54 UNIVERSITY OF COLORADO STUDIES 



ating and must place confidence in the honesty and good judgment of 

 others. 



The magnitude of modern industry has increased. There is greater 

 competition in business. Modern business is done on credit, and, owing 

 to the increase in competition and the size of industries, larger loans 

 and more credit are constantly demanded. Therefore the result is an 

 increase in the use of credit. Individuals who did not think of using 

 credit a dozen years ago are now demanding it and having secured it 

 are engaging in new enterprises. 



The services of credit are of inestimable value in industry. Property 

 cannot always be sold when the owner desires purchasing power. By 

 the use of credit, however, property can be coined into money and 

 exchanged for goods. The result is that the management of industry 

 is put into the hands of the most capable managers by this use of credit. 

 Individuals who happen to have the money on hand are not always 

 the most capable to undertake the management of industry. 



Credit is obtained through banks. They are the credit institutions 

 of society. They flourish by having the confidence of the community. 

 Their business is to coin goods into a means of payment. Their services 

 in turning goods into credit and in this way encouraging the growth of 

 industry and the progress of civilization are beyond measure. 



The banker turns goods into purchasing power on his own responsi- 

 bility. He alone decides how much credit shall be given in any case. 

 He determines how large the mortgage on the house or farm shall be, 

 and how large a loan on the various kinds of collateral offered may safely 

 be given. The importance of good judgment in the banker is at once 

 apparent. Poor judgment brings a banker to speedy financial ruin. 

 The test of good banking is whether or not there is an actual movement 

 of goods back of the credit given. 



Banks give two kinds of credit, normal and abnormal. Normal 

 credit is credit given for goods. It expands with growing wealth and 

 the increase of commodities. When credit is given based on goods there 

 is not likely to be an undue expansion of it. The expansion of this sort 

 of credit is not to be feared and its effect on the general price level can 

 not be more than temporary. 



