CORRESPONDENCE.

Poverty Bay Standard, Volume I, Issue 48, 24 January 1884, Page 2

CORRESPONDENCE.

(We do not hold ourselves responsible for the opinions expressed by our correspondents).

CREDIT AND BANKRUPTCY.

TO THE EDITOR. Sir, —Allow me, through the medium of your open column, to say a few words on the above subject, in the hope that it may awaken thought and produce discussion amongst your intelligent readers, that may lead to a better state of “ commercial morality” than at present exists in these colonies. In all ages bankruptcy laws have been a “ stumbling stone” to legislators, and a “rock of offence” to both creditors and debtors, and I do not feel at all sanguine as to the practical working of the new machinery in carrying out the old system of custodians and deterrents. In many surgical operations the knife has to cut deep in order to get at the root of the cancer that is eating away all the vital powers of the system; so, in the moral world, in order to remove a deep-rooted evil, and restore a healing tone to the community at large, half-measures are useless, and fail to produce the desired effect. In this Colony, I believe, the cause of so many instances of bankruptcy lately may be classed under two heads—--Ist, Overtrading on insufficient capital, and 2nd, Living beyond one’s means. Except in cases of fraud, and a few exceptional instances of losses caused by fire, shipwreck, or any other purely accidental occurrence which no human foresight could have prevented, every case of bankruptcy may be classed under one of the above heads. Overtrading on insufficient capital, whether in the acquisition of a large landed estate or a store or shop, is the rule rather than the exception in these colonies. How many instances I have known during my twenty-five years’ experience out here, of parties arriving from the old country who have been induced to speculate in large runs, to acquire the freehold of which would require double the capital they possessed, and, instead of cutting their coats according to their cloth, they parted with the tvlujlc of their capital, leaving the other moiety of the purchase-money on mortgage, the result of which was that, with earej'ul management, assisted by a high price for wool and easy Bank accommodation, all the income arising from the property was absorbed to keep up the annual payments of tnterwt and necessary current expenses, leaving no margin of profit to devote to payable permanent improvements, or to provide a sinking fund towards the time when the principal became due; and should there be Carets management, or a sudden depression in the wool market, and a stern managerial face in the “ sweating-room” of their banking establishment, instead of the bonhomie of prosperous times, the result, in nine cases out of ten, has been that the poor unfortunate has woke up to find his capital and property swallowed up, leaving him a poorer if a wiser man, regretting, when too late, that he had not restrained his ambitious longing to appear in the eyes of his fellow-colonists as a wealthier man than he really was, and contented himself with acquiring a smaller, but freehold, with a portion of his capital, and kept sufficient in hand to devote to permanent improvements, and as a fund to fall back on in times of depression. Then in trade, how’ often the facility with which any tradesman can get credit from the wholesale houses is the cause of inducing this spirit of “ over - trading on insufficient capital.” He can always now get credit for at least double the amount of his actual capital, and thus early, hampered with a millstone round his neck, he launches into business, and, in order to induce customers of other stores to patronise him, he has to sell at a very small percentage of profit, and in some instances of keen competition at an actual loss, the result of which is that he finds himself minus his cash and goods, but with ledgers full of debts, and, on the strength of these, he gets further advances on credit from the wholesale houses, and plunges deeper in the mire, for the knowledge that the debts due to him will principally have to go to pay for a stock that is not his, causes a feeling of recklessness, and the effect is highly demoralising. So long as he is able to make periodical payments to the wholesale houses the effect is not so apparent, but when serious losses from bad debts, illness, or increasing family expenses prevent him so doing, the full extent of the evil is seen. Looking upon the manufacturer as in reality a partner, although perhaps an involuntary one, in the concern, and his moral perceptions being warped and distorted by the position he is placed in, he at length purposely allows things to get worse, in order that he may then force his unwilling “ partner ” to consent to a deed of composition on favourable terms, and threatens, in case of noncompliance with his demands, that he will have recourse to bankruptcy, which, in most cases, means almost total loss to the unfortunate manufacturer.

The above, and numerous other instances which will occur to the minds of your readers, indubitably prove that our present system of giving and taking almost unlimited credit is the great cause of so many disastrous bankruptcies. The -earliest record I can find of an organised system of credit is that recorded in the 47th chapter of Genesis, where it is stated that, during the latter portion of the seven years’ famine in Egypt, Joseph, acting as

Chancellor of the Exchequer, after the people had parted with all their readymoney and cattle, agreed to provide them with seed on on condition that the pre-emptive right to the toehold of the whole of tha land of Egypt should henoeforlh be vested in Pharaoh, and that in addition they should all give him an income tax of a fifth part of the produce, the result being that the whole nation was thereby reduced to a state of bankruptcy; Thus, at the very outset, we find credit and bankruptcy joined in a bond of union which has continued unsevered to the present day; and not till one or the other receives a death; blow will this Siamese-twin-like connectiori cease.

You cannot make men honest, but you cari remove the temptation to become rogues. So long as there are such facilities afforded by which men can “ discount the future” and put off the evid day by all sorts of tricks and evasions, in the hope, like Micawber, that “ something will turn up,” instead of boldly facing their circumstances with the full determination not to incur larger liabilities than their legitimate incomes suffice to meet) whether in the case of tha private individual storekeeper, or merchant, so long our “ children of larger growth” will continue not only to reckon, but also to eat, their chickens before they are hatched, and thus yearly swell the list of bankrupts. But, although undoubtedly of very ancient Origin, is there anything so very inherently good in the system of credit giving and credit taking that warrants us in still clinging to it when its effects are seen to be so demoralising to the commercial world ?

My own opinion, founded on the perusal of a pamphlet on the subject published about fifteen years ago in England, strengthened and confirmed by colonial observation and expert ence, is strongly in favor of totally abolishing the present system of credit by legal enact; ment, and thereby entirely doing away with Bankruptcy Courts and the long train of attendant expenses. To substantiate this opinion, I will shortly recall some of the arguments used in support of the views enunciated very clearly in the pamphlet above mentioned, as the same are well worthy of being resuscitated, especially at the present time, when some radical change is urgently needed. Under the old Mosaic dispensation, if the debtor had no money, the creditor could seize his goods, and failing these being sufficient to meet hte demand, he was entitled to his serviceu—tixat is, to his power of making goods and money, But this alternative implied possession of the debtor’s person, and thus he was entitled to bodily possession of the debtor, his wife) his children, his ox, his ass, and all that was his, and selling them into slavery; Subsequent legislators have attempted, td smooth away some of the rigor of this logical sequence, to the great disatisfaction of both debtor and creditor, especially the latter, who knows very well that If the land recognises his claim at all, it robs him by withholding anything short of an absolute right over the money, goode, and person of his debtor. Now, by far the more logical course on the part of the Legislature to pursue would be to refuse to recognise any creditors' claim at all, instead of half measures of a conciliatory policy, which satisfy no one. Pass an Act that’s for the future. After, say, six months’, or even twelve months’ date, no debt should be recoverable by lau)j and the result would be that no one would give credit, and we should revert to readymoney transactions. Once abolish credit by refusing the creditor a remedy against his debtor, and bankruptcy would become a thing of the past. Surely, the creditor would be the last man in the world to complain that there was no longer a Bankruptcy Court to which to take a debtor. He never takes one there now if he can get any reasonable composition without; he would rather take a composition of 10s. in the pound from a man whose estate he is morally certain should pay 20s. than drive him into bankruptcy, with the chance of recovering far less. Ready-money payments and deliverance from bad debts would be a far greater boon td the creditor than any legal recognition of a portion only of his logical rights, and this in consideration of a very heavy percentage in the realisation of the lesser portion. It may perhaps be said that if we all take credit, we all give oredit in turn, and consequently we therefore receive as much interest as we give, and so lose nothing in the long run. Probably (with the exception of the poorer classes, to whom I will refer presently) we do not lose directly through our present system of universal credit (for I do not pretend to say that the character of a payment made can influence the cost of the prodilbtidii of an article), but indirectly, through the wtwte and imprudence which oredit engenders, we are very considerable losers, and nave to pay a very heavy percentage for this method of discounting the future. If ready-money payments were the rule, commercial courtesy would probably still extend so far as this—•“ Cash on receipt of Invoice.” But in that case the creditdr risks only one parcel of goods, instead of an accounti and he would be more careful for the knowledge that it was done entirely at his own hazard, for if he trusts a man it should be, in order to ensure prudent dealing, on his own responsibility, and it is too much to aek the law to step in and redress his own individual errors of judgment. Of course it may be justly urged, that the mere doing away with bankruptcy by naiM would not necessarily do away with the thiny itself which is really impecuniosity. But it would do away with an immense proportion of it by striking at the two great causes of impecuniosity before mentioned, besides reducing the evil to a minimum by preventing the impecunious from involving the rest of the community in their misfortunes. With the very strict limitation of credit which would result from making debts irrecoverable no man could trade beyond his means, because he could not get oredit. When tradesmen risk their own money and no one rise’s, and sell only what they have paid for, their perceptive faculties will be wonderfully sharpened and their business will be placed on a firm basis. Nor would they be subject as now to be undersold by rogues who (at the creditor’s expense) offer articles for sale at 25 per cent, below cost price, because, there could be no composition deeds, in a system which necessitated every tradesman’s stock being his own. The prudence and caution which would overspread the commercial world would be no unwholesome discipline. Some objectors may say, would this not limit trading ? Yes, out only within safe and legitimate bounds. It could never interfere with the operations of legitimate trade, which, it must be borne in mind, do not at all depend on the nature of the payment made, but solely on the relation between demand supply and are independent of all other conW sideritions. But some may also ask, would it abolish bills? Undoubtedly (and bill discounters too), but not cheques, notes, or other convenient forms of paying money to bearer at sight. With a general system of ready-money dealing all necessity for “ paper” would be gone. All the bills at present in the country only represent that three or four months’ credit which we have agreed to give one another all round—merchants giving it to each other because tradespeople are obliged to give it to their customers. If the retail buyer paid cash for everything the tradesman would pay cash to the manufacturer and the merchant, and bills discounting the future would not be required. Then perhaps another objector may say, the retaif buyer will be the poor victim, since, under such a state of things, he would be the first to be called upon to pay up in cash— not only for the goods for which he already owes and has been accustomed to get credit for, but also for all fresh goods he requires from day to day for which he would not be called upon to pay for some months. But the six or twelve months’ previous notice before the Act came into operation, which I have suggested above, would go far to break the immediate pressure on the retail buyer, who would limit his purchases for the future to absolute necessaries and forego useless luxuries, while the knowledge that he it is who will ultimately derive the greatest benefits from the change, ought to reconcile him to the balance of inconvenience remaining. The retail buyer (the consumer, in fact) would obtain his articles cheaper and get the handsomest discount for his ready-money. If he pays cash to his tradesman, his trades-

man can pay. cash to the merchant, and the hifirehunt to the manufacturers The consumer Would therefGtu gate th© threefold interest wov-h the* *h*e gentle* men haw hitherto always charged on his goods for giving him credit, as well as the percentage to make up for bad debts, which at present is always added in fixing prices, and which the poor consumer has to pay in the long run. Also, the amount saved in account-keeping alone would amount —at least, I should think—to 2 per cent, on the Value of an article. Taking into account all these various additions to the cost price now charged, which would be quite unnecessary if there was a general recurrence to ready-money system, I o not think I am overstating the case in saying there should be an actual and immediate reduction in the price of articles in daily consumption as much as 15 per cent. Indirectly, the saving would be more than this, for it would reduce dur taxation in the •xpensive item of iaw, as an immense proportion of the litigation of this Colony in general, and Poverty Bay in particular, is about debt and borrowed money, Probably the lawyers would suffer, but as a class they’are so well able to take care of themselves that little anxiety need be ex. pressed on their bexi&lf, As somebody has said, supposing the elixir of life were sud. denly discovered, what would become of the doctors and undertakers ? It can scarcely be seriously urged that such a system would pre* hardly on the poor. Thev neither take not get credit now. Indeed, their great hardship, according to my view, is, that being the only class who do pay ready money, they are nevertheless charged an exorbitant rate, and are debarred of the benefit which should accrue from cash payments, owing to the credit-taking habits of all the rest of us, which maintain a high scale of prices in spite of them The only effect on the poor would be a highly advantageous one, for it would give them the full benefit of the system they nave long practised without hitherto receiving any adequate return. Taxation, whether general or local, is a very near approach to a system of ready, money payment, and it is at least worth the consideration of thinking men and women in our midst whether, before it is too late, by pushing the principle a little further in the matter of other debts, we cannot reduce the former to a minimum. No doubt we should have a good deal of grumbling for the first six months, but that is a privilege equally dear to the people of this Britain of the South as it was to their forefathers at home. Money, too, would probably be dear for the same period; after that people would awake to the blessings of a cheapened market; to the independence produced by conscientiously living within their incomes; and to the pride and delight of knowing nothing about debts, its shifts and curses, save as an old memory, A whole nation of men and w’omen free from debts would be richer, and know themselves richer, than they had ever dreamed of before.— I am, &c., Zaooni. Gisborne, Jan. 22,1884.