W. Lacey Amy
Busy Man’s Magazine 1 October 1909
This magazine is presumably
the parent of MacLean’s Magazine.
It is also the background to the "Luke Allan" novel The Westerner, 1923/drf
It is also the background to the "Luke Allan" novel The Westerner, 1923/drf
TO the query as to what had been the foundation for the great
progress in the Canadian West, a student of the country would unhesitatingly
answer: “the credit system.” And yet when questioned as to what was now doing
as much as anything else to retard the growth of the country, the same man
would answer in the same way. The business system that has been and is the
all-prevailing feature of exchange in that country is credit.
It was not the trust of one man in another that made credit a
success. It was the knowledge that the creditor was debtor to some other person
and that barter was only possible under such a condition. It is not trust and
confidence that makes credit still reckless, but the force of habit and the
apparent inability to break it. Credit between man and man is almost as great
as ever, although now everyone sees its disadvantages.
Until a couple of years ago all business was done on paper or on
trust. Transactions involving thousands of dollars were carried on without the
exchange of a cent or of only a few dollars. The country was new, settlers had
little available cash, men had to live and supplies had to be procured. From
crop to crop or for the first couple of years of a settler’s life there the
merchants carried the people, the seller put the buyer in possession on paper
payment. Credit was an absolute necessity. Bills would run for three or four
years and yet be just as good at the end of that time as when incurred. Year
after year the same farmer would buy his provisions without even explaining
that he couldn’t pay the last bill. Then when he got the money from a good crop
he would usually pay up and proceed to keep his credit good by running another
bill. Without this accommodation the country could never have been settled.
But conditions have changed. Credit is not much more a necessity to
the west than it is to the east. Still in the ordinary business it continues
almost as strong as ever, the banks being the only ones to curtail reckless
lending. Up to the winter of 1906 the banks were as free and easy credit-givers
as were private individuals. Money was offered to every man with a fairly
straight eye and any proposition short of a tram-car line to the moon. Men
secured money when they didn’t need it, bought real estate in order to find a
place for it, made their profits and returned the money—with a request for
another loan. In 1906 the profits were irregular and after a few losses the
banks began to use judgement. However, credit had got such a firm hold of the
people that in many towns they seemed to know of no other way of doing business.
Thus it continues to the present time, only a few of the smaller towns and
villages having seen the inauguration of a cash system.
The extent of credit varies according to the district. In
agricultural districts fed by small towns the merchants carry the farmers from
crop to crop with non-payment in bad crop years. In ranching districts it is
much worse. Ranchers may not visit their supply town more than once a year and
often not that often. I know of several ranchers who “come in” only once in two
years. As one old two year-variety rancher said to me, “its terrible the money
you spend when you get to town.” In such a town ranchers will run bills for
years. One rancher will cart out the supplies for a half dozen and the merchant
may never see his debtor for several years. The result is that the amount in a
merchant’s books will run to incredible amounts. In one city in Alberta, the
proprietor of what would be called a small hardware store in the east had
$40,000 on his books, and another store of the same kind in the same city was
carrying $30,000. The slump of 1907 and 1908 forced them to a closer inspection
of “charges” and the amounts were materially decreased.
Accounts are sent out only quarterly by many merchants and often at
greater intervals, although this is rapidly changing. What I discovered in the
fall of 1906 upon landing in the west was the quarterly account system prevailing
in my line of business (newspaper). I started right in on monthly accounts and
was met for the first few months by angry merchants wanting to know if I didn’t
think them good for the money or was I so hard up that I had to collect every
month. Fortunately I persisted and had the satisfaction of convincing them of
the wisdom of monthly collections, many of them being displeased when their bills
were not collected monthly.
Therein comes another feature of the credit business—that you can
bill nine out of ten business men till you eat up the bill without getting any
recognition. You have to make a personal call to collect. And the majority of
those who owe you will have to figure from their bank book to see if there are
enough funds to meet their checks. It is not an uncommon thing to have checks
returned marked “no funds,” the maker merely saving in answer that he didn't
think the bank would cash it, but he thought he'd risk it.”
Several attempts have been made to start a cash system in western
towns but only a few have succeeded. Sometimes the jealousy of the merchants
interfered, sometimes they will not trust each other, and sometimes the public
itself rises in protest. A railway town is sure to be a strong credit town.
Railwaymen are paid by check on the 15th of each month. Bills are always sent
out in consideration of this date and more payments are made at the stores in
the four days following pay day than during all the rest of the month. A
railway man never pays cash. Invariably he pays for last month’s purchases out
of this month's check. As a rule he sets aside so much to deposit in the bank,
and the remainder is spread around in payment, the deposit never being touched
however small a part of his indebtedness the remainder may cover. Thus a
merchant may be omitted on pay day while the bank account grows, or while
investments in real estate continue. It was a knowledge of the manner in which
they were being held off while the banks or investments were receiving the
money that banded many merchants together last year to demand quicker payments.
One of the schemes adopted to encourage cash buying was the offering
of a ten per cent, discount for cash. And yet this had surprisingly little
effect, the majority of the people preferring credit even for a month to a
discount for cash.
When the discount was first spoken of in one city some of the
merchants thought it was impossible to give that much. In spite of the high
prices asked they claimed they would be losing money on such a discount. A man
interested in bringing in the cash system visited a certain store in a city and
was met by that argument given in all honesty. The man did not show the
merchant, as he could have done, where he was making a profit as high as 200
per cent, and even more on some of his stock.
He argued, “What is the average length of time your accounts
run—average in amount?” (for the large accounts run much longer than the
smaller ones, as a rule).
“Oh, about a year,” answered the merchant.
“And what is money worth here?”
“Eight per cent.”
“At what do you figure your percentage of loss?”
“About three per cent or maybe more.”
“Now,” said the advocate of cash, “you argue that you would lose
money on allowing a ten per cent, discount, whereas on your own figures credit
is costing you eight per cent, for interest, and three per cent for loss, with
all the extra cost of billing, a higher-paid bookkeeper, inability to take
advantage of cash discount at all times, to say nothing of the worry. In all,
fifteen per cent, would scarcely cover your credit system.” And the merchant
had been so brought up to credit that he had never thought of it in that way.
Scarcely any man in the west knows what he is really worth nor
within a wide margin. He may estimate himself as worth a hundred thousand, and
he might have to borrow to buy a new hat—but the chances are he would run a
bill for it. To do business in the west a man must have a large bank account or
buy on credit. People expect him to give credit, and many a good business
received mention in Dun’s bankrupt list during the past two years, only because
the ready cash was not available. A man worth fifty thousand dollars can be
forced into bankrupcy for as many cents.
In real estate deals the credit system or something similar is in force,
although to a limited extent since the slump. Up to 1907 men were most reckless
with their real estate speculations. A man bought with a five dollar bill and
sold for another bill, the transaction being repeated a dozen times on a
five-dollar bill. And yet each seller would probably be making a few thousand
dollars. A speculator would buy an option for a week or a month. In the
meantime he would sell, and sometimes two or three sales took place on options
before the first option had expired. Or perhaps a man’s last cent might be
expended entirely upon a re-sale before the second payment was due. In fact
four-fifths of the real estate purchases were made with no prospect of a second
payment being available unless another sale was made. Thus, it often happened
that a man might make his first payment on property, the title to which was in
the hands of a man who figured in a half dozen sales before. The last buyer
might make all his payments in due course, and yet never secure the title to
the land because some one of the previous half dozen buyers had failed in his
payments. The credit system as carried out in this, led to some roguery, of
which little was heard outside the west.
Small payments, and even notes only, would buy most valuable
property. A company of eight young men purchased a quarter-section close to a
town, by giving their notes only to the owner. It cost them $50 apiece to have
the company formed and the land divided into lots. Not another cent did those
men put up. The property was immediately put on the market and double the price
of the land was realized in a month. And, strange to say, the title was handed
over when the notes were given. Scores of instances of a similar transactions
took place on a basis that would never be entertained in the east. At the
present time hundreds of acres of British Columbia fruit lands are being sold
from options only, the middleman being willing to stake all his money on his
ability to dispose of the land, and the owner freely allowing the middleman to
try it.
The hard times of 1907 is working a great change in the business of
the west, and one that is already proving a fine thing for the country.
Directly it has curtailed credit on account of the inability of the merchants
to collect the bills they had allowed to run so long a time. The banks closed
down on promiscuous money lending, and the merchant must pay his bills from his
receipts. It was not the experience of others who attempted to do a credit
business, it was not the arguments against credit, but the chilling knowledge
that thousands of dollars were uncollected, that forced him to use the cash
register instead of the day-book. Honesty in the speculator did not pay his
store accounts. When his real estate deals did not pan out, he left town and
all his debts; he would have paid if he could, and that was all the merchant
got for his leniency.
But still the credit system abounds to an extent that should be
understood by the Easterner who contemplates entering business in the west.
More is required than sufficient capital to purchase a business. It is some
time before the cash receipts will pay the expenses. He must remember that
while he may have five thousand dollars of good debts on his books, there may
not be five dollars in the till to pay the wages.
But then it is probable when that time arrives that he has fallen
into the system in his own transactions. He will simply pay by running a bill.
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