CO-OPERATIVE BANKING.

Thames Star, Volume LIX, Issue 16627, 24 October 1925, Page 5

CO-OPERATIVE BANKING.

AND RURAL FINANCE. BENEFITS TO ALL CLASSES. CRITICISM ON RECENT ARTICLE. (By Laurence Johnstone.) I read with interest the valuable contribution in the Thames Star by Messrs. Pyne, Gould and Guinness, Ltd., stock agents, Christchurch, on Rural Finance. There is, however, One aspect of the matter which nearly all contributors seem to utterly fail to grasp. Not only do they fail to grasp the real position, but they argue to the contrary. It is this:—When.a loan is granted to a farmer or to a necessary industrial organisation, the borrowers are actually the last to benefit by the loans although they take on the whole liability for repayment of both principal and interest, and remember the interest on a long-dated loan generally amounts to more than the principal. Look at it as you will, this fact remains unchallengeable—the money or credit is of no service to the borrower till it has been spent—i.e., until it has passed into other hands. It goes tc pay for labour, machinery, fencing or building material, seed, manure, etc., to say nothing of the constantly increasing needs for clothing and household expenses.

It is an axiom of orthodox banking that “a loan almost invariable creates a deposit,” and that, too, is correct, so that a loan made anywhere at the base of industry by increasing the volume of production, does actually and automatically increase the stock of wealth and also the volume of loanable credit or 'money. That is where your contributors, Messrs. Pyne, Gould and Guineas, are in error. They are quite in favour of co-operative banks with bond issues, but fear that the present time is too unsettled to firmly and soundly establish these banks. But it is just at such times that every other country has established co-operative banks such as Germany, in the time of Frederick the Great (1770\ Denmark in 1866, and the U.S.A. ia 1916 — all periods in which finance was erratic and farmers and industrial concerns were being neglected by financier*. •L£.i J Land Banks. In 1916, the U.S.A. voted 24 million dollars to start the co-operative land banks. Out of profits, these banks have repaid all but 21 million dollars; their net profits were over 5 million dollars, and their 4 h per cent, tax-free bonds were selling fqr 101 and 102. The Primary Producers’ Bank of New South Wales has developed faster than any other bank in Australasia, with the exception of the Commonwealth Bank. Ordinary Banks Benefit.

I have the Danish Year Book which covers ordinary joint stock banks suen as we have now in New Zealand, and I notice that the ordinary commercial banks increase their volume of business and the percentage of profit in a ratio corresponding to the general prosperity of the country* The prosperity of Denmark was due to the provision of over £100,000,000 of credit, at a pre-war maximum rate of 4£ per cent., equal to £l2 per acre for all rural land in Denmark.

Great Britain last year passed legislation to establish co-operative banks in Britain, and agreed to contribute £1 for every 5/- paid in by the members of the Co-operative Associations. New Zealand can safely adopt the Danish or the American system, and every useful citizen will benefit thereby. Business men should remember that this country’s welfare depends on keeping up and increasing the primary production, and then ask themselves, individually, whether they have not been guilty of a selfish indifference to the pressing problems of the times, or a servile respect for vested interests rather than the general welfare.