CORRESPONDENCE.

Taranaki Daily News, 8 September 1922, Page 8

CORRESPONDENCE.

AGRICULTURAL BANKS. (To the Editor.) Sir, —Mr. W. J. Polson is not generous in implying, as he does In the letter he has addressed to the Press, that , the critics of his agricultural banks’ scheme are impelled by some sinister motive. There are many people, beside the Dominion President of the Farmers* Union, who are concerned for the welfare of the onen of the land and anxious to see them assisted in overcoming the difficulties by which they at present are beset. These people may not go to the length of subscribing to Mr. Polson’s assertion that the “producing class,” using the term in its narrower sense, “has the fortunes of the whole community in its keeping”; but they fully realise that the farmers, being engaged in the most essential of all the industries, are entitled to every possible assistance and encouragement towards increasing their output and so adding to the wealth of the country and promoting the welfare of the whole community. This, however, is not pertinent to the subject we are discussing, and out of consideration for your space, I -Will content myself by asking Mr. Polson to believe that the critics of his scheme, as far as I know them, are just as solicitous as he is for the well-being of the primary producers.

But we may differ as to the best means of reaching the end we all have in view without imputing improper motives to either side. Mr. Polson’s arguments in favor of agricultural banks, put briefly, are (1) that in 1894 the Government of the day went to the rescue of the Bank of New Zealand with two millions of money and saved it from collapse; (2) that Rider Haggard, In his investigatory book, has declared that in Denmark there have been practically no losses at all from the operations of agricultural banks; (3) that in Germany with close on 20,000 such institutions their losses have been only one fiftyfifth of those of the ordinary banks through the insolvency or default of clients; (4) that the American Government established agricultural banks because of the greater safety to the farmer and the lower rate of interest the system secured; (5) that the Taxation Committee here has admitted that owing to the. huge Income tax of 8s 9d-3-sth in the pound the existing companies cannot give the farmers the assistance they required, and (6) that Mr. Taft, an ex-President of the United States had warmly eulogised the safety usefulness of the German "agricultural cooperative banks.”

To make quite clear the value of Mr. Poison’s contention that the farmers should be treated at least as well as were the shareholders In the Bank of New Zealand, it is necessary to present it in his own words. “It is within my recollection,” he says, “that when the investing class, represented in the shareholders of the Bank of New Zealand, found their income jeopardised, they appealed to the community through the State for support, and the Government—backed by the newspaper which now denies the right of State assistance in this regard to farmers—granted that support to the extent of two millions of money. If it is right to help the investing class, who, without Injustice, may be likened to the drones of the hive, surely it is not unfair to appeal for some modified form of State assistance to the producing class, a class which all sections admit has the fortunes of the whole community in its keeping.” Mr. Poison’s recollection has served the Dominion President of the Farmers' Union very badly. As it happened, I was acquainjted with the main facts of this great crisis in the financial affairs of the country some hours before they became public property and they were impressed upon my memory in a manner that insured their remaining there. But for convenience sake, I may quote a correction of Mr. Polson’s mis-statements, which already has appeared in print, and which I can confirm from personal knowledge in every particular. "The Government,” it runs, "did not come to the rescue of the .shareholders of the Bank of New Zealand. Quite the contrary. The unfortunate shareholder not only lost every farthing of the capital represented by the shares he held, but was forced by legislation to find the sum for which he was liable in the event of liquidation, namely, £lO per share. After part of this had been applied in writing off bad debts he was allowed to retain a portion as new capital. That was the peculiar kind of support accorded to shareholders, many of whom had paid as high as £25 or £2B for the privilege of becomirg proprietors of the Institution. A goodly number were ruined and forfeited their holdings.” So much for Mr. Polson’s precedent. If my friend will read a speech in which Sir Joseph Ward moved the second reading of the Bank of New Zealand Share Guarantee Bill on June 29, 1894 (Hansard Vol. 83, pages 100-164), his memory will be refreshed and he will recognise that the unhappy shareholders received very scant consideration in the Government’s anxiety to save the country from an appal’ing catastrophe. Mr. Rider Haggard’s statement, to proceed with Mr. Poison’s contentions, that the agricultural banks in Denmark have made practically no losses, and Mr. Polson's own assertion that those in Germany have made much smaller ones than those suffered by the ordinary banks, "through the insolvency or default of clients,” is not very illuminative. To begin with the conditions existing tn Denmark and Germany, even before the war, were very different from those existing in New Zealand at the present time. Then, a bank might be conducted on such conservative lines, taking no risks at all, that its losses would be reduced to a minimum. But a bank of this description, even If it were prepared to lend money below the current rate, with a fifty per cent margin of security, would be of little assistance to more than a very small minority of the farmers of the Dominion. The Advances to Settlers Department, in normal times, serves all the purposes of such an Institution on a much more generous scale than is known in either Denmark or Germany. Mr. Polson's suggestions under this heading might very properly form a subject for industry, but they certainly should not be put into practice without the most careful investigation by competent authorities.

The American Agricultural Banks, as I understand them, partake very much of the character of our own Advances Department, providing money at something below current rates on ample security, and leaving the borrower to obtain what more he requires on second mortgage or from the "ordinary” banks. Mr. Taffs eulogy of the German system was pronounced before the present world-wide crisis and loses much of its point in view of recent developments. When normal times return the farmers here, in America, and, we may hope, in Germany, with a fifty per cent, margin will have no difficulty in obtaining such accommodation as they may require at reasonable rates.

The Taxation Committee no doubt put the position created by the huge income tax upon the companies in this country correctly, and there is not reason to suppose that the agricultural banks in this respect would find themselves in any better casf than are the other proprietary concerns. They would probably have to pay at least 5 or 6 per cent, for their capital and probably 10s or 12s in the pound in the way on income tax on their earnings and land tax on their properties. In these circumstances they could not afford to lend money at less than the 11 or 12 per cent, mentioned by the Taxation Committee, and then only on the very best security, so that the unhappy farmers would not be a penny better off than they are at the present time. Surely Mr. Polson, 'with his knowledge of the financial difficulties already confronting the Government, cannot be wholly serious when he suggests that the State should give the monetary assistance to enable the farmers to embark upon his hazardous undertaking. He has not explained, so far as I have noticed, how he would have his agricultural banks managed, but presumably he would have them controlled largely by farmers in the interests of farmers, the business and financial experts supplanted by the man from awayback with everything to learn, and the long suffering public standing by in patient submission to foot the bill as each financial year camo round. It is not a pleasant prospect. If it is a possible outcome of Mr. Polson’s scheme it calls for the serious attention of Parliament. —I am, etc., v TIRED TAXPAYER. JV«Uij)gton,. August 31.