Informational Site NetworkInformational Site Network

     Home - Stock Buying - Money Basics - Banking - Wealth - Nature of Rent- Economic Theory

Most Viewed

Operation Of The System
Services Performed By Banking Institutions
Land Banks
Foreign Exchange
Commercial Paper
Classification Of Banking Institutions
Domestic Exchange
Common Features
Adequacy And Economy Of Service

Least Viewed

The Origin And Functions Of Money
The Early History Of Money
Qualities Of The Material Of Money
Legal Tender
The Greenbacks
International Bimetallism
The Silver Question In The United States
Index Numbers
Banking Operations And Accounts
The Use Of Credit Instruments In Payments In The United States

Commercial Paper

By commercial paper is meant the credit instruments or documents which
the credit system now in general use throughout the commercial world
regularly brings into existence and liquidates.

The essence of this system is buying and selling on time. The farmer
buys seed, implements, fertilizer, labor, etc., and pays for them
after the crops have been harvested and sold. The manufacturer buys
raw materials and pays for them after they have passed through the
transformation process which he conducts and the completed goods have
been marketed. He frequently sells them to jobbers or wholesalers on
time and these in turn sell them on time to retailers and these to
consumers. Farmers, manufacturers, and merchants both buy on time and
sell on time, and are thus both debtors and creditors, and each
expects that his sales will ultimately pay for his purchases.

The obligations involved in these transactions are represented and
recorded in the form of book accounts, promissory notes, or bills of
exchange, the latter being written or printed, or partly written and
partly printed, orders of creditors on debtors to pay to themselves or
to third parties the sums indicated. These documents are being
constantly made and constantly paid as the processes of agriculture,
industry, and commerce proceed. Indeed, their creation and liquidation
is a normal phenomenon of our modern economic life.

The term commercial paper, as we are using it, applies to such
promissory notes and bills of exchange as belong to this credit
system. It does not apply to such notes and bills when they owe their
existence to credit operations of a different kind, such for example
as accommodation loans or investment operations. Indeed, the
essential characteristic of commercial paper is not revealed in the
form of the credit document but in the fact that it is a link in this
chain of exchange operations by which modern commerce is carried on.

This use of the term should also be distinguished from the one common
among bankers and others. In this popular usage these documents are
called commercial paper because they are themselves objects of
commerce. In our use of the term the adjective "commercial" applies to
them only when they play the role of intermediary in a process of
exchange through credit. In this sense it is a matter of indifference
whether they pass through the hands of brokers or not, and the fact of
their being objects of purchase and sale does not confer the quality
of commercial paper upon documents having an origin and character
other than that above described.

Next: The Operation Of Discount

Previous: Classification Of Banking Institutions

Add to Add to Reddit Add to Digg Add to Add to Google Add to Twitter Add to Stumble Upon
Add to Informational Site Network

Viewed 2703