MR. FARMER: I object to your including that lawyer's bill as one of the necessities of life.
MR. LAWYER: I beg your pardon, but we lawyers are a necessity. Possibly necessary evils, but nevertheless, I insist that we are necessary.
MR. BANKER: Passing over this little quarrel between Mr. Farmer and Mr. Lawyer, Mr. Merchant has hit upon the vital distinction that should always be maintained in commercial banking as distinguished from investment banking as we shall soon see.
MR. LAWYER: There is not one man in a thousand that comprehends the distinction that you have just called our attention to, and I include the bankers when I say that, too. I did not appreciate it myself a week ago, but it is fundamental and must not be overlooked. I want to call your attention to one form of credit that does not grow out of actual transactions in the production and distribution of consumable commodity, and that is accommodation paper.
MR. LABORINGMAN: Accommodation paper? It strikes me as though that was just the kind of paper I wanted. I certainly will take any accommodation that Mr. Banker over there will give me.
MR. LAWYER: Speaking of accommodation paper, Mr. MacLeod says: "We now come to a species of credit which will demand great attention, because it is the curse and plague spot of commerce, and it has been the great cause of those frightful commercial crises which seem to occur periodically; and yet, though there can be no doubt that it is in many cases essentially fraudulent, yet it is of so subtle a nature as to defy all powers of legislation to cope with it."
The obvious distinction between accommodation paper and promissory notes or bills of exchange here referred to, and all legitimate commercial paper, is this: the accommodation paper represents a future transaction, something to be done, while the true commercial paper represents a past transaction, or something that has been done; for example, goods that had been manufactured and are ready for sale or have been sold and shipped.
MR. BANKER: Mr. Lawyer, will you allow me to illustrate that distinction?
MR. BANKER: If Mr. Manufacturer there should make ten different sales of clothing of $5,000 each, and then send out ten drafts to his ten customers, who accepted them and returned them, these ten drafts would be called real bills of exchange, or let us call them true commercial bills, because the ten men have purchased and agreed to pay for the goods received by them. Should the ten men have sent their promissory notes to Mr. Manufacturer, they would be identically the same thing as the drafts which they had accepted, and answer identically the same purpose.