Europe, the acceptance circulates as freely as does currency in the form of bills and specie, and the check in America. In the European countries, the acceptance and its uses are so very greatly developed that bills in amounts as low as one dollar are in existence. For instance, in France, one-half of such commercial paper is in amounts of $20 or less, and the average bill is between $20 and $100. On the whole, it is not an easy matter to find an acceptance exceeding $5,000 in amount.

The Acceptance Market In Europe And The Acceptance As A Circulating Medium Resembling The Use Of Currency.

To arrive at the importance of the acceptance in Europe, it is a common fact that this class of paper is used just as freely as the bank check in this country. In the European countries, trade acceptances are taken and held by large and small business men until maturity, or passed out by them according to their requirements in connection with the financing of their business. In this way, the merchants have an opportunity to carry the account for as long a time as they wish, and when circumstances warrant, to pass these acceptances along to the proper channels and so obtain the necessary funds with which to continue the financing of their business. In this connection the acceptance, because of its good utility, supersedes the check.

While it is true that the highly developed acceptance markets of Europe have rarely afforded any too high a rate of discount, in comparison with the much higher rates in this country, still the merchants of Europe have considered this as a principle of thrift not to be disregarded.

The Acceptance And Its Uses In The United States Before The Civil War.

The use of the acceptance in America dates back to the time when England sent goods to Virginia and the boat took back tobacco. The manner in which an acceptance was then created was by the buyer writing the word "accepted" on the bill for the English goods, which was paid from the proceeds of the return cargo of tobacco, and, vice-versa. The use of the acceptance was continued by the Southern planters of cotton and tobacco in the United States practically up to the time of the Civil War. Following that period, at least two causes contributed to its discontinuance to a large extent, the first being the passing out of existence of the bank of the United States, and the second and contributing factor, being the dislocation of credits during the war and the desire on the part of the populace to supply itself with hard money, to the detriment of commercial paper values.

The National Bank Act passed during the Civil War created a stable currency based on the credit of the Government by means of bond issues and gold reserves. This system of credit, though it had a very sound foundation, was yet a very inelastic one, for it had its limitations. The government was able to extend its credit only on the security which it possessed, but further than this it could not go. It was not empowered to create its own credit instruments in the form of notes based upon commercial paper as security, for there was no standardization of commercial paper. Above all, the most serious handicap to the creation and development of standard commercial paper was the fact that the prejudice of the banks of the country against a central banking system greatly hindered the establishment of rediscount facilities or open markets for the absorption of commercial paper. On the other hand, the disruption in credits following the Civil War had no effect upon the continuance of the use of one name paper, which system endures to this day in the United States. A great portion of the commercial transactions of the country were based upon cash payments, carrying with them discount privileges which gave to the users of this plan a high credit standing.

Comparison Of European And American Methods Of Commercial Credit.

In the European system of credit, the acceptance is the most important of all forms of commercial paper, being used as extensively as is the check and bank note in this country. In other words, the acceptance in those countries is used in nearly all cases requiring the extension of credit.

In America, where the cash discount system is not employed, single name paper prevails. Paper of this sort is created by the seller giving his own promissory notes. The seller is, however, limited in borrowing on his own promissory notes in proportion to his credit standing.

The central banking institutions of Europe do not discount any commercial paper bearing less than two names, and the Bank of France requires as a rule three names to carry the privilege of rediscount.

Prior to the adoption of the Federal Reserve System the commercial banks of this country handled practically all of the commercial paper produced, originating from various means. The banks would discount such commercial paper, the majority of which was of a single name nature. Distribution of commercial paper before the passage of the Act was on a limited scale. The commercial paper broker was the intermediary between firm and banks and brought them together. Banks would discount the paper of their customers and would then keep it or dispose of it through paper brokers to banks and investors.

The fundamental difference in the two systems up to the passage of the Federal Reserve Act may, therefore, be seen. However, with the adoption of the new banking system in this country, a great change in credit procedure was brought about.

The Introduction Of The Federal Reserve Act And Its Relation To The Acceptance; Its Re-Establishment The Result.

With the passage of the Federal Reserve Act, the re-establishment of an unlimited field for rediscount of domestic trade acceptances was created by the Federal Reserve Board. In a circular of the Board dated July loth, "trade acceptances" were made a distinct class of commercial paper, being raised to a level of great importance, and together with the newly created "bank acceptance" were made the basis of the American discount market. To encourage their introduction and use, the Board also approved the establishment of preferential discount rates. This ruling of the Board follows:

Bills of Exchange Drawn Against Sales of Goods and Accepted by Purchasers Hereinafter Referred to as "Trade Acceptances."

By regulation B, series of 1916, the Board has prescribed the conditions upon which commercial paper may be rediscounted with Federal Reserve Banks, and, by regulation J, series of 1915, rules have been promulgated covering operations in bankers' acceptances. The attached regulation is to deal with trade acceptances as a distinct class of commercial paper for which the Board is ready to approve the establishment of a discount rate somewhat lower than that applicable to other commercial paper. These trade acceptances are more particularly defined in the appended regulation P, series of 1915, and in promulgating it, the Board expresses the belief that it will considerably enlarge the scope of service of Federal Reserve Banks, and incidentally assist in developing a class of "double name paper" which has shown itself in so many countries a desirable form of investment and an important factor in modern commercial banking systems.