RURAL CREDIT

Dominion, Volume 16, Issue 102, 16 January 1923, Page 9

RURAL CREDIT

ECONOMIC CONSIDERATIONS CAUTION NECESSARY “A Brief Survey of Rural Credit in New Zealand” was tho subject of a paper prepared for the Social Statistical Section of tho Science Congress yesterday by Professor J. B. Condliffe, and Mr. 11. Belshaw, M.A., both of Canterbury College, Christchurch. The problems of rural credit, it was pointed out, were perhaps the most important economic problems confronting New Zealand at the present time, since over 90 per cent, of the Dominion’s purchasing power in tho markets of the world was supplied by the pastoral industries alone. Undesirable Existing Features. The capital winch was needed for tho efficient working of rural industries was mostly borrowed, and ono of the most undesirable features of the whole problem was. the fact that tlie Substantial commission ji to bo made on sales and exchanges of properties often induce lending, concerns to advance credit on farming enterprises which, oven in the boom period woro financially riskv. and, as soon as depression came, became bankrupt. The activity of the State Advances to Settlers’ Department had . done something to make the provision of fixed capital easier for the borrower, but tho limitations of the advances may be realised when it was pointed out that the average advance was £413, which must rank as a. first mortgage. upon adequate security. Tho temporary forms of credit, as well as tho more riskv portions of the fixed capital required, were provided by the various commercial agency companies and the quasi-co-operative farmers’ associations. • Risks of System. Although, speaking broadly, .the mint stock banks preferred not to finance farmers directly. Tn the long run whatever credit was advanced to the farming industries came from them, and was under their control. It was advanced to the. farmers through agency companies, loan and finance companies, etc., which took the risks and made their profits out of the connection which they were able, to get with the farming community. It was within the power of the banks to raise tho rate, of interest on overdrafts or otherwise restrict the issue of credit, so as to limit the advances which these intermediaries wore able to make to the farmers. Similarly if when those concerns wore in difficulties. owing to their advances becoming "frozen” in a time of depression, the difficulties recoil in the banks. Tho banking crisis of 1893 was caused in this way. An Uneasy Position. 'The present economic position of New Zealand, despite tho welcome revival, has in it, it was held, elements which should cause considerable anxiety. As a result of the post-war boom following upon tho prosperous war period, which in turn followed twenty years of almost uninterrupted prosperity, the various credit agencies (and the Government) have been so free in their financing of farmers that tho chief industries of the Dominion were in many cases seriously over-capitalis-ed. Tho hoavv and growing burden of the Public Debt was paralleled by tho groat amount of mortgages owing, to which must be added the substantial advances which are secured in other ways than by mortgage. Pre-War Prosperity Remote. The prospect was uncertain, but the condition of Europe was sufficient to make it clear that there can be no immediate return of pre-war prosperity, which depended upon a constantly rising price level. Tho present indications were rather for a generally falling tendency of the price-level; and that the present welcome reaction from the unnaturally low level of prices in the panic stage of the crisis cannot long bo maintained. Further inflation Deprecated. The conclusion arrived at was that since it was clear that the rural industries are suffering not so much from a shortage of credit at the moment as from unsound finance resulting from too much credit in the immediate past, no economist can view with equanimity schemes which offer even a danger of further inflation of credit. The solutions of the Dominion’s economic difficulties, it was stated, would not be found in a further era of cheap credit based either on borrowing or internal inflation. Caution Desirable. . The scheme for rural credit associations, while admirable within limits, could do little or nothing to assist tho present difficulties. Much the same may bo said of the proposal for a State bank. If such schemes were used to provide more liberal credit facilities in an endeavour to evade recognition of the plain facts of the pjeseut situation, the result would bo disastrous. There was much to bo gained from the building up of true co-operative associations to act as go-betweens for the farmers.and tho banks; but such associations, if kept to. their legitimate sphere, would do nothing to solvo tho present problem of over-capitalisation. It was to be remembered, said the authors in conclusion, that the largest and most severe financial depression experienced by the Dominion was the period of falling prices from 1873’t0 1895. Tho difficulties of that, period were very largely duo to unwise borrowing and a. consequent land boom in tho early seventies, resulting in overcapitalisation. which finally recoiled upon the banks.