180 BANKING THEORIES IN UNITED STATES

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in early bank statements from all parts of the country and in the
testimony of contemporary writers on financial topics.! It is
often difficult, however, in reading the discussion of the period,
to determine whether the writer is weighing the respective advantages
 of the promissory note and the bill of exchange, or of
accommodation paper and real paper, be the form of the real
paper what it may. Terms were but loosely defined; in some
cases the word “bill” seems to have been laxly used to signify
commercial paper of any description.? Apparently, however,
most of the writers were concerned chiefly with the thesis that
bank discounts should be based upon paper arising out of actual
commercial transactions and, while perhaps recognizing that bills
of exchange are more likely to be of that nature, attached no
great weight to the form of the paper as such. It seems to have
been common usage to designate as accommodation paper any
that is discounted with the expectation that it will be renewed if
requested.’
As in recent years, the abuse of bills of exchange rendered it
difficult to ascribe to them too readily the merits of real paper.
In order to evade the usury laws, banks were prone to inform
prospective borrowers that they were unable to discount notes
drawn at their own counters, but had funds elsewhere that might
be drawn upon. The borrower would thus be forced to pay a

1 The reasons commonly assigned for the decline in importance of the bill of
exchange since the Civil War are: first, the fluctuating value of the greenbacks,
which encouraged the use of cash terms; and, second, the development of the practice
 of selling by means of samples, which stimulated the use of the open account
(bringing with it the cash-discount policy), because the buyer was unwilling to be
drawn upon before he had seen the goods and assured himself that they were of as
good quality as the sample. See, for example, W. H. Steiner, Mechanism of Commercial
 Credit, pp. 114, 115, and H. L. Reed, Development of Federal Reserve Policy, pp.
107-100.
2 See, for example, Report of the Bank Inspector of Vermont (1838), in U. S.
House of Representatives, 25th Congress, 3d Session, Document 227, p. 53.
“Business paper’’ was a favorite name for real paper; the expressions “trade
paper’ and acceptances were rarely used.
3 Thus the Massachusetts bank commissioners speak of business paper as “sure
of payment at maturity,” whereas accommodation paper derives its name from the
fact that “the debtors are to be accommodated by repeated renewals and extensions.”
 Report, 1839, p. 14.