In the states where wool is extensively raised, the time of the wool clip in the spring brings need for an increased volume of money, and thus the law of demand and supply affects the money market and regulates the rate of interest, the same as it affects other commodities.

The largest borrowers of money are the great corporations and syndicates which aim to secure in this way a portion of the capital which they require at a low rate of interest and use it at a profit to themselves. Instead of issuing commercial paper, as in the case of firms, their borrowings are evidenced by bonds secured by a mortgage upon the property of the company. These bonds are sold to the public generally in large or small quantities. A company earning six per cent. on its stock could sell bonds to the amount of half its capital on a basis of five per cent. interest, and thus on the same earnings, pay seven per cent. dividends on its capital stock. This is a legitimate proceeding and affords a gain which the officers of any corporation may rightfully take advantage of. While the bonds of large corporations are sold to the public generally, those of small corporations seldom reach the public. Such companies borrow from the banks chiefly, like firms and individuals, and owing to the limited liability of the stockholders for the debts of the company, the banks frequently require in addition to the obligation of the corporation a personal guaranty from the officers. This gives the bank a claim not only against the assets of the company in case the loan is not paid, but also against the officers personally.

The precise limit up to which a corporation or firm may properly borrow is hard to define. It is very close to that point at which its paper floats at par drawing ordinary interest. When a concern must sell its paper at a heavy discount, it is evidence that it is over borrowing. In order to hold its bonds at par companies sometimes offer a higher rate of interest than the usual rate. But this is a public confession of the weakness of the paper. Occasionally a corporation will issue bonds bearing a low rate of interest and sell them below par. This is questionable financiering, since the face value of the bonds must be paid at maturity. Thus a corporation desiring to raise $1,000,000 issues bonds bearing 4 per cent and sells them at 80. In order to realize the amount of cash needed, viz., $1,000,000, it must issue $1,250,000 of bonds, and at maturity these must be paid. This is equivalent to paying a bonus of $250,000 on the sale of its bonds. It is an. example of that human tendency to postpone troubles, or relieve the present by borrowing from the future. We may therefore conclude that to issue bonds or other obligations at too high a rate of interest, or sell them at a discount, is a violation of the rules of good financiering and indicates over borrowing. With individuals or firms it may be said that a concern should not, under ordinary conditions, borrow more than half its net worth.

The great money lenders are, of course, the banks. Borrowers are a necessity to a bank, and it will loan to responsible borrowers to any reasonable and proper limit. Bank loans are made chiefly by discounting paper for depositors. Notes and acceptances running ninety days or less, given for the sale of merchandise, and hence representing the value of goods or other property bought or sold, is a desirable class of paper for discount. The value is behind such paper, and it may be said to represent the property. A customer of a bank need not hesitate to offer for discount any paper of this class which is, in his opinion,, good, but on the other hand he should not be offended if his banker refuses to discount the paper, even without giving reasons. The banker may be in possession of information concerning the other parties to the paper which the holder is not, and yet cannot disclose that information. Every customer of a bank who keeps an account of any consequence is considered as entitled to a "line of discount" in proportion to his usual balance in the bank and financial standing in general. The limit of this "line" is agreed upon with the bank officials from time to time, and the customer sends in for discount such notes and drafts as he may have which he regards as good up to the limit of his "line."

Banks aim to have diversified borrowers. By this is meant those in various lines of business, whose needs come at different times of the year. If the bank had all one class of borrowers they would all want their money at the same time; also at that time draw down their deposits, and the bank would find itself without the necessary funds to advance. In order that the bank may at all times be ready to meet the demands of its customers, it aims to have a volume of money loaned to persons having no "line of credit" and whom the bank can ask to retire their indebtedness on short notice. In large cities some banks have from 25 to 50 per cent, of their loans made to borrowers who do not deposit with the bank, and to whom the bank is under no obligations to extend the loan for any definite period of time. Such loans are made to stock brokers, and are usually payable on demand.

If a business man borrows of a bank a sum of money on his note, and gives as security a pledge in the form of other notes, shares of stocks or bonds, such pledge is called "collateral." The collateral does not become the property of the bank, and the bank is responsible for its safe keeping and return to the owner. Loans on collateral are usually evidenced by notes in which a clause is inserted giving the bank the right, in case there is default in the payment of the note, to sell the collateral and apply the proceeds of such sale to the liquidation of the note, the residue, if any, to be returned to the owner or debtor. The trend of the times is' for banks to loan on collaterals and less on the individual notes of borrowers, but there are cases where collaterals cannot be readily furnished. The merchant has a stock of goods upon his shelves but this cannot be placed in the vaults of banks, like stocks or bonds. But merchants and others who borrow on individual notes are required from time to time to furnish their banks with statements of their financial condition, drawn from their books. The experienced banker is not only able to read and interpret this statement, but reads between the lines the future of the business, and advances credit accordingly. In case interest coupons attached to collaterals mature while in possession of the bank the owner is usually allowed to collect or cash them. Collaterals as security depend upon their character. The highest quality of collaterals is United States bonds, and from this their value descends to almost nothing. Banks aim to leave a liberal margin below the market value of any collateral, so as to realize the amount of their loan in case of forced sale. Many classes of collaterals are shifting in value and of varying degrees of security. The banks will exercise care to see that the party is not borrowing too much, and that the bank is not getting a large part of its assets tied up in one class of securities.