The Wanganui Chronicle THURSDAY, FEBRUARY 7, 1935. FINANCE FOR FARMERS

Wanganui Chronicle, Volume 79, Issue 32, 7 February 1935, Page 4

The Wanganui Chronicle THURSDAY, FEBRUARY 7, 1935. FINANCE FOR FARMERS

J 7 ARMING being the basic industry of this Dominion, the Government is doing the right thing in endeavouring to secure long-term capital at low interest rates. Nobody with the interest of the Dominion at heart would desire to see the farmers paying more for their credit accommodation than is necessary. Every increase in the cost of credit, in a general way, detracts from the expansion of an industry. But high interest does not always restrict an industry; it all depends upon the profits prevailing at the time, and also—and it is a more important factor —the prospective profits that are to be made in the future.

The rate of interest is to be regarded as a reflex result. The rate of interest is the sum total of the reactions of the borrower and of the lender. They both have a part to play in fixing the rate of interest which shall prevail at any one time. The money dictation, the creation of credit, is a myth. How can a man be dictated to, to compel him to borrow money? If no one will borrow, what matters it how much credit is created? The borrower is fifty per cent, of the argument. The lender is equally concerned to lend his money for his own sake; he lives on the interest which he receives. Therefore it is his concern to see that the borrower is in a healthy condition financially. It even pays the lender to make contributions to the borrower in times of distress to help him on his feet again. The last thing that, any creditor wants is the bankruptcy of his debtor. How many insurance companies, for instance, whose concern is to have a steady flow of income to meet their obligations on the policies as they fall due, would want to go into the possession of a sheep farm, which receives its income at the wool sales and when the fat lambs are sold? Leaving aside altogether the difficulties of an insurance company managing a farm, it would not suit its other business from purely financial reasons. A good farmer is a lender’s best bet, and it is to the interest of the latter to keep the good farmer on the land.

What does the lender seek? Safety for his principal, and certainty of interest payment. Wiiat does the borrower seek? Profits. If both were seeking profits, then they could be regarded as partners, sharing the gains and the losses. But each goes into the bargain with different ideas and intentions, and when adversity comes to the borrower the purpose of the lender must be kept in view. His principal must be kept intact, save with his consent, for if any other agency comes into the transaction and rearranges the bargain by cutting down the mortgagee’s investment, there is simply a transfer of the property of one and giving it to the other. This is a Bobin Hood procedure by legal process, with this defect, that while the romantic robber knew that those from whom he took were rich, and that those to whom he gave were poor, the chances are that the modern prototype would benefit the relatively well-to-do at the expense of the beneficiaries of life insurance policies, who are usually the aged and the young. “But,” it may be argued, “will not this process of mortgage principal reduction put the industry on its feet, and so save the balance of the mortgagee’s investment?” There is no guarantee that such a result will follow in any particular ease, for a poor farmer will never make anything pay, no matter how liberally his finances are arranged. In such a case there is simply a wasting of assets through incompetence, anil the sooner the •whole situation is liquidated the better will it bo for the industry, for the parties concerned, and for the community. Assuming that the process of “readjustment” proceeds without regard for the rights of the lenders, what will be the result? Can the farming industry afford to withstand the. shock of this injustice to those who have hitherto backed it financially? The answer to that, is that the farming industry is in no such condition because unless it is to decline it will require more capital for its expansion than it. can provide for itself out of its own savings. If the confidence of investors in land moilgages is fundamentally disturbed—and it is seriously impaired already—then when the need for further capita] arises the farm ing industry will only be able to obtain it at high interest rates, because the lenders will contemplate a greater margin of risk in the transaction than hitherto. Jl* a period of depression is to be used as an occasion for taking away from mortgagees a. portion of their capital, land mortgages will not longer be classed as investments, but as speculations. Pawning will then have to pay speculative interest rates, and they will be high. In endeavouring to assist the farming community out of their present difficulties, then, the Government should not consider only the pre-election period, hut also the long-term interests of the industry as well.