The Evening Star THURSDAY, AUGUST 12, 1926. RURAL CREDITS SCHEME.

Evening Star, Issue 19326, 12 August 1926, Page 4

The Evening Star THURSDAY, AUGUST 12, 1926. RURAL CREDITS SCHEME.

The report of the Commission on Rural Credits is lengthy and somewhat intricate. Those who care to delve into its intricacies may do so and welcome; they are to be found elsewhere in this issue. For our own part we feel no need for analysing them. They appear to amount to no more than conducting farmers’ finance on the lines already in vogue here for many years, but by much more round-about methods, some of which methods appear to have in them an element of danger as well as of cumbersome snperfluousness and possibly some added expense. What the farmer wants or thinks he wants is cheaper money. Boiled down to bare bones this Commission recommends that it shall be provided by the State through a farm loan branch of the State Advances Office. Apart from the proposed new machinery New Zealand already has this, but it is not working, so far as many would-be borrowers are concerned. The trouble is that the State cannot itself borrow the money—as it once was able to do—cheap enough to lend it on farm security at rates which the farmer would he willing to • pay without tho operation becoming a serious burden on the taxpayers as a whole. For that reason the State has greatly curtailed its money-lending, activities in this direction at a time when the demand for loans is exceptional. Thus it is that the State Advances Office has sheaves of applications for loans, many of them of two years’ standing, still undoalt with. Is tho mere subdivision of the office going to provide the State with the huge amount of extra capital it would need and provide it also with capacity to utilise that capital without losing on the process?

Tho Commissioners declare that there is need for reform in our rural finance. There is. They say that the object of reform should he “to create confidence by establishing conditions that will make investments in rural securities attractive,” for “ once confidence is secured capital flows freely.” And what are tho conditions which are to bo established to secure confidence? The creation of a Farm Loan Branch of the State Advances Office and tho setting up of Farm Loan Boards (possibly with prospective borrowers on them) with powers to investigate their neighbors’ affairs, it seems—this is the “soundly administered system of rural mortgage which provides capital for the development of the farm at reasonable rates for a long term with amortisation.” This objective smacks very much of the Bank of New Zealand’s prior proposal enunciated at its last annual meeting. As a matter of fact the Commissioners appear to misdoubt the effectiveness of thoir suggested subdivision of the State Advances Office to produce sufficient loan money, for they propose that the local credit associations, supervised by the Farm Loan Board, may have recourse for advances to the existing financial institutions, That is, the banks will

do the business, as heretofore, only it will be through intermediaries. The sole advantageous point about what tho committee proposes is its espousal of long-term loans—advantageous only because the expense and worry of frequent renewal of deeds would be obviated. And even that proposal is not new. r

So superficial are tho Commission’s recommendations that one is forced to suspect that it docs not realise how deep-seated is the trouble over which it was called in by tho Government for consultation. Crises similar to the present one have occurred before, and unless the root of the trouble is got at and dealt with they are likely to occur again. The earliest ones happened to tho pioneers who took up more land than they could handle, and when they got into difficulties they had to turn over what they could not work to others who reaped the benefit of the improvements and prospered because their land was not ovcr-capital-ised. To-day there are multitudes of farmers who cannot farm their laud properly because of the financial burden upon it. They and many of those who propound financial schemes for their relief are in reality only proposing to add to their financial burden. Generally .speaking, borrowing is a vice, and although it may be pleasant enough for the farmer to bo able to borrow money when he likes, in the end ho is only going to he worse off for that borrowing. It is not a kindness to help the farmer to dodge the facts and to keep him going on stimulants. As a matter of fact those most intimately acquainted with tho position have admitted with reluctance, that there are those on the land whom nothing on earth—least of all fresh indebtedness—can save. These investigators declare that it would be far better for the community, better perhaps also for the unfortunates themselves, if they wore to get out and be replaced by others with some capital who would work the land to far better advantage than it can be worked by a financial cripple. For, after all, if farming is on a sound basis, tho farmer’s problems are of production, not of finance. Intelligent work, not money, is the main requisite for production. Money cannot take the place of management. Giving more credit to the farmer is not going to help him. Ho is paying out (as he himself bitterly complains) too much now in mortgage interest, discount on shortterm loans, and taxes. Adding further interest charges to the total will only increase his costs of production and put still farther away the possibility of making money for himself. Ever since tho war tho call has been in New Zealand for increased production, but there can be no acceleration with tho financial brake clamped down hard. The Commission itself speaks in its report of the desirability of increasing the volume of production at reduced cost !

Tho Commission’s report makes casual reference to land speculation. That is at the root of the trouble. But the Commission’s attitude appears to bo that once the fundamental mistake is recognised it need not bo really rectified, and that all will go on smoothly without any paying for consequences. Heavy losses have been made; they are not to ho written olf; yot somehow they are to constitute no encumbrance in the future! Land values are to be standardised on the basis of its ascertained productive values, which is to check speculation, bnt without depreciating values. And this is to bo done by following out our existing system of rural finance, encumbered by round-about processes. This is no cure. The first aim should be to locate the origin of speculation. Keen observers say that in this respect our banks are not devoid of blame; that they have speculated by overtrading and by putting their depositors’ money into risky business, encouraging the speculative habit in those to whom they make advances and in the community generally. And when one calls to mind the way in which banks financed farmers’ cooperative associations and freezing companies, and their absence of check on the financial devices to which many of those firms resorted as they got into deeper and deeper water; when also one compares the ratio of advances to deposits observed by Now Zealand banks with that adhered to by English banks of repute—then there certainly appears to bo need for more conservative banking methods in the dominion. Naturally high charges all round are the banks’ concomitant for a considerable proportion of such business. That is one reason why there has been a call—a very desperate and very ignorant one—for the establishment of agricultural banks. Tho Commission is to be profoundly thanked for not recommending that resort, for it would almost certainly lead to an orgy of risky, even positively dangerous, business. But the Commission has obviously failed in recommending adherence to present methods, “dolled up” a little it is true, bub without drawing attention to their defects, and without proposing some check on them which will prevent the recurrence of another boom at some future date. The Commission, however, cannot be blamed for not proposing something which would be a panacea for the present depression resulting from tho past boom; it could not achieve the impossible. The natural law of action and reaction must take its course. In our opinion the Government would occupy its time better in probing to see whether there is any connection between rural depression and the enormous profits made and high dividends paid by the banks than in framing legislation on the lines drafted by the Royal Commission on Rural Credits. Unfortunately for this purpose the Government itself is heavily, interested as a bank shareholder.