The acceptance market is a special branch of the general discount market organization, and the rates that are charged by banks for accepting paper are fixed after exactly the same principles that apply in the case of other rates. In the case of the acceptance rate there is a rather more complex situation than that which exists in the case of direct loans and discount rates. A business man has asked a banker to accept for him at ninety days' sight. The banker, we will assume, charges one-quarter of one per cent commission. When the business man has obtained the acceptance, in this way, he has arranged a means of payment for his creditor, but it may be that he also wishes, or is obliged, to provide funds for his creditor in cash. This means that he must arrange for negotiating or discounting the bill. He must, therefore, find, or have some agent or banker find for him, a banking house which will discount the paper. Thus a discount is added to the acceptance commission. As bankers' acceptances are reckoned prime paper, certain of redemption at maturity, and in many cases eligible for rediscount at the Reserve banks, it is usually true that the acceptance commission plus the cost of discounting the acceptance is quite as low as the prevailing rate on commercial paper, and usually lower. At the present time in the New York market there is often a rough correspondence between the call rate and the acceptance rate, inasmuch as out-of-town banks which have money to spare are able to choose between putting such funds into call loans or into the purchase of acceptances. There is thus some tendency toward an evening up of rates. The general principles which control in each of these branches of the money market, however, are the same as those which obtain in others.

Adjustment of rates as between different sections of the market, such as straight commercial paper, bankers' acceptances, call loans, and the like, is very prompt, and while these rates are seldom identical with one another, the difference is due to the fact that what is traded in, in one section of the market, is not quite the same as what is traded in in the other. There is a difference in the degree of the liquidity or availability of the funds.

The popular supposition that as business declines "money" or "funds" are "released" from employment and soon become available for stock-market operations, thereby tending to reduce the money rate in the market, is erroneous. There was a modicum of truth in it so long as our currency was inelastic and so long as reserves could be built up by the redeposit of spare resources with city banks which promptly lent them to investors or speculators. None of these conditions now exists, but the only motive for the placing of funds in the stock market - apart from the mere desire to take care of a bank customer - is the wish to earn an income. Under present rates of discount about as much can be made by placing bank funds in acceptances eligible for rediscount with reserve banks as can be obtained in the stock market. Indeed, during the latter half of 1921 there was general correspondence between the rate on acceptances and the rate to be obtained by lending in the stock market. That there should be a general correspondence between these rates and the actual yield on thoroughly good investment securities is a natural outgrowth of the situation.