In our reviews of the credit science of to-day we have noted the universal custom of giving statements.

We have glanced over the mechanism provided for the handling of these statements and correlated data, but the important feature of all credit science is: What is our interpretation of these statements? I wish to make clear my conviction that a statement which is not submitted to analysis is a menace. Because, first, if errors have been made, if lack of judgment on the part of the management of the concern has been shown which is not brought to the attention of the borrower; if reckless methods have been indulged in or any dishonesty has been practised, the very fact that a statement has been received and accepted by a banker either lulls into a sense of security the careless or heedless borrower, confirms the reckless financial habit, or establishes the dishonesty if such exists. I repeat, that an unanalyzed statement is worse than no statement at all.

Frank and open statements bearing upon their face the evidence of a true condition of affairs, are, to my mind, the greatest factors in establishing credit. Nothing will more firmly cement the union between borrower and banker than such a statement, and nothing will be of more value to a banker and of less harm to an honest, enterprising borrower. Hidden facts are revealed by analysis and skill in reading between the fines is an important part of the credit man's training. By this means weaknesses may frequently be discovered and proper steps taken to avert trouble before acute difficulty arises.

Principles and Rules of Credit Science.

Let us summarize, then, the principles and rules of the credit science of to-day. Its principles:

1. To reduce losses.

2. To eliminate disproportionate risks.

3. To conserve worthy interests.

4. To war on dishonesty and incompetence.

Its mechanism:

1. The statement of condition, including - Assets and liabilities.

Annual business.

Net result of business.

Commercial expenses.

2. The credit department.

Its guiding rules in the present state of bank credits: Rule No. 1. Quick assets only are a basis for loans.

Rule No. 2. Fixed assets only considered as giving an unknown support to the quick assets. Rule No. 3. The debt limit of the borrower has been exceeded when his liabilities exceed 50 per cent of his quick assets (the so-called 50 per cent credit rule).

Accuracy is Required. Having made a careful review of the credit science of today, let us turn to a consideration of what shall be the next step in its development. At the outset we remarked that there was a growing requirement that bankers in large money centers should be expert in credit matters; it is necessary, therefore, that the means or mechanism by which we are to inform ourselves should be kept fully abreast of the times. Permit me to state my conclusion that the next step in the development of credit science will be in the direction of accuracy. The trend of every science is toward exactness. The advance to this point justifies a further step in advance. Lower rates of interest on loans make losses intolerable. General prosperity and other conditions with which we are familiar have limited the field for commercial loans at paying rates and require us carefully to safeguard any extension of the field of loans by exact and accurate credit tests.

How shall this next step be taken? By establishing the custom of requiring statements of financial condition to bear joint certificates of a certified public accountant and of an engineer: 1. As to the valuation of cash assets.

2. As to valuation of merchandise assets.

3. As to valuation of plant assets.

4. As to liabilities.

5. As to net worth.

6. As to gross business.

7. As to past results of business.

8. As to future prospects.

Value of the Accountant. The certified public accountant has come into prominence within the last ten years and his profession has the guarantee of law in most states of the Union. He concerns himself with the books of account, and records and statements prepared by him have the support of such books, and the banker has the sense of security due to the disinterested and impartial nature of the accountant's position. He may be called the referee in accountancy and the expert on cash valuations.

Value of the Engineer. The engineer deals with physical matters. His valuation on merchandise is essential in determining quick assets. He concerns himself with the valuation of the fixed assets and the adaptability of the plant to the pur* poses for which it is being used. His analysis of all correlated questions respecting raw supplies, vulnerability to competition, price fluctuations, trade, and similar conditions is essential to a right interpretation of statements of concerns affected by such questions.

Inaccurate and Dishonest Statements. But why is this radical step made necessary? Because inaccurate and dishonest statements are being constantly received. Many statements reach us which are made by irresponsible parties - clerks and under-men - and the management is frequently in ignorance of true conditions. Protection against such is essential.