RURAL CREDIT.

Hauraki Plains Gazette, Volume XXXIV, Issue 4517, 19 January 1923, Page 1

RURAL CREDIT.

ECONOMIC CAUTION NECESSARY. “A Brief Survey of Rural Credit .11 New Zealand” was the subject of a paper prepared for the Social Statistical Section at. the Science Congress by Professor J. B. Condliffe and Mr H. Belsbaw, M.A., both of Canterbury College, Christchurch. The problems of rural credit, it was pointed put, were perhaps the most important economic problems confronting New Zealand at, the present time, since over 90 per cent, of the Dominion’s purchasing power in the markets of the world was supplied by the pastoral Industries alone. Undfcsirable Existing Features. The capital which was needed for the efficient, working of rural industries w,as' mostly borrowed, and one of the most undesirable features of the whole problem wa,s the fact .that the substantial commissions to be mad 1 on sales and exchanges of properties often induce lending concerns to advance credit on farming enterprises which, even in the boom period, were financially risky, and, as soon as depression came, became bankrupt. The activity of the State Advances to Settlers Department had done something to make the provision of fixed capital easier for the borrower, but the limitations of the advances may be realised when it was pointed out that the average advance was £413, which must rank as a first mortgage upon adequate security. . The temporary (forms pF credit, as well as the more risky portions of the fixed capital required, were provided by the various commercial agency companies and teh quasi-co-operative farmer’s associations. i Risks of System. Although, speaking broadly, the joint stock banks preferred not to finance farmers directly, in the long run whatever ciredit was advanced to .the farming industries came, from them, and was’ under their control. It was advanced to the farmers through agency companies, loan and finance companies, etc., which took the risks and made their profits out of the connection which they were able to get with the fanning community. It was within the power of the banks to raise the rate of interest on overdrafts or" otherwise restrict the issue of credit, so as to limit the advances which these intermediaries were able to make to the farmers. Similarly, if, when these concerns were in difficulties, owing .to their .advances becoming “frozen” in a tinu of depression, the difficulties recoil cm the banks. The banking, crisis' pf 1893 was caused in this way.

An Uneasy Pusiition. The present economic position of New*Zealand, despite the welcome revival, has in it, it was held, elements which should cause considerable anxiety. As a result o,f the post-war boom following upon <the prosperous war period, which in turn followed twenty years of almost uninterrupted prosperity, the various credit agencies' (and the Government) have bee.i so free in their financing of farmers that the chief industries of the Dominion were in many cases seriously over-capitalised. The heavy and growing burden of the Public Debt was paralleled by the great amount of mortgages owing, to which must be added the substantial advances which are secured in other ways than ’ by mortgage. Pre-War Prospei'ijty Benitoite The prospect was uncertain, but t!he condition of Europe was sufficient to make Lt clear that there can be no immediate return of pre-war prosperity, which depended upon a constantly rising price level. The present indications were rather for a generally falling tendency of the price level ; and that tihe present welcome reaction from the unnaturally low level of prices in the panic stage of the cireis cannot long be maintained. Further Inilafbio-n Deprecated. The conclusion arrived at was that since it was clear that the rural iindustries are suffering hot so much .from a shortage of credit at the moment as from unsound finance resulting from too much credit in the immediate past, no economist can view with equanimity schemes which offer even a danger of- further inflation of credit. The solutions of the Dominion’s economic difficulties, it was stated, would not be found in a further era of cheap credit based either on borrowing or internal inflation. Caution Desirable. -

The scheme for rural credit associations, while admirable-within limits, could do little or, nothing to assist the present difficulties. Much the same may be said of the proposal lor a State bank. If such schemes were used to provide more liberal credit facilities in an endeavour to evade recognition of the plain facts of the present situation, the result would be disastrous. There was. much to bo gained from the building up of true co-operative associations to act as gobetweens for the .farmers and the tanks ; but such associations, if kop.c to their legitimate sphere, would do nothing to solve the present problem of over-capitalisation.

It was to be remembered, said the authors in conclusion, that the largest and most severe financial depression experienced by tlje Dominion was the period of falling prices from 1873 to 1895. The difficulties off- that period were very largely due to unwise borrowing and a consequent laud boom in the early seventies, resultingin over-capitalisation, which finally recoiled upon the banks;