The Co-operative Bank Idea
A Candid Review of the Western Demands and Operations of Loan Companies.
Editor’s Note.—If the report of the Royal Commission on Agrieul_ tural Credits appointed by the Government of Saskatchewan correctly reflects the sentiments of the farmers of that Province it is quite apparent that they regard the banks and loan companies as alien institutions transacting business in that Province with a usurious keenness and with usurious intent only. The report itself purports to have discovered "under the guise of short term mortgages a system of long term mortgages” from which the farmer has practically no chance of escape. "Reprehensible” is the term applied to the system. Banks
are not let off with less mild terms. It is regarded as a disadvantage that they are not controlled from within the Proviuce, and it is alleged that they charge too much for the transfer of funds; pay a rate of interest on deposits that is too low and have other characteristics alleged to be inimical to the best interests of that Province.
To remove the alleged grievances it is proposed to establish a cooperative mortgage association and ultimately a co-operative bank. Mr. Appleton, associate Editor of The Financial Post, looks on the whole question with temperate eyes, and his eminently fair judgment in this article will be commended by many.
Saskatchewan, as this reports shows, and as comment upon it also shows, really believes that it has a serious grievance against the banks and the mortgage companies. Both political parties are pledged to provide cheaper money for the farmers. The Regina Standard, a journal bitterly opposed to the Scott Government, chides it with temporizing with the question, by appointing the commission. In a recent issue it stated that:
“It is more than probable that the Government’s cheap money policy, having doue duty at one election, Is to he held over to help bear the rigors of another campaign. In that event, we may expect to worry along for at least two years more under our present excessive rates of interest aud high costs of mortgages.
“After all, the high-priced Saskatchewan Commission was little more than an adjunct of the American Commission, and Saskatchewan might have done as weli to wait for the United States report in the first place. Of course, such action on the part of the Government would have deprived a cabinet minister and several good party friends of a pleasant jaunt “’ome,” at the public expense, which Is perhaps one of the main reasons why the Commissions was appointed.”
The Regina Leader, the stalwart supporter of the present administration in Saskatchewan declares editorially that conditions of the kind disclosed by the Commission are intolerable and dangerous in a province which depends for its prosperity upon agricultural pursuits. "They will not be remedied,” that journal says, “by the.existing mortgage companies and banks, profit sharing enterprises, under which they have grown up.”
Obviously, therefore, there is discontent in Saskatchewan and it is loudly proclaimed. Hard-wrought tillers and trail blazers digging and slashing from sunrise to sundown have found a voice in this commission. They are made to say, in Prophet Carlyle’s words: “Behold, our lot is unfair; our life is not whole but sick; we cannot live under injustice; go ye and get us justice!”
Discontent is a natural order of things in a new country and with it are pains— growing pains—freely voiced. Girondins had their French revolution ami the Chartists their parliamentary radicalism and the Liberalism of Saskatchewan its Commissions. The latter are fortunately not attended by riots or revolutions but they have behind them a political force sagaciously allied to a strong public opinion. In that province Commissions have the ear of the public. Action has usually followed promptly upon the filing of reports. The Hon. Walter Scott and his government are not in the habit of getting rid of the problems arising by relegating them to a Commission for crucifixion. Herein that statesman has shown the sterling quality of his common sense. When the people who elect him to office have really a pronounced opinion as to something being done lie looks for the best way of accommodating them. He keeps bis ear to the ground. When, therefore, he appoints a Commission it is not an idle thing intended to “debate, demonstrate, contradict, qualify and finally to reduce to unfeasibility” the matter submitted to it. On the other hand, whatever, we may think of the action taken, we may rest assured that when the present Saskatchewan government appoints a commission its report is likely to be implemented in legislation.
When the farmers of the entire West urged the various governments to take over the elevators and operate them the Scott government appointed a Commission and its report is now law, the evidence of which is the promising co-operative system of elevators now in operation. It is too early to say that the system is successful but it gives evidence of being so. It has been adopted hv the Alberta government and no doubt Manitoba will follow in the course of time. Its success also, no doubt, is the best
reason which the Commission we are | dealing with had for recommending the formation of a Co-operative Mortgage Association aided in exactly the same way as the elevator association.
In the case of the co-operative ele; vators on a provincial scale ÍSaskatclie: wan was the pioneer and that province : will no doubt be the pioneer in the es; tablishment of co-operative mortgage associations on a provincial scale in ( Canada.
The report just presented to the Sask! ateliewan government is therefore of : uncommon interest. It deals with u sub¡ ject much more complex than any other ! as yet tackled by that radical province and as we have already indicated the j history of its government leads to the J conclusion that action will follow. It is because prompt action is most likely that the report is of real interest to students ! of credit for agricultural purposes all i over the Dominion.
Judging by the lengthy summaries of j the report which have appeared in the 1 Saskatchewan papers, the actual report ¡ itself not yet being available, it is quite j obvious that while the Commission ¡ recommends resort to co-operative meth; ods for the re-ordering of rural life in ! Saskatchewan it has aimed first to provide credit on terms which, in its opinion are possible and reasonable as viewed from the actual position of the farmer.
The first step recommended to be taken is to displace the profit-sharing enterprises in the form of mortgage corporations with non-profit earning co-operative organization. It is understood, of course, that we are dealing here merely with the question of agricultural credit. It is not likely that the operations of the proposed co-operative mortgage company will extend to urban activities. When we therefore refer to the displacement of the profit-sharing corporations, operations amongst the farmers only are referred to.
For displacing this old order of things the Commission adduces reasons indicated in the following extract from the •press notices of the report:
“There Is great need of cheaper credit, based on sound security, spread over a considerable term of years, applied to assist i mixed farming and to improve the lot of ! the average farmer on a half section. The commission concludes from the evidence it ! received that four-fifths of the patented farms ! of the Province are mortgaged and at a rate of interest on the average in excess of 8 per cent. The rate of Interest, too, tends to increase rather than to decrease. Owing to the smallness of the annual payments of principal required and the general lack of insistence upon the payment even of these, there is found to exist In Saskatchewan under the guise of short term mortgages, a system in reality of long term loans on mortgage.
“In fact the present system of payments seems designed to render renewal necessary and debt perpetual. With the final payment ! so large the borrower can seldom meet it out ; of the current year’s income. The mortgage is not only renewed; the amount of the loan Is very frequently increased. ;
“These features of our mortgage system i are reprehensible. The mortgage Is not calj culated to develop business habits nor j promptness. It is a document that places the farmer, from the beginning, in an imposai; ble situation. It bolds out to him the prospect of confronting a payment which he can never hope to meet. Under the guise of a short term mortgage there actually exists a ¡ system of long term mortgages, but with this difference, that the farmer is compelled j to renew every five years or lose his farm should he fall to meet the mortgage. The i system of long '
•Copiea of the report In full not yet availa ble.
ment on the amortisation plan encourage« promptness and does away with that spectre of the final paymeut which, like the sword of Damocles, hangs suspended over the farmer.”
To lay at the door of the great mortgage companies which have operated in Saskatchewan the implication that their policy is designed to make debt perpetual—and to imply that its terms make liquidation impossible—is quite as unjust as unnecessary in the execution of the duties of the Commission. To study economic conditions in Saskatchewan and those of other countries with a view to cheapening the cost of money to the farmer is a very worthy object and one in which money can be most economically expended. The Commission hopes through the adoption of its scheme to lessen the cost of money to the farmers from eight to six per cent. If this result is accomplished within the next few years it will more than justify all the effort and money that has been expended on the enquiry. So radical a change in the cost of credit will also of itself prove incontrovertibly that the time has come when such a change could be effected by the adoption of new methods and the employment of new forces to give effect to which provincial government credit will be utilized.
It should not be forgotten in this connection that the conditions which make the change possible have been created by the co-operation of the loan companies and the fanners. As the commission itself finds the loan companies have provided farmers with money to the extent of $65,000,000, a sum which has been found for their purposes in bringing wild prairie into cultivation within the compass of little more than a decade. By the application of capital to so large an extent the tilling of the land has been made possible and the result is that Saskatchewan has been “found” so to speak. Through the use of that capital the grain product of the province has been increased from approximately 5,000,000 bushels in 1898 to 240,000,000 at the present time. This is the real basis of Saskatchewan’s credit, and on it, development, as it has so far proceeded, is based. Now the possibilities of the province are proved, largely by the aid of capital supplied through the agency of the loan companies, credit on easier terms may be obtained. But twentv ypurs ago it was difficult to get capital on any terms for investment in Saskatchewan. Those companies which did invest money there at that time were severely criticized for so doing, and their experience was not at the outset a very happy one. Conditions are now very different. Into the making of them, however, and forming as they do a better credit basis, the part played by the condemned companies has not been
recognized in the commission’s report so far as the press reports indicate. “Reprehensible” though their practices, in the opinion of the Commission, may have been, it cannot be gainsaid that the loan companies to date have been the agency through which the discovery of one of the greatest wheat grow-
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iug' countries in the world has been made. ¡ If further and better progress can be ( made under different terms and on the vantage ground already established let the new era be hastened. The old will pass away after doing its work but why heap upon its departure curses in place of blessings for the good work it has done.
The purposes for which loans have been obtained from mortgage corporations the Commission summarizes as follows :
1. To consolidate past debts.
2. For machinery. In this matter there has been considerable overstocking, due as one farmer stated, to the “science of salesmanship.”
3. For stock.
4. For building and general equip! ment.
5¿ To provide working capital.
6. To buy more land.
7. To “finance trips East” or or similar purposes.
These purposes are legitimate enough with the exception of the last. When ¡ farmers succumb to the wiles of sales, men who have unwarrantably degraded the term “scientific,” the fault cannot be laid at the door of the loan company. 1 Nor can a loan company be blamed if ¡ the proceeds of a loan it makes are used j for a “trip east” or elsewhere. Under j a co-operative system the members of a local association would no doubt exercise I some control in this respect. Their ob¡ ject would be to do so at any rate but • whether they would succeed or not has i yet to be determined. Between the purposes which the Commission considers legitimate and those for which loan corporations have made loans there is practically no difference. One witness j before the Commission is quoted as hav! ing the right idea as to the purposes i for which loans should be made. This is j what he says:
“The purchase of stock of all kinds necessary for scientific and correct farming, together with adequate stable accommodations for the same; the digging or drilling of wells to secure a sufficient water supply, together with an equipment necessary, su;’h as small gasoline engine and pump jack for pumping water where a large supply is necessary or a , well is unusually deep ; fencing for pasturage or corral; the purchase of seed grains that are of an earlier or more productive variety; to redeem notes of the large machinery com; panies that are harassing farmers so relentlessly at the present time; or for any other addition to the foregoing that would tend to save labor and put the keeping and raising of stock and the production of grain upon more sound, satisfactory and scientific basis. It should he assumed that mortgages under this head should be limited to farms of one-half section in extent, which should have been resided upon and worked continuously during three years previous to the application for 1 mortgage.”
I do not know of any loan company ¡ director, manager or responsible officer ! of any kind that does not earnestly desire to see the loans made applied to j such purposes as those admitted to be ¡ legitimate. By using the money in that j way the security is enhanced in value. In endeavoring to fasten in the public
mind the impression that the loan companies have no other but usurious intent the Commission has stretched its points too far. Here is what it attributes as the characteristics of the corporations:
1. With two or three unimportant exceptions they are not controlled within the Province.
2. Being associations of lenders whose primary object is to secure profits, their Interests in the final analysis are different from those of the borrowers.
3. The extremely low rate of interest allowed on deposits does not afford an Inducement for people to save or to invest.
4. The great bulk of the funds used within the Province is derived from sources outside the Province.
5. The same Institutions do not furnish mortgage and personal credit.
And here we have the commission’s view of what should be:
1. They should be controlled within the Province.
2. They should seek to serve both borrowers and lenders alike. Associations of borrowers grouped together to furnish the most ample secuntv, and who stand collectively liable, would have as their first duty to keep the lenders safe, and as their primary object to secure credit cheaply.
3. Profits should be reduced to a minimum, only sufficient to cover expenses of ad-
; ministration and to build up the necessary j reserve fund.
4. They should allow sufficient Interest on deposits to encourage thrift and to induce
. people to Invest safely.
5. Though for a considerable time in the j future the great bulk of the funds used
within the Province must be derived from sources outside the Province, they should constantly aim to place the financial resources of our districts and our Province, however meagre to begin with, primarily at the services of these districts and this Province.
6. Though different institutions furnish mortgage and personal credit they should operate harmoniously and sympathetically.
Here is evidence plain enough of an intention to create in the mind of the Saskatchewan farmer the impression that the loan companies operating within their territory are “alien” institutions, Frank admission is made of the fact that the bulk of the funds must be derived from sources outside the province but it is desired that the control of them should be from sources within the province. Funds, however, will not seek service in Saskatchewan or anywhere else unless they can serve under their own terms.
At the present moment funds are not available for Saskatchewan on any terms. To a very limited extent money is being placed there but at temporarily higher rates. Present conditions are, however, temporary. In the course of time the terms will, in the natural order of things, become easier for the borrower. They may be made still easier if the plans outlined by the Commission are carried out as hoped. It is proposed that the members of each association should be to a limited extent responsible for the loans obtained by others. Collective security of this kind will improve the credit basis of the loan and may as a result make its price less. School debentures have at the back of them similar security. All the land in each school district is held liable for the debenture. Even so the rate of interest on the ordinary issue of this kind is such as to yield the investor seven per cent. In the ease of the proposed loans to farmers the
provincial government stands behind them in so far as the money lender is soncerned. There is, therefore, some hope that the farmer will get mortgage money at a less cost than school districts do at the present time. An anomaly will thus be created. Education is equally as important as agriculture.
One of the few disadvantages of the school debenture is that the trustees, appointed to look after it and the collection of funds with which to meet the interest payments, are very negligent. Quite often they do not intend to be so. The truth is they have little knowledge of business methods. From their cotrustees they are often widely separated. Collecting taxes and arranging business details in a sparsely settled community is a laborious undertaking and one that eats up much time of which the average farmer has too little to spare.
The difficulties which apply to school district management will also apply to the management of the local co-operative loan associations. Where co-operation has been a success the local circumstances are very different to those obtaining in Saskatchewan.
In the countries traversed by the Commission in search of information, such as Denmark, France, Germany, Holland and Belgium where co-operative methods have been a success and an aid to agricultural development, the population is dense. Good roads and short distances are an added aid to close and daily contact, so essential in co-operative production and distribution on a successful basis. The same is also desirable if not essential in co-operative management of such associations as outlined by the Commission. The difference between the province of Saskatchewan and those countries where co-operation is general is illustrated by the following table:
German Empire 60.000.000
France ........ 47,000,000
Holland ....... 4,900,000
Belgium ...... 6.000.000
Denmark ...... 2,172,000
Area PopulaSq. Mlles, tion Per Sq. Mile.
In those countries, therefore, where co-operation has been as successful as the Commission reports it to be the conditions geographically speaking are very different to those which exist in Saskatchewan. Quite as great are the differences in the characteristics of the people. It is very doubtful if the enterprising people who have settled on the prairies of Saskatchewan, who have braved its drawbacks and conquered them, will be contented to adopt as their ideals, and work to them, those from which so many of them have sought escape. Freedom from the routine and hopelessness of the future has been the impelling force driving the most enterprising of the fields from which the Commission has garnered its information to seek homes in Saskatchewan.
It seems from the reading of the incomplete reports of the Commission whose work we have been dealing with there are many important omissions. Is the life eased and made more desirable to agriculturalists in Germany, Denmark
and France by co-operation and loans on a cheaper scale more attractive, satisfying and hopeful than that on the Saskatchewan prairies as it is?
There are many aspects of the question raised by the Commission which afford food for legitimate discussion but space forbids reference to them at the present time.