MONEY WHAT IT IS AND HOW TO USE IT BY WILLIAM R. HAYWARD Principal of the Curtis Evening High School and Chairman of the Department of Economics 9 Law and Accounting, Washington Irving High School^ New York BOSTON NEW YORK CHICAGO HOUGHTON MIFFLIN COMPANY \ COPYRIGHT, I9I7 BY WILLIAM R. HAYWARE- ALL RIGHTS RESERVED HClje iber*ibt ^rrttf CAMBRIDGE . MASSACHUSETTS U . S . A PREFACE THERE has long been a demand, growing more urgent, for the training of young peo- ple to a grasp of the meaning and use of money. Much emphasis has rightly been placed upon the need of saving, but, as many a man has discovered by sad experi- ence, we need fully as much to be taught how to spend. This training, especially for women on whom the responsibility for a va- ried and perplexing business management comes suddenly as an accompaniment of matrimony, has been the subject of an ex- tended and careful study by Mr. Hayward, upon whom the six thousand girls yearly in attendance in the Washington Irving High School have been a large responsi- bility for a long period. Other experience, both previous and contemporaneous, has aided in maturing his judgment. During his years of teaching, Mr. Hayward's field of action has included a private business in 416298 PREFACE school, a college for women, a city univer- sity, and four city high schools. One of the latter was the High School of Com- merce which has prepared so many of New York City's boys for business careers. He has also business experience of several years. For the period covered by the past two years he has been editor of the "Effi- ciency Society Journal," the official organ of the Efficiency Society, an organization composed of merchants, bankers, manu- facturers, and professional men. What he practically worked out in those positions, corrected by experiment and amplified for application to the needs of boys and girls, men and women, is set forth in this book. By means of sufficient connection of the subject with history and economics, he has made it of a wider vital interest than any mere business compendium. WILLIAM MCANDREW, Associate City Superintendent of Schools NEW YORK CITY CONTENTS INTRODUCTION ix I. WHAT MONEY is i Substitutes for money Why we want money What money really is The three ne- cessary qualities of money What money does How people lived before money was known Barter Swapping." II. BARTER AND PRIMITIVE MONEY . . 8 How barter developed into money dealings Cattle money Belts of wampum. III. DEVELOPMENT AND USE OF METAL MONEY 15 The desire for ornaments Gold and silver as ornaments Their use in barter Metals in rings and weights used as money Coined metals Silver money of Athens Iron money of Sparta. IV. THE RELATION OF MONEY TO PROG- RESS 20 Slavery Claims of rulers and lords of the lands How money helped people to be- come more free Trades and guilds Debts and their payment by money. v CONTENTS V. How MONEY GROWS 24 Interest Savings Extravagance Thrift. VI. How MONEY is OBTAINED .... 29 Five ways of getting money Gifts compared with earnings Obligations when gifts are accepted Boy and girl merchants. VII. KEEPING ACCOUNT OF MONEY . . 35 Accounts Two classes of accounts De- velopment of a modern account Book- keeping Debits and credits The one fundamental rule of accounts Different accounts illustrated and explained. VIII. SUBSTITUTES FOR MONEY ... 54 Bills of exchange Real substitutes for money Bank-notes Government notes Checks. IX. BANKING 61 Money as merchandise Loans and discounts Security for loans Notes Drafts. X. STOCKS AND BONDS 70 Partnerships Joint-stock companies Cor- porations Shares in corporations Cer- tificates of stock Bonds. vi CONTENTS XI. SPECULATION 78 Business compared with speculation Specu- lation compared with gambling Stock speculation Stupidity of gambling. XII. EXCHANGE 86 Business between different countries Foreign exchange Gold exports Bank exchanges Clearing houses. XIII. MONEY FOR WOMEN 100 Women as employees Women as partners of their husbands Money for women Conditions under which they usually re- ceive it Conditions under which they should receive it. XIV. TRAVEL 107 Need for ready cash when traveling Dan- ger from loss and theft Letters of credit Travelers' checks. XV. BUYING 117 Care needed in buying Prices and quantities Terms. XVI. RECEIVING 123 Ways of receiving goods Direct and in- direct ways Receipts Bills of lading Examination of goods Stock-books Insurance. vii CONTENTS XVII. PAYING 128 Paying on time Preparation for making pay- ments Danger of delay in making pay- ments Suits and judgments Failing Assignments Discounts Methods of payment. XVIII. SELLING 135 Finding customers Advertising Fixing sell- ing prices Four kinds of costs Difference between selling cost and overhead Cost calculations Giving credits Mercantile agencies Terms of sale Salesmen Salaries and commissions to salesmen. XIX. DELIVERING 146 Ways of making delivery Proof of delivery Shipping goods Insuring goods De- livery records. XX. COLLECTING 151 Ways of collecting " C.O.D." Drafts Acceptances Notes Protest Stop- ping payment on checks Examination of accounts. INDEX . 161 INTRODUCTION DEFERRED payments are as unpopular in education nowadays as in business. The demand is for power that can become avail- able immediately. The theoretical must be translatable in terms of the practical. Train- ing must be for life. In this living no one test is so constantly applied and so keenly observed as one's reaction toward money. In the business world the use or abuse of money stamps one a success or a failure. The man who fifty years ago sold pota- toes at twenty cents a bushel and laid the money away for his old age, in the expecta- tion that in the year 1917 he should be able to purchase potatoes at the same figure, stands aghast at the inroads into his little pile. Attention to money knowledge of what it is, how it obtains value, how its power expands or contracts, how it is handled, ac- counted for, how it operates as master or servant - j - marks the wise man. The tre- mendous increase in the cost of living, the ix INTRODUCTION predicted upheaval in industrial conditions in the adjustments following war, force upon the youth of to-day the need of observing the simple principles of thrift. It was to drive home the need of thrift that " Old Gorgon Graham/' in Letters of a Self-Made Merchant, wrote to his son : " Pay-day is always a month off for the spendthrift, and he is never able to realize more than sixty cents on any dollar that comes to him. But a dollar is worth one hundred and six cents to a good business man, and he never spends the dollars." One of the reasons why this book has been written is to help young people to become thrifty. The author, as head of the commercial department of a large city high school, sees the equipment with which young people of to-day are entering upon life's work, and as editor of a magazine devoted to economic efficiency, realizes the standards set by the leaders of industry. In this book he presents the underlying principles of thrift the wise use of money. The ex- planations are direct and simple, the illus- trative material rich and pat. INTRODUCTION In intermediate classes and in the early years of the high school this book will lead the pupils to grasp the motive of the whole commercial course, it will present the eco- nomic basis for the intelligent study of his- tory and current events, it will give the classes in English a reading text of inspir- ing style and practical content. In prevo- cational classes and continuation schools it will link the school with the job. In various organizations unconnected with regular school systems such a book will find a welcome. Not only will it meet a need in the reading-rooms of libraries and social centers, but it will also serve as a basis for study and discussion in boys' and girls' clubs. Leaders of the Boy Scouts, too, will find that through the study of this book economic power and independence will take their stand with the physical alert- ness, moral integrity, and civic responsi- bility that characterize the troops. In school and out this book will help young America to acquire thrift. OSCAR C. GALLAGHER BOSTON, MASSACHUSETTS MONEY WHAT IT IS AND HOW TO USE IT CHAPTER I WHAT MONEY IS NEARLY every one who knows anything about money wants it. Almost all of us want as much as we can get. It is very likely that everybody who wants money thinks he knows just what money is. It is also probable that he thinks he knows just why he wants it. But let us see. Perhaps in both cases we can learn to think more clearly about this one particular thing, which, as all of us agree, is wanted so much by so many. Take a dollar bill for instance. Is it money? Well, not exactly. It may be, and generally is, something "just as good," as they say in stores when they have n't just what we ask for. But how about a Confed- erate dollar bill ? That certainly is not "just MONEY as good." The Confederate States of Amer- ica, which issued the bill, have been out of ex- istence for fifty years. They are out of busi- ness. " Confederate money," as it is called, is nothing more than a curiosity at the present time. Then there are checks. Almost always they are "just as good." But sometimes a storekeeper takes a check from a customer, and in a few days finds out that the bank on which the check is drawn will not pay it. The man who gave the check for ten dollars, let us say, had only fifty cents in the bank. But suppose you have gold coin. That is a different matter altogether. You don't have to take that to a bank, like a check, to find out if it is just as good as money. Even if the nation that coined it went out of exist- ence hundreds of years ago, the piece of gold is much more than a curiosity. You can take it to the United States Mint where this Gov- ernment coins money. There they will give you United States gold coin in exchange. The reason is that gold always has a value of its own. WHAT MONEY IS Again, why do we want money ? It is be- cause other people have things that we want, and they will give us these things in exchange for money. We want to get money in order to turn it over to some one else for some- thing else. Some people say, " Money is the root of all evil." They think they are quot- ing what a very wise man once wrote. But they are quoting wrongly. What he wrote was this : "The love of money is the root of all evil." People who love morteyjust for itself are called misers. But almost all people, even those who have many millions of dollars, value their money because it gives them the power of exchanging it for something else. They may not make use of this power at once. But as long as they have the money they know that this power belongs to them. If, then, there is something that has a value of its own ; if it is something that all persons are willing to take in exchange for what they do not wish to keep ; and if all persons give this thing in payment for what they owe, then this thing is really money. 3 MONEY Of course there is no one living who remembers a time before money was used. Some travelers have found remote regions where money was unknown in any form, but such places are few indeed. Nevertheless, there was a time, before the days of history began, when money did not exist. And long after its adoption by a few of the more civi- lized nations, a very great part of mankind was still without its advantages. Although such a condition cannot be fully realized by us, yet, in considering the subject of money, we must set our imaginations at work to try to picture the state of affairs that formerly existed. There are various beliefs, traditions, and theories as to the way in which human life began. The discoveries and studies of some scientific men have led them to believe and to teach us that its first existence was many hundreds of thousands of years ago. Others dispute such statements both on scientific and religious grounds. For the study of our subject it is not necessary to agree with any side. It is generally conceded that, long be- 4 WHAT MONEY IS fore the days of what is called "history," human beings lived in caves in regions where fire was not required to make life possible, and where their food consisted of fruits, berries, nuts, and roots. Many of these early people seem to have lived in groups or communities ; this was probably for protection against certain kinds of wild beasts. These larger communities were divided into little groups composed of a man, a woman, and their children. Apart from the need for general protection, of which we have just spoken, it is probable that each little group was interested in itself alone. The parents found food for them- selves and their children, and fastened to- gether whatever clothing was found neces- sary. By degrees they began to notice the doings of other groups, following them in search of food and imitating them in their coverings. What we hear from travelers among savage tribes leads us to believe that the lives of the children of to-day may guide us in imagining the childhood of the human race. Little children, indeed, are fed and 5 MONEY clothed by their parents. But their earliest energies in play (which is their real life) are used in making various things that suit their childish fancy. Some of these things are ex- changed for other things made by their play- mates, which seem for the moment more desirable than those which they themselves have made. Now, to return to the old-time dwellers in the caves. Herbert Spencer's opinion, sup- ported by arguments, is that clothing was first worn, not for warmth, but for ornament. Like little children of to-day, these early hu- man beings decorated themselves as they fancied. Doubtless their changing fancies caused them to covet the decorations of their companions. Then, like little children once more, they exchanged decorations to gratify these fancies. Then, as years went by and the human race grew older, a new method arose such as little children adopt when they become boys and girls. Some of them found that they could make certain things much better than their neighbors. They made more of these things, therefore, than they 6 WHAT MONEY IS themselves needed. These they exchanged for such other articles as their companions were willing to give up. It was precisely the same principle as that on which two boys " swap " a jack-knife for a fishing-rod, or two little girls exchange a doll for a ring. This is what we call barter. Money did not exist, but life was young, its methods were simple, and the need for money was not pressing. People took the time to bargain over their exchanges or "swapping." No doubt they quarreled frequently, and it is probable that often each party to the bargain felt later on that the other person had got the better of him. Still, for a long time this method of dealing seemed good enough. It appeared simple enough, although in reality it was cumbersome. Above all, it doubtless never occurred to any one for a long time that there could possibly be any other way to accomplish the desired purpose. CHAPTER II BARTER AND PRIMITIVE MONEY IN the first chapter we arrived at the con- clusion that an article must possess three qualities in order that it may rightly be called money. These are the qualities : it must have a value of its own ; it must be something that all persons are willing to take in exchange for what they do not wish to keep ; it must be something that all persons give in pay- ment for what they owe. In the transactions called barter^ the articles exchanged have only the first of these qualities ; that is to say, they have a value of their own. No matter how worthless an article may appear to the person who is giving it in exchange, there must be something which makes it valuable to the person who receives it. The mere fact that he is willing to give something for it shows that to him, at least, it possesses some value. This fact, however, is not suf- ficient by itself to entitle the object to the 8 BARTER AND PRIMITIVE MONEY name of money. It is not the common meas- ure by which we value other different ob- jects. To illustrate: A man may go into a shoe store and buy a pair of shoes for three dollars and a half. Another man may go into the same store and buy a pair of shoes for five dollars. If, later, each of these men tells us of his purchase, we can form an idea of what each man has bought, simply by know- ing the price the money value of each. We are accustomed to buy shoes and we know that, by paying an additional dollar and a half, a pair of shoes can be obtained made of finer leather and finished in superior style. If the purchases are shown to us, we see ex- actly what we expect. On the other hand, two boys may ex- change a jack-knife for a fishing-rod, or two girls may exchange a doll for a ring. When we are told of these transactions, we can form no definite idea of the qualities possessed by the four objects. A boy may be so anxious to go fishing that he may give a very ex- pensive knife for a very cheap rod. Or a girl may have so strong a fancy for a cheap brass 9 MONEY ring in which a piece of colored glass is set that she may give for it an elaborate wax doll which cost a great deal of money to the rela- tive who purchased it for her. In these two transactions of barter everything depended on the individual tastes of the parties to the bargains. In the far-distant past to which the imag- ination was directed in the preceding chap- ter, a time arrived when the transactions of barter changed gradually into bargains in- volving money. Coined metal is not meant by this, but something else which, though not so simple and convenient, still was en- titled to the same distinctive name. Let us once more set our imagination at work. As the human race grew in experi- ence, and consequently in intelligence, ani- mals were tamed for domestic use. Among the first to be tamed were cattle. People drank their milk or made from it butter and cheese. Perhaps at first the cattle were owned in common by members of each tribe or community. However that may be, the time came when separate individuals owned one 10 BARTER AND PRIMITIVE MONEY or more of these cattle as their own personal property. But they had other property, and it was such as is not possessed to-day among civilized people. We know that in the ear- liest historical times a man's wife and his children were his absolute property, to be dealt with as he saw fit. This fact shows that a time came when a man could not choose a wife according to his fancy and simply take her to his home. The girl or woman of his choice was property the property of her father. He must give her father some- thing of value in order to obtain her. At first, no doubt, various objects were offered by different suitors to tempt the fancy of the father. By degrees it is probable that a father, when asked for his daughter, reasoned in something like this fashion : " Here is a young man who wants my daughter very much. He will give for her something that he values almost, but not quite, as much as he values the girl. Perhaps he will even give me a cow. My daughter works for me and is useful ; but a cow would be worth even a little more to me. I will ask him for a cow ii MONEY in exchange for the girl." And so the ex- change was made. At first it was simply barter. Then the exchange of a cow for a wife became a usual transaction. Perhaps two young men wanted the same girl, pos- sibly because she was unusually clever at household tasks, but more likely because she was unusually beautiful. Then one man would offer two cows instead of one, and the prize would be allotted to him. By degrees one or more cows would invariably be given for a wife. The value of a cow was some- thing well known to everybody. Thus the number of cows given for a girl was an indi- cation of the value in which she was held. Cattle had become money in the true mean- ing of the term. They were the first money of which we have any record, and probably they were the first objects of value which deserved the name. There is a part of the world where this custom of buying a wife, slightly varied, has lasted until recent times, and perhaps exists even at the present day. In that re- gion of Western Asia known as The Cau- 12 BARTER AND PRIMITIVE MONEY casus, the women are said to be unusually beautiful. In families where one of the daughters possessed exceptional beauty she was not permitted to do any work what- ever. She received every care and attention. No pains were spared to cultivate every charm with which she was gifted. Then, when her beauty was considered in perfec- tion, she was taken to Constantinople and offered in exchange not for many cows, but for their equivalent in Turkish piastres. We see, then, that the first money, cattle, consisted of objects of utility. We know, however, that in early times articles of orna- ment also were used as money in the true sense. Among the North American Indi- ans a certain rare seashell was valued for its beauty. Chains of these shells were col- lected and used at first as necklaces, brace- lets, and belts. Like everything that came under the head of property, they were, of course, objects of barter. Then by degrees these shells became the principal objects of barter. A fixed number of shells of the same size and quality were strung together MONEY and were called " belts of wampum." Ob- jects of general use or desire were exchanged, as a matter of custom, for so many belts of wampum. Wampum had become money. In all ages children have imitated in play the doings of their elders. In our own day almost all children have at some time "played store." One child collects various treasures, places them on an imitation counter, and sells them to playmates. For one article so many pins are demanded. For another article the price is a greater number of pins. Then, with the pins thus obtained, the youthful storekeeper goes to another child's store, and buys whatever fancy may dictate. In this child world of purchase and sale, the pins of the youthful merchants are for their purposes really money. CHAPTER III DEVELOPMENT AND USE OF METAL MONEY THE desire to wear ornaments, as a trait of the primitive tribes as well as of civilized races, has already been noted. Wild flowers were doubtless worn for this purpose from remotest times. The earliest traditions speak of the use of garlands of flowers to deck the altars of the gods or to enhance the charms of beautiful women. It is not likely, however, that flowers were ever objects even of barter. A desire for rare plants is devel- oped with the complex civilization of more modern times. As an instance, may be men- tioned the period when a craze for tulips took possession of the entire population of Holland and fabulous sums were paid for rare specimens of that flower. In early days articles of rarity, in order to be of value for barter, were less perishable than flowers that faded in a day. Rare shells and other nat- 15 MONEY ural objects found on the surface of the earth had their day, and then came orna- ments made from substances that were dug from beneath the surface. Silver and gold, were discovered and their beauty admired. From that day until the present time these two metals have been eagerly sought by almost all mankind. Their relative values have varied, but from the earliest day of history and tradition there has never been a time when gold and silver have not been thought of as wealth. These metals were shaped, first roughly and then with more care, into such objects of ornament as the fancy of each person dictated. Then rings of a standard size were used for purposes of exchange. When this occurred, gold and silver ceased to be merely articles of barter and became money in the true meaning of the word. In the records of the early He- brew Scriptures the sons of Jacob took money into Egypt to buy food. This money, it is known, consisted of rings of metal, probably silver. Then, instead of rings, or in addition to them, solid pieces of 16 USE OF METAL MONEY metal, of standard weights, came into use, and for ages were the money of the world. As simplicity developed into skill, the latter was accompanied by rascality. Rings and weights were made which were represented to be pure gold or silver, but which were mixed with baser metals. Also cheap metals were covered by a coating of gold or silver for the purpose of deceit. Some mark was needed to distinguish good money from its counterfeit. Then rulers caused likenesses of themselves to be stamped on pieces of metal of different sizes, to which different names were given. Coined metals had become the money of civiliza- tion. Money, in the true meaning of the word, was, in the beginning and in early times, something that could not only be ob- tained, but produced, by almost every individ- ual. Whether it were cattle, wampum, metal rings and weights, or gold and silver bars or disks with the values or weight stamped or carved on them in any case almost every one was able by industry or skill to pro- duce his own money. The time came, how- 17 MONEY ever, when the governing authority reserved for itself the right to place its mark on the pieces of metal which had then become the almost universal medium of exchange. A king would cause a stamp to be engraved with a likeness of himself, or with his name, or both, and these would be stamped upon pieces of metal of known weight and value. Such pieces of metal were known as coins. From that time until the present day they have remained as the basis of all systems of exchange. Doubtless they will continue to hold that position until the time shall arrive (if indeed that time ever comes) when a still higher degree of civilization shall render the use of money needless. A curious instance of the use of a metal for money occurred in the early days of Greece. Although Athens and nearly all the other States made use of silver coins, one of the States, Sparta, forbade the use of any money except iron weights bearing the stamp of the Government. This iron money had only one of the three necessary qualities spoken of in the first chapter. It 18 USE OF METAL MONEY had no value of its own, or only a very slight value. All persons were not willing to take it in exchange for what they did not wish to keep. The people of Sparta, it is true, did take it in exchange, but they did so unwillingly and only from fear of pun- ishment in case of refusal. The third qual- ity, indeed, it did possess. People who were in debt gave it in payment by law and cus- tom. The iron money of Sparta, therefore, was money only in name. It was forced by law upon the people, and before very long it passed out of use and gave place to the money of civilization. CHAPTER IV THE RELATION OF MONEY TO PROGRESS LOOKING backward, however far, into the remote past when traditions were first writ- ten and called " history/' we still find rec- ords of the unfortunate beings who are spoken of as " slaves. " Not only did all that they produced belong to their masters, but even their lives were at the mercy of the same tyrants. But there is a lesser de- gree of slavery that contains some of its galling elements. That semi-slavery is called debt. It existed before the dawn of history, and it exists to-day. In some countries, and in some ages, it was even the law that when a debtor was unable to pay his obligations he could be sold into absolute slavery in order that the price obtained might be paid to his creditors. The common form of obligation in early ages was the payment which the poor culti- 20 RELATION TO PROGRESS vators of the soil were forced to make to t| powerful nobles or lords of the land. A certain large proportion of all that they pro- duced must be given to these masters before they themselves were permitted to enjoy what remained. In many cases the peasants were forbidden under any circumstances to leave the place where they happened to be born. But in no event could they hope to go elsewhere while any obligation to their superiors remained due. Almost all the in- habitants of Europe were thus once practi- cally chained to the little spot where they first saw the light of day, except when their leaders forced them to march away and fight battles under their banners. By degrees, however, another custom grew up. Instead of giving the nobleman a cer- tain number of oxen and sheep or a certain number of bushels of wheat, the producer was allowed to pay a sum of money. He could obtain this money by selling the cat- tle, sheep, or wheat, or in any other way that he was able, provided he did not interfere with any of the rights of his noble masters. 21 MONEY Some of the people began to earn money in simple trades, as smiths or weavers of cloth. At first these trades were practiced when time could be spared from the regu- lar employment of cultivating the land. Gradually more and more time was given to the trades until at last no time was left for anything else. Agricultural laborers some of them had developed into arti- sans. Then it was found convenient by them to live in towns in order to practice their trades. Permission was obtained to do so of course through the payment of money. In time associations were formed called " guilds." Their members lived in the cities, and, by means of money payments, obtained the protection of very great nobles and even of the king. Their members were no longer bound to one spot of earth, but were per- mitted to travel to various points of the country and even into foreign lands. Guilds and associations of merchants became more and more wealthy and powerful until even free and independent cities arose, such as 22 RELATION TO PROGRESS Hamburg, Bremen, and Liibeck. Money had helped people, if not to become really free, at least to secure a greater measure of freedom. Other obligations were also dis- charged by the same convenient means of money payments. Instead of following the nobleman to battle, it was possible to avoid service as a soldier by paying money. In civilized countries slavery, at least un- der that name, has ceased to exist. But the partial slavery of debt can be seen on every hand. For its existence there is sometimes good and sufficient reason. Always an ex- cuse of some kind can be found for it, whether the excuse is good or bad. What- ever the reason and whatever the excuse, it is certain that debt is always a burden. The remedy is money. Industry and skill will obtain it. Economy will enable us to save part of our earnings and apply that part in payment of the debt. In time the entire obligation will be paid. Money will have become our servant, and we ourselves shall be really free. CHAPTER V HOW MONEY GROWS LET us suppose that a man saves out of his year's earnings the sum of one hundred dollars. He locks the money in a strong box, and feels contentment in the knowledge that if he has need for it he can go and get it at any time. At the end of another year if he goes to the strong box he will find exactly his one hundred dollars neither more nor less. But let us suppose that a friend who is in business comes to him and says, " My business is so good that I want to increase it. Lend me one hundred dollars to use in my business, and at the end of the year I will return you one hundred and six dollars." You say to yourself, "If I lend this money, I cannot lay my hand on it at any time in case of need. But I shall probably not need it for a year. In fact I shall probably save an- other hundred dollars during next year. And if I lend this money to my friend it will grow." 24 HOW MONEY GROWS You therefore lend him the money. At the end of the year he returns you your hundred dollars and also an additional sum of six dollars in payment for the use of the sum lent by you. The additional six dollars is a payment for what is called interest. You have now the sum of one 'hundred and six dollars which you can either lock up or lend. If you lend it for another year you will receive back one hundred and twelve dollars and thirty-six cents. In other words, the money received in payment for interest at the end of the first year has itself pro- duced more money in payment for interest by the end of the second year. The extent to which money can grow in this manner is not realized by every one. If money is loaned at six per cent a year, and the entire sum re- ceived back is loaned again at six per cent for another year, and the process is repeated, the original sum will be doubled in a little less than twelve years. One hundred dollars will have grown to two hundred and one dol- lars and twenty cents in twelve full years. If, however, a hundred dollars are saved 25 MONEY every year, the total amount at the end of twelve years of lending will be $1788. 20. That is, $1200 of savings will have produced $588.20 in payment for interest. Of course it is not safe to lend your sav- ings to anybody who wishes to borrow them. A friend may be very hopeful that his busi- ness will be good in the future. He may borrow your money and by ill luck or bad management he may lose all that he has, in- cluding what he has borrowed from you. It is, therefore, necessary to use care and judg- ment in lending. Some people are able to save money, but have no means of judging who are the safest persons to whom to lend it. For their benefit savings banks have been established under the control of the State. Their management is carefully watched, and money entrusted to them is seldom lost. But money loaned to savings banks will not produce six per cent. If you wish to enjoy the feeling that your money is perfectly se- cure in a savings bank, you must be content to receive four per cent or less. Thus we re- alize that it is not enough to save part of 26 HOW MONEY GROWS what we earn. We must be careful to whom we lend our savings or they may be lost. It would have been impossible for money to have been loaned over and over again without loss for a period of five hundred years. Wars, dishonest borrowers, careless lenders, accidents, and other causes would certainly have caused immense losses. But if we can imagine it to have been possible, let us suppose that the sum of one cent had been loaned in the year 1417 at six per cent interest, and that at the end of every year all the money that was returned had been loaned again at the same rate. In 1917, at the end of five hundred years, the original one cent, with the accumulated payments for interest, would have grown to the almost incredible sum of $44,967,205,970.71 nearly forty- five thousand millions of dollars. When we consider, then, how abundantly this plant, money, can be made to blossom, when the seed is properly planted and care- fully watered, we can realize the folly of scattering that seed where it can never grow. A young man who earns a good salary may 27 MONEY say to himself, " Oh, what 's a ten dollar bill ! What 's the use of saving a c ten spot ' ? " Or else, " I 've only got a few dol- lars. I '11 blow them in. I might as well be broke as the way I am." And thus he flings the seed on " stony ground/' Another young man, earning perhaps a smaller salary, saves what he can and puts it in a savings bank. In a strangely short time he finds a good sum there. An opportunity occurs where his judgment tells him that he can safely draw this money out of the bank and invest it where he can obtain a higher rate of interest. His savings begin to grow at a quicker rate. He sees himself the master of a small capital, and success is opening before him. CHAPTER VI HOW MONEY IS OBTAINED WHEN the subject of money was first dis- cussed we stated that all of us want money. The time has now arrived to consider the different ways of obtaining it. Money can be obtained by gift, by earning, by finding, by gambling, and by stealing. The last of these methods it is unneces- sary to discuss. In a later chapter we shall consider the question of gambling, and com- pare it with speculation. Finding money is a rare occurrence and may be brought under the heading of either gift or earning. When money is found we know that it was the prop- erty of some one else. Our proper course is to discover the owner if possible and return his property to him. If after a reasonable effort we are unable to find the owner, we are justified in considering the money our own. It then can be called a gift of chance 29 MONEY or it may be considered as having been earned by our efforts to find the former owner. The way in which almost every one ob- tains money is by receiving it as a gift. Pa- rents give their children money as a present because they love them and enjoy seeing the happiness that comes to them from spend- ing the money. In the beginning, usually, money is given to a child irregularly, either when it is asked for or when the wish to give enters the mind of the parent. As the child grows older it often happens that a stated allowance is made, a regular sum being given each week as spending money. An allowance of this nature is the link that con- nects the period of time when a gift of money is an occasional and perhaps unexpected event, and the later period when money is earned by the boy or girl. Human beings are accustomed to value the things that are hard to get. The more difficult it is to obtain them, the more highly, as a rule, they are prized. When the time arrives that we are compelled to work in or- 3 HOW MONEY IS OBTAINED der to get money, the natural result follows. The harder we have to work, the more valu- able the money will appear to us, and the greater care we will take that it shall not be wasted. The money that is given to children has usually been earned by their parents. It represents work on their part, often very hard work. It would be a rude and unkind act if a child, when receiving a present of money, should immediately fling it into the river. But wasting money by spending it foolishly is, in a certain sense, flinging it away. A little child will generally spend a gift of money for candy. That is natural, and the parents expect this to happen. As a child grows older, however, the fact is taught or discovered that, no matter how money is ob- tained, it must have been earned by some- body in the first place. If, then, we obtain without work what some one else has worked for, we should feel that a certain obligation rests upon us. We should not fling away, directly or indirectly, something that we have obtained so easily, but for which the giver has worked so hard. 3 1 MONEY Money, as we have said, must be earned by somebody in the very beginning. Why should any of us expect to obtain it in an easier way? Why, indeed, should we even wish always to get something for which others must have worked ? A person of proper self-respect does not wish to be de- pendent always on another. A child who receives a fixed allowance weekly, learns a valuable lesson. It is that, if the money is all spent on the day it is received, a whole week will pass before any more money can be had. Gradually the habit grows of think- ing and planning before spending. The next step is saving. A boy may be told that, if a certain sum is saved, it can be used as capital in a little business of his own. His father may agree to add a further amount of money as a reward for his perseverance in saving. If he lives in the country, he may be given a small piece of ground to culti- vate. He buys seed to plant and a hoe, rake, spade, or other necessary articles. Some fruit or vegetable is grown that can easily be sold to the nearest storekeepers. Then, when the HOW MONEY IS OBTAINED sale has been made, the boy has money of his own that he himself has earned. Boys have collected scrap iron, brass, and other metals, and sold this material to junk dealers. Sometimes the boys have* had to pay a trifle for the metal, but often the owner has been glad to give it to them for their trouble in removing it. Other boys have spent part of their time in selling a well- known weekly magazine, buying a number of copies from the proprietors at a price that will show a fair profit when the magazines are sold. Other boys have sold newspapers on the same plan. All these boys are actually merchants in a small way. Other boys have earned money by working for local mer- chants on Saturdays and holidays. Girls in like manner have proved their ability to earn money even before the time when they are able to secure regular salaried positions. Some of them have tinted postal cards or made water-color sketches and other paintings, and have sold them to dealers, es- pecially during the holiday seasons. Others who have skill in sewing or embroidery have 33 MONEY used that ability in making articles of use or ornament, and have sold them to stores or to individual customers. In every one of these cases the boy or girl merchant or pro- ducer has not only gained the satisfaction of earning money, but in addition has made valuable preparation for the serious business of life. CHAPTER VII KEEPING ACCOUNT OF MONEY AN account is a story of something that happened. The best and clearest account is a story that begins at the beginning and tells everything that happened in the order in which it occurred. When the word " ac- count " is used in a business sense it is also a story a story of business happenings told in terms of money. Business histories of this nature may be divided broadly into two classes. An account may be a history of transactions with a certain person or a history of transactions of a certain nature. The first is called a personal account and the second is called a business account. Personal accounts are explained to some extent by their name. Business accounts (to make another subdivision) may be separated broadly into three classes: (i) money re- ceived and paid; (2) goods bought and sold; (3) the cost of carrying on the busi- 35 MONEY ness. These accounts are named, respec- tively, Cash, Merchandise, and Expense. We shall now study the origin and growth of an account on the principle applied to the study of money values. In a previous chapter the subject of debts has been treated. The simplest form of an account, and probably the earliest one, is the record of a debt. This record may have been inscribed, thousands of years ago, by an Assyrian merchant on a clay tablet, which was then baked into a brick. Or, perhaps, earlier still, the same thing may have been done by a business man of the Hittites. Later on, the Egyptians kept accounts in hieroglyphics, and the Phoenicians made records in letters of their alphabet. The system of keeping accounts goes by the name of " bookkeeping." Like all systems it has a technical jargon of its own. Because of the jargon many people have received the impression that bookkeeping, the sci- ence of accounts, is difficult to understand. Such is not the case. In this science there is but one rule to be learned by heart. This KEEPING ACCOUNT OF MONEY rule is the corner-stone of the system; and it never varies. In the study of foreign lan- guages, for instance, the rules of grammar have many exceptions. In bookkeeping there is one rule and no exception. We shall now try to trace this fundamental rule. Business transactions with a person may be of two kinds, value given him and value received from him. In the earliest accounts namely, records of debts the merchant wrote the name of the person who owed him money, then probably a description of what was sold to this person, and finally the amount he owed. When the person paid his debt it is probable that no record of the payment was made. The clay tablet was simply broken by the Hittite or Assyrian merchant. Oriental nations, as a rule, write from right to left, and therefore the inscription recording a debt probably was begun at the right side of the clay tablet. The Greeks and Romans, who did their writing from left to right, doubtless began their accounts on the left side of the papyrus or wax tab- 37 MONEY lets used by them. The inventors of mod- ern bookkeeping, being descendants of the Romans, followed this course, and thus, in all probability, the custom arose of record- ing debts due by a customer on the left side of an account. However this may be, it is a fact that this custom exists. In telling the story of business transactions, that is to say, in keeping accounts, we must follow this custom, in order that our story may be intelligible to the readers. We have seen that the earliest and sim- plest account was probably a record of a single debt. When the debt was paid, the account was destroyed. Gradually the rec- ords became more complex, when debts and payments alternated, and when partial pay- ments were made. Breaking a clay tablet, or drawing a canceling line through a papy- rus record, or smoothing the surface of a wax tablet was found too primitive and un- satisfactory a method of recording pay- ments. At first the written records of debts and their payment followed each other in the order of their occurrence. But this was 38 KEEPING ACCOUNT OF MONEY found unsatisfactory in its turn. A record was needed which would show quickly how much money was owed by the person whose name was at the head of the account. A line was drawn down the center of the rec- ord, dividing the debts from the payments; on the right side payments were recorded; and both debts and payments were entered in the order of their occurrence. The whole story was told and its conclusion was clearly understood by the reader. Thus, in all probability, common sense and custom brought about the adoption of the one rule, the fundamental rule^ of the science of accounts. On the left-hand side of the ac- count were recorded the values of all that the customer received in other words, his debts. On the right-hand side of the ac- count were recorded the payments made by the customer to offset his indebtedness. The rule of bookkeeping, then, is as fol- lows : " Charge an account with the value of all that it receives ; and credit an account with the value of all that it gives." Every- thing that is done in accounting, from be- 39 MONEY ginning to end, without exception, is done in accordance with this rule. Bookkeeping may be said to be composed of addition, multiplication, and common sense. This rule, which appears so logical when applied to personal accounts, can also be made to appear equally clear in its applica- tion when business accounts are in question. This is particularly the case with those who are beginning the study of bookkeeping. Suppose, for example, we take a transaction in which a man pays money in settlement of a debt previously contracted. A cus- tomer named Edward C. Williams, who bought one hundred dollars' worth of goods some time ago, without paying for them, now comes and pays one hundred dollars. According to the rule, his account must be credited with one hundred dollars. It is not clear to the beginner why the Cash Account must be charged with one hundred dollars. Nevertheless, it is a fact that the Cash Ac- count must be so charged or debited these two words having the same meaning. Let us now proceed to analyze the transaction. 40 KEEPING ACCOUNT OF MONEY We will put aside, for the moment, all consideration of Cash Account as an ab- stract idea, and confine our attention to per- sonal accounts alone. We will suppose that,, when the business is started, a young rela- tive of the proprietor, named Henry Jones, wishes to obtain a practical knowledge of business. He agrees, in exchange for the information he will gain thereby, to act as cashier for a time. He is given the key to the cash drawer and the combination to the safe, and is placed in full charge of the money. On the day that the business opens, the proprietor has one thousand dollars in currency. This sum he hands to Jones, who locks it up in the safe. It is quite evi- dent that this sum of money is not the per- sonal property of Jones. It is the property of the proprietor, held in trust by Jones, and subject to the demand of the owner. In other words, it is a debt owed by Jones to the business. It is therefore perfectly proper to open an account on the books of the business under the heading " Henry Jones," and to charge that account with MONEY one thousand dollars. Now, let us suppose that a customer buys ten dollars' worth of goods and pays for them in cash. The cus- tomer is a stranger. We do not know his name, and we do not need to know it. The proprietor sells the goods, hands them to the customer, and receives the money. Then, after the customer has gone away, the proprietor hands the ten dollars to Jones, who locks the money up in the cash drawer. Evidently he owes the business ten dollars more, and the account of Henry Jones is therefore charged with ten dollars in addition to the previous charge of one thousand dollars. Leaving this form of transaction for the time being, let us suppose that another cus- tomer, J. J. Stone, buys one hundred dol- lars' worth of goods, but does not pay for them. Under the rule, his account is charged with one hundred dollars. A month later, Stone comes in and pays one hundred dol- lars in cash. According to the rule, his ac- count is then credited with one hundred dollars. But something else has happened 42 KEEPING ACCOUNT OF MONEY besides the payment by Stone. The money that he has given to the proprietor has been handed by the latter to Jones, who has locked it up in the safe. It is not sufficient to credit the account of Stone with one hundred dollars. Another account is in- volved. Henry Jones must be charged with one hundred dollars. Not only must the ac- count that gives be credited, but the account that receives must be charged. This is the rule. Stone has given, and Jones has re- ceived. So far as practical results are concerned, it makes no difference whether the account of the person who has charge of the money in this case is kept under the heading " Henry Jones" or under the heading "Cash." It is the custom, however, to give the title "Cash" to the account of the cashier, what- ever the name of the cashier may be. Let us now consider the three classes of business accounts, Cash, Merchandise, and Expense. In order to become familiar with them, they can all be represented as persons if we so desire. Cash Account can be our 43 MONEY account with the person who has charge of the money in other words, our cashier. Merchandise Account may be our account with the person who has charge of the goods namely, our stock clerk. Expense may be our account with the person authorized to provide everything necessary for the proper conduct of our business. Let us take the first of these accounts ; for example, cash which has been received by the business. It may be money con- tributed by the owner as capital ; it may be money received from the sale of goods ; or it may be money paid by a customer in set- tlement of a debt. In any case, this cash is handed to the cashier. It is not the property of the cashier; but it is the property of the business, temporarily in the hands of the cashier for safe-keeping. In other words, it is a debt owed by the cashier to the business. The cashier has received value, and conse- quently owes that value to the business. The rule of bookkeeping is applied, and the ac- count of the cashier namely, Cash Ac- count is charged. KEEPING ACCOUNT OF MONEY Later on, cash is paid out by the business. It may be money withdrawn by the owner for personal expenses. 1 1 may be money paid for the purchase of goods, or it may be money paid to a creditor in settlement of a debt. In any case, the cashier is directed to pay, and he does pay. The money paid by the cashier is not his own property, but it is the property of the business. In other words, the cashier, when he is directed to pay out money and obeys his instructions, is thereby returning to the business a part of the money which he owed to the business. The rule of bookkeeping is applied, and the account of the cashier namely, Cash Ac- count is credited. The Merchandise Account can be treated as a person in like manner. When goods are bought with the intention of selling them at a profit, these goods are given into the care of the stock clerk. His account namely, Merchandise is charged with the cost of the goods. This is done because the goods are not the property of the stock clerk, and he owes the business the amount the goods 45 MONEY are worth. When he returns the goods, he ceases to owe for them, and the debt is thereby paid. But when goods are sold, the stock clerk is directed to deliver them to the customer. When he does so, he has practi- cally returned the goods to the business from which he received them. The account of the stock clerk namely, Merchandise Ac- count is therefore credited with the value of these goods delivered by him for which he no longer owes the business. The difference between the Merchandise Account and the Expense Account is theo- retical, although the application of the rule to these accounts is eminently practical. The difference is one of intention. The Mer- chandise Account is charged with the cost of things purchased with the intention of sell- ing them again for profit. The Expense Ac- count is charged with the cost of things pur- chased with no intention of selling them again for profit or otherwise. In the operation of any business, however, it is necessary to pay out sums of money for such items as fuel, light, clerk hire, stationery, etc. ; and these 46 KEEPING ACCOUNT OF MONEY items are usually spoken of as expense items. These expenses, and others of a simi- lar nature, are properly charged (debited) to the Expense Account. Before explaining separately the specimen accounts that are shown on pages 48 and 49, a few words of general explanation are needed. The difference, in dollars and cents, be- tween the two sides of each account, shows whether this account owes money to the business or is owed money by the business. The accounts are kept in order that this in- formation can be obtained at any time. Every entry in every account is dated, and the first entry in every account is a guide to the nature of that account. For example, if the first entry in an account is a charge for merchandise, it is almost cer- tain that it is the account of a customer. On the other hand, if the first entry is a credit for merchandise, we may be practically sure that this is the account of one of the firm's creditors. The account of Philip S. Morgan is that 47 MONEY o o 1 s M- ^ I 1 | 3 1 R ! s s Xrj _ C\| (T\ cs 1* s || | ll . .R = h*^ , CO s O O . ,, o "S" B ^ fe o $ R^ _ ^> t^ .j ^^j 1 1 . O 1 i s * Xi o ^o *t ** ^A, 48 KEEPING ACCOUNT OF MONEY c! 4 March J > '9 l6 ' o ' o* Brown Brothers & Co. of New York S? O c *$ or ourselves j pay this travelers cheque for Ten -a / *~ N ** Q r w 12 % Dollars, or its equivalent as specified, O *! *8 w w I to the order of $10 "iL m if negotiated within two years from ^ Countersignature. ^ j ts d ate j n accordance with the di- o .............. Q rections printed hereon. PQ See signature above. (Signed) BROWN, SHIPLEY & Co. In the blank space shown in the form above, the following amounts are given as 114 TRAVEL the equivalents which will be paid in vari- ous countries: Great Britain, Ireland 2 '* Io France, Belgium, Switzerland Fr. 51.25 Denmark, Norway, Sweden Kr. 36.70 Holland Fl. 24.55 Germany Mks. 41.65 Russia Roubles 1 9.20 Austria, Hungary Kf. 49.00 Italy Lire 51.25 U.S. America, Canada $10.00 Travelers' checks are issued by the same banks and bankers as those that issue letters of credit, and they are also issued by ex- press companies and by tourists' agencies. They are issued in little books, each book containing a certain number of checks for $10, $10, $50, and |ioo. Williams could pay Brown Brothers & Co. $800, and he would receive in exchange a book containing checks like the above for different sums; for instance: 20 checks for $10 each $200 10 20 200 4 50 200 2 100 200 Total $800 "5 MONEY Whenever he needed cash in any city of Europe, Williams would look in his list for the name of the correspondent of Brown Brothers & Co. in that city. He would write the name of such correspondent in the blank space on the check, and would write his own name on the line underneath the word " count- ersignature." Then he could obtain from that correspondent the amount of money specified on the check. If any of the checks remain unused, they can be cashed by Williams on his return, at the office of Brown Brothers & Co. CHAPTER XV BUYING BUSINESS practice may properly be divided into six parts: Buying, Receiving, Paying, Selling, Delivering, Collecting. We shall first give two words of advice in regard to buying. The two words are " caveat emptor." They mean, " Let the buyer beware "; and these words have been used in law for generations. The law takes it for granted that a man who buys some- thing will have enough interest in what he is doing to examine with reasonable care the article which he buys. The law gives him credit also for sufficient intelligence, when he looks at an article, to see what it would appear to be to a man of ordinary common sense. If a man buys something, and finds out afterwards that he did not get what he thought he was buying, he can either MONEY suffer his loss or call on the law to give him what he thinks are his rights. If he chooses the second course of action, he begins by en- gaging a lawyer. Then his lawyer brings suit against the seller of the article. After a long time usually a very long time the case is tried in the courts. It is not enough for the buyer to feel perfectly sure that he has been cheated. He must actually prove that he has been cheated. He must prove that, in buying the article, he showed as much care as a man of ordinary common sense might have been expected to show. And then he must prove that the seller cheated him by making him believe that the article was more valuable to him than it really was. If he cannot prove these to be facts, he will not only suffer the same loss as though he had not gone to law, but he will be obliged to pay his lawyer's fee, and probably all or a part of the cost of the trial It can readily be understood, then, that a buyer must not be careless. Fortunately, most people are honest. Some are honest only because they believe in the old proverb, 118 BUYING " Honesty is the best policy" ; but a greater number of people are honest because it is their nature to be so. And the meaning of the word "honesty," in business, is becom- ing stricter as time goes on. Twenty years ago, business men thought that certain ac- tions were perfectly fair which to-day no honorable business man would think of committing. But it is not possible for a merchant to look at everything which he buys. If he employs a buyer, of course the buyer is bound to show reasonable care in making purchases. But many purchases are made from sellers who are far away, and from whom the goods are ordered by mail or telegraph. In such cases the buyer is pro- tected by custom. He is usually not ex- pected to pay for the goods until they have been sent to him and he has had a chance to examine them. If he finds that the goods are not what they are represented to be, he can refuse to pay for them. Then the seller can take them back or else he, in his turn, can call in the aid of the law. But in this case 119 MONEY the seller will be forced to prove that the goods were exactly what the buyer had agreed to purchase. A merchant always wishes to buy for as low a price as possible and to sell for as high a price as possible. There are two kinds of buying by which a low price can be ex- pected buying a large quantity and pay- ing promptly. Either, or both, of these methods can be adopted if the buyer is able to make use of them. Some merchants, who have very little ready money, buy goods with the agreement that they can wait a long time, say four months, before paying for them. They expect to be able to sell the goods to their customers and collect the money for them before they themselves are obliged to pay. In this case they cannot buy the goods as cheaply as if they paid cash, and thus they cannot expect to make so much profit. Moreover, if the four months pass by before they have sold many of the goods or before they have been paid for, they themselves will be called upon to pay. Unless they can get cash to pay the bill, 1 20 BUYING they will be forced to fail. A merchant may have goods in his store worth thousands of dollars, but if he cannot obtain cash to pay his bills when due, he fails. 1 Buying a very large quantity of goods will generally cause a lower price to be made than if a smaller quantity were bought. But some merchants have ruined themselves by purchasing larger quantities than were rea- sonable. They could not find customers for them all, and the goods became less valu- able as time went on and as they grew older and stale or out of fashion. A merchant is likely to be more success- ful if he is able to buy as large a quantity of goods at one time as he can sell quickly, and if he has sufficient capital to pay cash for them at once. The seller often gives the buyer a choice in the time of payment. When the goods are ordered and have been sent, the seller makes out a bill with some such heading as 1 The meaning of the word " fail," in a business sense, will be explained when we discuss the subject of paying for purchases. 121 MONEY this: "Terms: 2/10, 1/30, net 60." This means that, if the buyer waits 60 days be- fore paying, he must pay the full amount of the bill ; if he waits not more than 30 days, he can deduct i per cent from the bill; and if he pays before 10 days have passed, he can deduct 2 per cent from the bill. By purchasing goods in fairly large quan- tity, and paying cash, a merchant can ex- pect to make a reasonable profit on selling. Sometimes, however, a buyer who watches for opportunities and takes advantage of them has unusual chances to obtain goods at special prices. In cases like these, he will have an extra profit when the goods are sold, and this is known in the language of accounts as " profit on buying." CHAPTER XVI RECEIVING WHEN merchandise has been bought, it can be delivered to the buyer in one of sev- eral ways: he may receive it in. his hands across the counter; it may be sent to him by mail ; the seller may send it to him by messenger or delivery wagon ; or it may be sent by express or by freight. Sending goods by freight is usually both the slowest and the cheapest method of shipment. By every one of these methods except the last, the merchandise is delivered directly to the buyer. Goods shipped to him by freight are brought by a railroad or steamship line to its freight station, and the buyer must send to that place for them. In every case, except when goods are sold and delivered across the counter, it is the custom for the buyer, or some one who rep- resents him, to sign a receipt for the goods when they are delivered. When merchandise is sent by freight, the railroad company or 123 MONEY steamship line gives the shipper (the per- son who sends the goods) a paper called a bill of lading. This paper is a receipt for the goods. It states exactly what goods have been received, where they are to be taken, to whom they are to be delivered, and how much is to be paid to the railroad or steam- ship line for its services. The bill of lading may state that the goods are to be delivered to a certain per- son, or it may state that the goods are to be delivered to the order of a certain person. In the first case, the person to whom the goods are shipped can send his teamster for them with a truck, and the goods will be delivered as soon as a receipt has been signed by the truckman. But if the bill of lading states that the goods are to be de- livered to the order of a certain person, the railroad or steamship company will not de- liver the goods unless the bill of lading is handed to them by the person who comes for the goods. Also, the person to whose order goods have been sent must endorse the bill of lading by writing his name on 124 RECEIVING the back of it. If he wishes to do so, he can sell the goods to some one else before he receives them. In that case he endorses the bill of lading and gives it to the buyer, and the buyer sends his own truckman with the bill of lading, to get the goods. Railroads and steamship companies are accustomed, as soon as goods arrive at the freight station, to send written notices to persons to whom the goods are shipped. A certain time is allowed in which to call for the goods. After that time a charge is made for storage. The length of time al- lowed is fixed by custom, or else is stated in the bill of lading or arrival notice. When merchandise which has been bought has been received in one of these ways, the merchant or some clerk should examine it as carefully as may be necessary, to see if the merchandise which has been re- ceived is of the right quality and quantity. Then it is put in its proper place in the store or warehouse. A record should be made of all goods as soon as they have been received. This record is written in the 125 MONEY stock book) and the figures in it represent quantities not dollars and cents. A sepa- rate page, or part of a page, is given to each purchase. The goods are described by their trade name, the mark or brand on the pack- ages, and the quantity. Then, as the goods are delivered after being sold, the deliveries are recorded, one after another, on the same page, until all have been delivered. The stock clerk is responsible for keep- ing the stock book correctly. From time to time it is the custom for merchants to make an inventory of their goods; or, as it is sometimes expressed, to take account of stock. At such times, the stock clerk takes his stock book and a piece of paper, and figures out what goods are in the store accord- ing to the records. While he is doing this, another clerk is engaged in counting the goods and making a list of what is actually in the store. The two results ought to agree, and will, unless some mistake has been made. All goods in the store should be pro- tected by fire insurance. When merchandise is sent by express, 126 RECEIVING the express company agrees to deliver it in good order to the person to whom it is sent. If the merchandise is destroyed or damaged by fire or otherwise, before it is delivered the express company must pay for it. If merchandise is shipped by freight on a rail- road, the company must pay for damages by fire or otherwise while the goods are still in the cars. After they have been unloaded at the freight station the owner must insure the goods against fire. When merchandise is sent by freight in a ship, the owners of the ship are not re- sponsible for damage to the goods during the voyage. The owner of the goods is obliged to protect them by what is called marine insurance. In the case of fire insurance and marine insurance, a certain sum of money is paid to the insurance company by the owner of the merchandise. The company gives the owner a paper called a policy, which is a promise to pay the value of certain goods in case they are destroyed or damaged within a certain time or during a certain voyage. CHAPTER XVII PAYING A BUSINESS man should try to arrange his affairs so that it will be convenient for him always to pay at the proper time for what he has bought. Of course he is bound to pay then, whether it is convenient or not. Sometimes his plans may go wrong. A cus- tomer may not pay money that seemed almost certain to be received, or business may be dull and sales be few. However, there is one thing he can always do, and there is no excuse for not doing it. He can keep before him a list of the payments which .he is bound to make with the dates when he should pay the amounts due. If a merchant has agreed to pay for goods on a certain date, or if he has signed a note or accepted a draft payable on a certain date, he must arrange to have the money ready at that time or the consequences may be very serious. If he cannot pay the money 128 PAYING when it is due his business reputation is al- ways injured. He may ask the person or firm or corporation, to whom he owes the money to allow him more time, but even if his request is granted, that person or firm or corporation will never again have the same confidence in him. Moreover, the man to whom the money is owed may re- fuse the request. If he chooses he can go to law and sue for the money due. When he has proved that the money was due he can obtain a judgment. That is an order from the court which can be given to an officer called a marshal. The marshal has authority to take as much property belong- ing to the man who owes money as will be sufficient when sold to pay the debt. When this happens to a merchant he is said to have " failed." When a merchant cannot pay money at the time it is due, he usually does not wait for a judgment to be obtained and for his property to be seized. He signs a paper called an assignment^ by which he turns over all his property to some person whom he trusts who is called the 129 MONEY assignee. The duty of this person is to take charge of the business affairs of the mer- chant, to sell his property for as much as possible and as soon as possible, and to pay all his debts if there is money enough ob- tained to do so. When a man fails, it does not always mean that he is a bankrupt. A bankrupt is a person who is unable to pay what he owes and who has been allowed by the law to give up all his property to his creditors ; that is to say, to the persons to whom he owes money. After he has done this according to certain forms of law, the law declares that he no longer owes any money. He can begin business again free of debt, even if the property which he gave up to his creditors was not enough or nearly enough to pay what he owed them. Some- times, however, a merchant who makes an assignment has property which is worth much more money than the amount he owes. In this case the merchant is said to be solvent. His trouble is that, although he has enough property, he has not enough of that property in the form of cash. The as- 130 PAYING signee takes charge of the business, sells whatever property he can dispose of to best advantage, and pays the creditors. Then whatever is left belongs to the merchant. On the other hand, a man who owes more than the value of his property, is said to be insolvent, but there have been merchants who have managed to continue doing busi- ness for a long time after they were insol- vent, because nobody knew it. They were able to get enough cash to pay their debts when they were due and they kept on doing business in hope that some lucky chance might make them solvent once more. However, when a merchant makes an assignment, it is very likely that he will turn out to be insolvent. It is reasonable to suppose that a merchant will use every pos- sible effort to raise money before he will ad- mit that he has failed. He will borrow from his friends, sell goods at a sacrifice, do al- most anything possible, before giving up the fight. In paying for goods which he has bought, a merchant sends a check for the amount MONEY which is due ; or he gives a check to the collector who calls for the payment ; or he pays, at the time when it is due, the note which he gave to the seller of the goods ; or he pays, at the time when it is due, the draft drawn by the seller of the goods. Usu- ally when a merchant signs a note or accepts a draft he makes it payable at his bank. Then it becomes his duty to see that he has enough money in his bank to pay the note or the draft when it is presented for pay- ment. If a merchant has enough ready money on hand he will pay cash when he buys goods, as he can generally buy them cheaper if he pays cash. If he has bought goods " on time," it may happen that he has cash to spare before the time has arrived when he must pay. He should then look over the bills which have been sent to him for goods that he has bought, and find out whether he can obtain a reduction in price by paying ahead of time. He may, for instance, find a bill for goods on which the terms are "2% 10 days, i% 30 days, net 60 days." 132 PAYING It may be just 25 days since he bought the goods. It is too late to obtain the discount of 2 per cent by paying within 10 days, but he still has the choice of paying within the period of 30 days and getting a discount of i per cent, instead of waiting until the pe- riod of 60 days has gone by. Business is regulated by law and by cus- tom. If the law does not say what is to be done in any particular case, then the custom of the trade is the rule to be followed. In the payment of bills, unless there is a dif- ferent custom in some particular line of business, the money is to be paid to the seller on the date due. For example, a mer- chant in New York sells goods to a mer- chant in Boston. The bill is dated Decem- ber 4, 1916, and the terms are 60 days. Payment should be made in New Tork on February 2, 1917, on which date the bill is due. If the Boston merchant mails a check on February 2, he has not paid his bill properly. He is a day behind. If he sends a check on a Boston bank he has done still worse, because the New York merchant may MONEY have to wait for his money until the check has been deposited in his own bank and has been sent on to Boston for collection. The proper way is for the Boston merchant to get from his bank a draft on a New York bank for the amount due, and to mail this draft to the New York merchant on February i. Some business men wait a day or two after a bill is due before paying it. Perhaps the person who receives the money will accept it and say nothing for fear of offending his cus- tomer. Nevertheless, it is a tricky way of doing business and will probably hurt a mer- chant's reputation in time. CHAPTER XVIII SELLING A MERCHANT either buys goods which, as soon as he receives them, are ready for sale to his customers, or else he buys raw ma- terials and manufactures the raw materials into the articles which he intends to sell. In either case, the goods are ready, sooner or later, to be sold. The merchant then can wait for customers to come to him, or he can go and look for customers or send sales- men to do so, or he can combine these two methods. At the present time almost all merchants advertise their goods in some way or other. An advertisement of any kind may be considered a silent salesman, unless it is a device for attracting attention by constant mechanical rapping on the window or some- thing of that nature, in which case it cannot in fact be considered silent. When a new article is about to be offered for sale, large sums of money are sometimes spent for ad- vertising before any profits can possibly be '35 MONEY expected. A great deal of advertising may sometimes result in large sales of even a very inferior article, but such sales cannot con- tinue. When the public discovers that the article is worthless or inferior, the sales will come to an end. But a reasonable amount of money paid for advertising an article of real merit has been proved to be profitable in many cases. The advertising manager of a certain well-known household article is re- ported to have said that even if every woman in the United States bought that article regu- larly, he would still continue to advertise it. Unless he kept on telling his customers that his goods were the best he would expect his sales to grow smaller. When merchandise is to be sold, one of the most important matters to be considered is the price to be set upon it. Of course in the case of goods which are sold by many merchants, it is necessary to consider the price charged by competitors. A merchant cannot expect to sell many goods if other merchants are selling exactly the same kind of goods for less money. We will suppose, 136 SELLING however, that the merchant whose affairs we are discussing is a man who understands his business. He knows that his competitors are not in business for their health, but that they are trying to make money just as he is try- ing to do. In any event, it is better to let his competitors do all the business unless he himself can sell for a profit. A merchant can tell, by looking at his bills, what price he paid for the goods which he bought, how much it cost him for freight and marine insurance and for cartage from the freight station to his store. He knows that he must make his selling price more than this cost in order that he may make a profit. But how much more ? That is the question. Being able to figure costs correctly sometimes makes all the difference between success and failure in business, for there are always three kinds of costs and sometimes four. In the beginning there is the price paid for the goods and the expense of bringing them to the store or warehouse. This is the first cost. MONEY Then comes the manufacturing cost>\n case the merchant is a manufacturer. This in- cludes the wear and tear on machinery, the replacing of worn-out machinery by new, the cost of lighting and heating the factory, the wages of the factory workers, fire insur- ance, taxes on machinery, and the cost of fuel. Next we have the selling cost. This in- cludes the salaries and expenses of salesmen, the freight on goods shipped to customers and other expenses of shipping goods, in- surance on goods which are ready for sale, taxes on the same goods, and advertising. Finally, there is the overhead cost. This includes rent and insurance on buildings, office salaries, stationery, postage and other office supplies, and wear and tear on office furniture and fixtures. If the merchant owns his buildings, then taxes take the place of rent. Let us now suppose that the merchant is not a manufacturer. He must then consider first cost, selling cost, and overhead cost. He buys 2000 of the articles in which he 138 SELLING deals, which cost him $2$ each when de- livered in his store. The costs are as follows : First cost $56,000.00 Selling cost N 6, 500.00 Overhead cost. . 5,500.00 Total $68,000.00 He sells the articles in the course of a year for $3 5.00 each and receives . . . .$70,000.00 His profit is $2,000.00 Let us now consider the difference be- tween selling cost and overhead cost. The selling cost is generally greater or less ac- cording to the amount of business done. The overhead cost generally remains the same, whether many goods are sold or only a few. The merchant looks over his ac- counts and finds that the price which he is charging his customers is 25 per cent above his own first cost. He knows that he cannot charge more, because his competitors are selling the same goods at the same price. He finds that he is paying only the regular rates of salaries and wages and that his sales- 139 MONEY men's expenses and his other charges are no more than reasonable. There is only one answer. The overhead charges are too great in proportion to the amount of business done. He must sell more goods or go out of business. He decides to engage twice as many salesmen and to double the amount of his advertising. By this plan he succeeds in selling 4000 articles in a year instead of 2000. The results are as follows : First cost $112,000.00 Selling cost 1 3,000.00 Overhead cost 5,500.00 Total $130,500.00 Sales 140,000.00 Profit $9,500.00 By doing twice as much business, he has made nearly five times as much profit. In the first case, the merchant sold 2000 ar- ticles and made a net profit of $2000, that is, $ i each. In the second case, he sold 4000 articles and made a net profit of $9500 ; that is, $2.37^ each. 140 SELLING He is now in a position where he is not forced to keep the selling price as high as competition will allow him. He has some choice of his own in determining the price. He calculates that, if he reduces the selling price from $35 to $34, he can probably sell 6000 articles in a year instead of 4000, and also that he can do so without any further in- crease in his selling cost. At the end of an- other year he has sold 6000 articles and the results are as follows: First cost $168,000.00 Selling cost 13,000.00 Overhead cost 5,500.00 Total $186,500.00 Sales 204,000.00 Profit $17,500.00 The 6000 articles have been sold at a net profit of $2.9 1 2 /$ each. By being able to re- duce the price he has sold fifty per cent more goods, he has made a greater net profit on each article, and best of all he has made $8000 more money. It may be well to add that it is hardly 141 MONEY probable that a merchant could do three times his former amount of business without increasing his overhead charge, at least to some extent. Unless sales are made for cash, a mer- chant must be careful to sell only to cus- tomers who are likely to pay promptly. Un- less he happens to know all of his customers personally, which is not often the case, he must make inquiries about them elsewhere. There are certain companies called mercantile agencies who make it a business to collect important information about business men. By paying a certain sum of money every year a merchant can obtain information from one of these agencies about his customers. Some merchants employ a clerk who is called the credit man. His business is to find out everything he can about the customers of the firm and not to let them buy more goods than it is probable they can pay for promptly. The terms on which goods are sold are regulated by the custom of each particular line of business. In some kinds of business the customers are given more time to pay 142 SELLING their bills than in other lines of trade. Also the discounts which are allowed to customers for more prompt payments vary according to the customs of different trades. Where the custom permits it, a merchant generally asks his customers to give him a note for the amount of his bill or else he arranges to draw a draft on the customer and to have the customer write an acceptance of the draff. There are two reasons for such arrangements. In the first place, the merchant receives a promise in writing from his customer to pay the amount of the bill when it becomes due. In the second place, if the merchant hap- pens to need cash, he can take the note or the accepted draft to his bank and discount it. It is becoming more and more the cus- tom for merchants to obtain accepted drafts from their customers. Sometimes, when the seller is a little doubtful of the ability of his customer to pay promptly, he agrees to make a sale if the buyer will give a note and have the note endorsed by some one whom the seller considers responsible. A word of explanation is now added as to '43 MONEY the methods of paying salesmen for their services : (1) A fixed sum as salary. (2) A commission, consisting of a certain percentage on the value of the goods sold by him. (3) Partly salary and partly commission. With some exceptions, the best salesmen prefer to receive no salary, but a commission only. The reason is that an employer will always agree to pay a higher percentage of commission on sales actually made, if he is under no obligation to pay a fixed salary whether the employee is successful in mak- ing sales or not. A salesman who has confidence in his own ability will reason in the following fashion : "Suppose that I get a salary. I must sell enough goods to satisfy my employer or I shall sooner or later be discharged. I know that I am a good salesman and of course I shall succeed in selling enough goods to satisfy my employer. Well, since I expect to succeed I will show my confidence in my- 144 SELLING self by asking for a high commission, to be paid only if I 'make good/ rather than a small salary, to be paid whether I make good or not." CHAPTER XIX DELIVERING MERCHANDISE when sold may be delivered to the buyer by handing it to him across the counter, or it may be sent to him by mes- senger or delivery wagon, or it may be sent by mail or express or freight. In any one of these cases the price of the goods may be collected on delivery, or the customer's ac- count may be charged and payment may be collected at a future time. When goods are sent by messenger or delivery wagon, it is customary to have a receipt prepared in ad- vance, which is to be signed by the customer, or by some one who represents him, when the goods are delivered. Merchandise is seldom sent by mail except in small quantities. A mail package can be registered, in which case the post-office officials will obtain a receipt from the customer when the package is de- livered. This receipt will be returned to the sender, if he so requests at the time the pack- 146 DELIVERING age is sent. Goods in packages of small size but of great value, such as diamonds or stocks and bonds, are often sent by registered mail. In such cases the merchandise is usually in- sured by the sender. It is placed in a pack- age by a notary public who seals the pack- age himself and mails it himself. Then the notary signs a document stating just what he has done. In case of loss this document is shown, as part of the proof of loss, to the insurance company which issued a policy of insurance on the merchandise. Goods sent by express will be insured by the express company for a payment in ad- dition to the regular express charges. Ex- press companies always take a receipt when packages are delivered. When goods are sent by freight, it is necessary to make out at least three copies of a form of receipt called a bill of lading. The railroad or steamship company will sign two of the copies as soon as the goods are received by them. The third copy is kept by the company. The two signed copies are given to the person who sends MONEY the goods. Sometimes four copies of the bill of lading are made out. This is often done when goods are sent across the ocean. One copy, called the captain s copy, is kept by the company. One signed copy is marked