RESTORATION

Hawke's Bay Tribune, Volume XXII, Issue 175, 9 July 1932, Page 8

RESTORATION

PRODUCTION AND TRADE WAY OUT OF DIFFICULTIES SUGGESTION FOR HAWKE S BAY. (By. BENJAMIN DAVID.) Under normal conditions we are all dependent on “trade” for our existence. “Trade” is the universal channel provided by nature for this purpose. The laws of nature are positive; they are not man-made, but all men are subject to them, cannot alter them, and cannot violate them with impunity. Therefore normal prosperity depends on normal trading conditions.

Under normal conditions all men are co-operating with one another under the principle that “no trade is sound unless it is mutually beneficial.” The counter principle to this is “Every map for himself, and the devil take the hindermost. ”

In a broad sense—a very broad sense—it is the operation of the latter principle which has brought about the widespread slump from which we are all suffering so severely. Extern?.! conditions, which, by the way, are making tremendous efforts at recovery, have contributed to this end; but there are internal conditions which directly affect us in Hawke's Bay, and which have materially contributed to our present sorry state. (I am dealing here with general conditions quite apart from the particular conditions arising out of the earthquake).

We lost our heads in a mad gamble resulting from the abnormally high prices obtained for our primary products during and subsequent to the war. The day of reckoning came, and found us wanting—plus a big mortgage hanging on to our necks and dragging us downward and ever downward.

And so we find the majority of our primary producers in a condition of what is generally considered to be, and believed by themselves to be, hopeless bankruptcy. But such is not the ease, as 1 hope to demonstrate; and there is no need for farmers, under wise guidance, to lose their farms; but on the contrary to redeem their farms and eventually stand debtfree.

To effect this, the natural laws of trade must be allowed to operate.

To understand this, let us consider what these laws of trade really are. All men are interdependent on one another, and must work together for mutual advantage. The farmer produces what we call the “primary products.” But he can’t do so and market same without the assistance, directly or indirectly, of the labourer, the tradesman, the manufacturer, the merchant, the carrier, the shipper, the broker, the retailer, the consumer, and the multitude of clerks, assistants, homes, housewives, schools, technical institutions, teachers, doctors, lawyers, hankers, etc., etc., all of which in their respective spheres constitute links in a chain, which chain when complete can be summed up under the one term “TRADE.”

If any link in the chain is weakened, the whole chain is endangered. If the pressure becomes too great, the result is “snap” and “crash.”

This is exactly what happened when men generally, both in town and country, gambled in land values. The lean year of history came round again and he was left with a big mortgage which sucked up all the proceeds from his “primary products,” and caused every link in the chain to languish. The link called “income” snapped and was carried away by the mortgagee in the form of “interest.” There was nothing left whereby to feed the other links —the channels of trade—and the mortgagee even was left with only a broken link in liis hand. This link of “income” must be restored to its proper place in a Bound reliable manner. How can it be done! The history of trade reveals to us some of the natural laws which make for continuity of sound normal conditions. In the history of the laws of nature the term “tenth” is sometimes set down as a guide. This could logically be applied in the matter of the mortgage. We read that on oue occasion there were ten virgins—five wise and live

foolish. The five wise ones set aside reserves as against the day of reckoning, and eventually got past the winning post, but the five foolish ones were left out.

Now the history of trade shows us that ten years should be sufficient for a mortgagor to clear off his debt both of interest and principal, under normal conditions. The said history also shows us that 5 per cent, per annum in interest and 5 per cent, per annum in sinking fund is all that normal trade can s!;/.d. The balance is required for other things, including payment for labour and other costs of production, necessary expansion and reserves for unforeseen contingencies.

As the rate of interest rises so the redemption-reserve receeds until, in some instances, it reaches the vanishing point, in which ease there is no room left for expansion. Carried to its ultimate end such a condition can arise as now obtains in New Zealand in which our schools are sending forth our lads in thousands without any prospect of employment. On the other hand, under normal conditions the mortgagor would find himself free of debt in 10 years, able to provide for his oncoming family, and finally able to so establish his children whereby in their day and generation they can build up new homes of their own. Such is the purpose of Nature and Nature’s laws.

If the mortgagor uses up his reserves in high costs of living, the effect is the same as in high rates of interest. Therefore in order to restore stability it is essential to begin building up reserves. How can this be done with sueh big burdens over our heads? I suggest the following—and as a basis I take the case of the merchant who is financing the farmer: — 1. Revalue the land down to normal, based on a ten-year period, calculated on the normal average price obtained for the products during that period. 2. Set against such value twothirds of same as a first mortgage on the property. 3. The balance of existing mortgage to be placed into a suspense account, free of interest. 4. Levy a 10 per cent, per annum charge against the said new mortgage, of which 5 per cent, p.a. will be applied to payment of interest on same, and 5 per cent. p.a. applied to redemption of suspense account.

At the end of 10 years the farmer will be back to normal; will be trained in the art of building up adequate reserves, and will be able during the second term of 10 years automatically to free himself entirely bf debt. Meanwhile he will be able normally to fulfil his function as a vital link in the chain of “trade,” to the mutual benefit of all links in the chain.

The existing mortgagee will lose some interest, but will get back all his principal. In general the benefits from increased and healthy trade will more than compensate for the loss in interest.

If the mercantile firms would agree to establishing such a system of co-operation with the farmers, under the obvious and necessary safeguarding agreements, the farmer would benefit by the business experience of the merchant, and the merchant would get trade back to normal, plus normal increase of trade, plus redemption of old debts, and the trade of the whole community would quiekly come back to normal, and unemployment vanish.