EVILS OF CHEAP LOANS

Evening Star, Issue 20254, 15 August 1929, Page 9

EVILS OF CHEAP LOANS

PURCHASE OF FARM PROPERTIES MONEY ONLY FOR DIRECT . PRODUCTIVITY MR JAMES BEGG CONDEMNS CONCESSIONS “ Money for the purchase of land or for the lifting or replacement of mortgages becomes absolutely sterile, one money for definite improvement or production would be of immense benefit. In studying the finance problems caiefullv, the Farmers’ Union should separate its own interests from the long run interests of the farming industry, I am perfectly satisfied that tho benefit of cheap loans has been capitalised. We have had the concession for thirtyfive years, and no one eau say that the farming industry to-day is in a satisfactory condition, as it was indy expected it would be a few years alter the Advances to Settlers Act was fifi 5 " passed. The stimulant has passed raid we must look for other _ means of directlv increasing production to put the farming industry back into the position it should occupy.” . . ... That summarises the opinions of iui James C. Begg, expressed in a critically destructive address to tho executive of the Otago Branch of the New Zealand Farmers’ Union to-day, on the Advances to Settlers’ Act and othci Government financial concessions. The Farmers Union was originally a freetrade body, but probably finding that a return to freetrade was; not within the bounds of practical policv at present, it had abandoned its original position and now, in addition to its old claims for Government cheap loans for farmers, free railage on certain goods, etc., it had secured protective duties on wheat and some other products, and was clamouring for subsidies on other exportable products, and loi more cheap Government loans, intermediate credits, agricultural ■ banks, etc., said Air Begg. The union honestly believed these tilings were necessary to farmers to counter-balance the advantages that had been conceded id manufacturers hv means of protective tariffs. Be this as it may, the muon had abandoned a position from which it could attack high protection with effect and with safety from counter-attack, and had taken up a new position, weak for attack and subject to successful coun-ter-attack from all sides. FALSE GODS. “It would seem we have been following false gods and confusing the immediate interests of certain farmers, with the improvement of conditions in the farming industry,” said Mr Begg. “ Let us first consider what has been the effect of tho activities of the Advances to Settlers’ Department. It seems to have been accepted as axiomatic that these Joans have been of great benefit to tho farming community, that they have promoted settlement, and that they have prevented tho moneyleader from getting a stranglehold on the farming community. It may bo admitted that these advances, when first instituted, acted as a stimulant, but, as is the way with stimulants, tho effect was very temporary and very evanescent. If these benefits are being experienced to-day they are not apparent. New settlement is more difficult to-day than at any previous time, and high prices of land have more- than offset any induction in interest rates. Farmers, as a body, are as heavily mortgaged as before, and are as clamorous as ever lor cheaper and more generous loans. There are, of course, many causes lor the fluctuations in the ■.price of laud, and ou the prosperity of farmers. Good and bad seasons, prices of produce, diseases of animals and plants, mass psychology, waves of optimism and pessimism, and costs of production, all play their part. These factors are constantly varying, but there is a constant relation between rates of interest and prices of land. The numerous causes of fluctuating prices tend to obscure the working of this constant factor. We may concede that in times of wild speculation prices of land have no relation to producing capacity, but these times are the exception and not the rule. THE PROBLEM. An intending settler compared the cost of land with the amount ho expected to produce from it in order to determine what annual charge he could afford to pay for the farm he contemplated buying. They would assume that he concluded that 10s per acre per annum was as much as ho could afford to give. An annual charge of 10s per acre could lie arrived at in various ways, (a) Land at £5 per aero (inter- ! cst 10 per cent.), 10s per acre per annum; (h) land at £lO per acre (iuterj ost 5 per cent), 10s per acre per annum. C: Land, £2O per acre (interest, 21- per cent.), 10s per acre per annum. Tho settler would bo justified in giving any of these prices under tho conditions indicated. But under which condition was it easiest for the prospective settler to get a start? Though the annual charge was tho same, the amount of money that he would require to have available was vastly different. If he wished to pay down half tho purchase money, under condition A ho would require 500 to acquire a. farm of 200 acres. Under condition B ho would require £I,OOO, and under condition C £2,000 to purchase the same farm. It was obviously much easier for the settier under condition A than under the other conditions, even though interest rates were very hifdi under A and very low under C. Now, it all other factors affecting prices of land remained unaltered, A, B, and C represented exactly what would occur, and it would bo obvious to everyone, considering how the farmer who bought land under condition A stood, Mr Begg said that subsequently to his purchase interest rate fell to 5 per cent, instead of the 10 per cent, ho originally paid. His annual charge was reduced by half, but the land was still worth 10s per acre per annum; consequently bo could sell it at £lO per aero instead of the £5 per acre he paid for it. CHEAP MONEY NOT ALWAYS A BENEFIT. Cheap money had been a great benefit to him, and had enabled him to double his money. ‘ No argument would convince him that cheap money was not of great behent to the farmer. Let them look a little further into it. Their ’friend, having sold out. was no longer a farmer, but there was another in his place. How did the latter stand? His annual charge was Mill 10s per acre, the same as his predecessor paid. Lowered interest rates had. not lessened his charges, rising interest rates might ruin him, and in any case lie required twice as ranch money as his predecessor required to enable him to start farming. It would seem that the actual owners of land at the time interest rates were reduced had been able to get enhanced prices when they sold

their farms, but subsequent owners got no benefit whatever. The whole benefit was capitalised and removed by the original owner. “A whole generation of farmers has passed on since the Advances to Settlers' Act became operative, so it is a reasonable assumption that little if any benefit I from the introduction of the Act remains to-day,” said Mr Begg. “ It lias vanished wi|h the farmers who owned the land when it was introduced. Laud owners to-day paid in advance, when they bought their land, for all benefits which, the Act confers, and for this reason it would be wrong to assume that the Act could now be safely abolished. Such action ■ would cause a fall in the price of land, and by reducing the equity of the owners in many farms ■which show but small margins at present many farmers might bo ruined. The position is that, farmers are no better off than if the Act had never been introduced, but might be mined if it were withdrawn, T-hc only purpose served hy it now is to maintain land at a somewhat fictitious price. The borrowed millions merely help to aggravate what is very gene-, rally regarded as a somewhat dangerous level of land values. TEMPORARY STIMULANT. <! Could the Government by somemiracle procure an abundance ot money to lend to farmers at per cent, interest, the effect would be merely temporary stimulation, roitunes would be conferred upon the .present owners of land, the benefits would rapidly disappear in tlie increased price of land, and the farming industry would shortly bo uo better off. Meantime the present difficulty of settling new men upon the land would bo enormously increased. In tact, new settlement would become practically impossible because of the large amount of money the new settler would have to possess. The Advances to Settlers Act has failed in its purpose. It is not now benefiting the farming industry, though it lias enriched many thousands ot mdi- “ Unless prices of land as well as rates of interest are controlled—and, m my opinion, this is neither possible or desirable—the more reducing of interest rates cannot confer any lasting benefit ou the farming Please do not infer that I favour high rates or interest. I have been in the past, and am at present, too large a borrower to wish for anything of that sort; but we should examine this subject without reference to personal advantages. Dealing shortly with another concession to farmers—free railage on agricultural lime up to 100 miles —Mr Begg said all these concessions wore partly or wholly in Hi© nature of gifts, and no provision was made to prevent these guts from being sold at their full market value. He had occasionally seen this concession challenged on the ground that the farmer should pay freight the same as other people. He wished to challenge it on different grounds. Hie benefit of free railage on lime evaporated long ago, and few lime-using farmors secure any benefit to-day through this concession having been given over thirty years ago. _ When a farm was bought to day this concession was included in the purchase price—the buyer paid for,“free railage on lime” just ns ho paid for “sunny position” or “ good shelter plantations.” As an illustration, Mr Begg took two farms, equal in every respect, _ both requiring lime, the railage on which would amount to £2O each per annum. Concede free railage on lime to one farm and deny it to tile other. What was the result?' One farm showed £2O per annum mpro profit than the other. If a buyer'was satisfied with o per rentu profit on his investment he would give £4OO more lor tlio one farm than the other; if ho wauled 10 per cent, he would give £2OO more. This was- exactly what had taken place. Farms had had “ free railage on lime ” capitalised in their selling price for the last thirty years. The sellers of farms bad departed with the whole value of this concession in their pockets. If “free railage” were abolished to-morrow the, effect would bo to reduce the value and selling price of laud bv the same amount, as the concession originally raised the price. That might seem quite equitable, but for tbe tact that farms had practically all changed owners since the concession was granted. One set of fanners quite innocently left the farms, and took with them the whole capitalised value of free railage. Another set, equally innocently, who paid in advance in the price, paid for the farms, the total value of free railarre, would have to write that amount off the value of the farms if deprived of it now. The withdrawal of this concession would be a very serious loss to the present owners ol land requiring lime, but should the railways continue indefinitely carrying lime free of charge the result would be merely to inflate tlie price of bind. Foolish concessions lead inevitably to these dilemmas. This concession had merely given to farms a site value they did not previously possess; the money that previously 'went to the railways in payment of freight' now paid in additional interest, to the mortgage. CONCESSIONS FALLACY.

“ I have tried to show that so-called cheap loans by a Government department and concession by the railways arc apt to become-mislaid .somewhere, •and though applied in increasing doses cease to lie of any assistance to the farming industry. I will go further, and say that concessions which inevitablv raise prices of land are a grave danger. Mo one can guarantee that these concessions will be maintained in perpetuity. They are most likely to ho withdrawn in times of financial stress and falling prices, just tv hen jarmers need most assistance, and their withdrawal at such a time might easily transform_ difficult times into times of grave crisis. The evil of all these concessions, and also their popularity, is greatly enhanced by the fact that they are transferable. A settler applies lor and secures a cheap loan, and then sells his property at a higher price than was obtainable before ho had secured the loan. Why? Because he has now something more than the land to sell. There is the goodwill of a loan, for which ho paid less than the market price. That goodwill value is immediately added to the price of the land. The new owner gets both land and loan at market value. All the advantages that the Government department conferred have disappeared in the process of transfer, and the loan exists for the remaining thirty odd years of its life bereft of power to confer any of the benefits it was intended to bestow upon its owner. This is not a fanciful picture; it is exactly what has been happening ever since the Advances to Settlers Department was instituted. The recipients who sell are not to blame. Successive Governments must share the blame that this scandal lias not been stopped long ago. It would be a simple matter to make all these loans repayable wherever a transfer of' the property involved took place. This would eliminate one of the worst features of these concessions, or rather on© of their most obviously evil features. If a goodnatured motorist starting a journey offers a foot traveller a lift he does not, as a rule, also give him the privilege of selling his seat to a third party when he vacates it. If he did he would probably find a different passenger beside him at the end of the journey. The motorist would still be giving a free ride, but the passenger would be not he receiving it, jiariug paid full

fare to the first- occupant. The Government still presents the gilts, hue the present recipients are tinder no obligation. All Government concessions. it transferable, will be sold, and tlio value of the concession will cnncli the recipient and be lost to the industry . PROTECTIVE DUTIES AND SUBSIDIES. “Protective duties on wheat ana subsidies on exported pork and apples would affect the price of land in exactly the same way as other concessions,” said Mr Begg. “ The only reason that they had not yet had f u l l effect in this direction was that they were not regarded as secure and permanent. Given security of tenure or these concessions, it was inevitable that; land values would speedily absorb the full annual value received by the apple, wheat, and pig industries So far my remarks have been merely critical and destructive. 1. will now try to indicate how tho Government can give really permanent help. tctho farming industry without inflating the price of laud unduly,”-concludes Mr Bcgp. “ Short-term -credit to bo used solely for effecting improvements, such as have recently been instituted,is a step in the right direction. If all the money which has been advanced to settlers fin* the purpose of buying land or replacing mortgages had been spent on improvements in tire shape of clearing, draining, fertilising, liming, ana grassing tho farms, and in tho purchase of well-bred stock, the country would bo much more productive than is the case to-day. If money were made available in largo sums and at low rates of interest for these purposes slight inflation. of land values could not be avoided bat there would be a valuable set off in tho increased fertility ana progressive improvement of the farms. DISCUSSION, The Chairman said Mr Begg had certainly given a very interesting address, The questions were of vital importance to tho dominion. In the past' they had occupied the minds of the legislators, who had been unable to overcome the difficulties. The Farmers’' Union had been trying to bring about a better system of finance for farmers,but evidently the feeling among legislators of New Zealand was that, they were not prepared to tackle it—or tackle it in a manner to give absolute satisfaction to the producers of . the country. He asked Mr Begg if he wished” the union to formulate remits for the dominion conference. Mr Begg: I would not for one moment ask for any remit at present. I have only touched on the fringe of the trouble. ” The lowering of the price of land to-day might easily precipitate a dangerous position, but I would ask the union to concentrate, in the future on getting monetary assistance earmarked for directly, productive, purposes. If any concessions once given are withdrawn things must be affected greatly.It seems to me that we have been evidently on the wrong lines, judging by the industry to-day. It is a small matter if land values arc inflated a little, so long as the country is getting increasing fertility. Mr E. H. Murncy asked if repayment of the loan on the sale of the laud had been demanded since tho Advances to Settlers Act was introduced. Mr Begg: No; but the demand was macle for repayment on some soldiers’ and workers’ loans. - Mr Stewart Cameron (secretary) said a soldier’s loan was not transferable. Mr J. E. Waters remarked that the Real Estate Institute had brought that about, as soldiers’ loans had been capialiscd. , Mr J. Christie said that if a discussion was started it would occupy a day* Hr Revie: It would occupy weeks. Mr Christie suggested that a committee be appointed to formulate remits for consideration by tho branches.. There was good from tho evil, and an interest bill was a stimulant for a man to increase his production. Mr Revie said that the problem wa* one of the biggest facing trio farmers to-day, and in the past tho union had been unable to formulate proposals acceptable to all farmers. However. 10 L difficulties had to be overcome. Land values were too high, but liow were thov to bo brought down? Mr Christie: “They are lower to-day than forty years ago ” Mr Revie also mentioned land m the North Island'being unproductive owing to the mortgagees’ confiscation. Some other scheme would have- to he introduced before production could be obtained. Mr Begg had spoken .to. a sympathetic meeting, and his assistance in formulating proposals to bring about reforms for the man on the land would bft welcomed by the union