DR. H. M. TORY’S report to the Minister of Finance, at Ottawa, undeniably quickens interest, afresh, in the problem of agrarian finance. But does it bring a solution any nearer? Does it develop a trend of thought likely to lead to practical conclusions?
The advisory chairman of the honorary council for scientific and industrial research has been at work upon this vexatious economic subject, for the federal government, since last August. After eight months, “Dr. Tory has no definite scheme to recommend,” the Manitoba Free Press concludes, “but he is emphatic in his view that there is need for better facilities for both short term credits and long term loans, if Canadian agriculture is to be given a chance to prosper.”
Dr. Tory, in what may probably be considered a preliminary report, urgesthe need of lower rates on loans to farmers, and a recognized system of amortization, if the bulk of Canadian farmers are to remain on the land. The report argues that farm loans should be a safe and attractive form of investment. The fact that Canadian farmers must pay considerably more for long-term loans than farmers in other countries or merchants in Canada, suggests itself to Dr. Tory as ample reason for a really Canadian agency of financing instead of the diffused system which now obtains.
After reviewing legislation pertaining to rural credits in Canada, all of which is provincial, and commenting upon the progress which has accompanied the present system, Dr. Tory considers the success sufficient to prove the value to the farmers of the amortization principle. He tells that provincial organizations for rural credits, for the moment, have ceased to function because it is difficult to obtain money at a sufficiently low rate of interest and because of the danger of embarrassing the provinces by increasing the funded indebtednesses.
An amortization scheme is recommended as to short term loans. Dr. Tory says that mortgage companies now handling the bulk of rural credits have complained that provincial restrictions, by way of taxes and priorities over mortgages, have become so excessive that freedom of action is impossible in some provinces. Some mortgage companies, he I says, claim that if they had their freedom : they could reduce the cost of financing ; rural credits by two per cent. This is sufficiently important in Dr. Tory’s view to justify early conferences between the .mortgage companies and provincial and federal authorities. His own opinion is that closer co-operation between the mortgage companies could not fail to reduce the cost of financing short term loans.
Shall Ottawa follow the initiative of Manitoba, Ontario, Alberta, consolidate these provincial rural credit ventures and embark upon the banking business to aid agriculturists of the Dominion? Dr. Tory would appear to favor the sweeping reorganization of all agencies through which rural credits are now handled in Canada, as a means “to cheapen the financing of agricultural operations.”
Rural Credits in Other Lands
DR. TORY has been penetrating the rural credits of Great Britain, the ! United States and Continental Europe, and is desirous that the federal investigaI tions he furthered. The American situaI tion, so far as government-sponsored rural credit measures are concerned, interests j Canadians, for the reason that our provincial experiments were inspired by the . United States FYderal Farm Loan Act in 1916. At the present time, however,
Canada, unlike the United States, has no national law under which to furnish advances to those engaged in agriculture, except, of course, as provided through the medium of the federally chartered banks, and with private capital.
In the United States, Washington’s original venture of 1916 has become pyramided. The federal government has now created seven great credit and lending agencies, as though the government were panacea for all economic ills. Altogether five billion dollars of government credit have been placed at the disposal of the American farmer. In addition, the War Finance Corporation was converted into an agricultural lending machine. Nearly every state created farm loan systems and farm credit boards.
As a result, is the American farmer, today, any better off than the Canadian farmer?
An Intermediate Credit System
THE need for a system of intermediate credit, for the farming industry is no longer denied by those who have carefully considered the present state of that industry,” says the Regina Leader, which propounds “the impossibility of obtaining such credit from the chartered banks.” The Leader explains that the chartered banks “operate within the welldefined limits of a banking system, established many years ago, which has given admirable service to trade and commerce but is not equipped adequately to meet the needs of agriculture.”
Has anyone ever stopped to consider that the Dominion of Canada has been financing billion dollar crops up to the present with the chief financing agencies, the chartered banks and the incorporated loaning companies?
Chartered bankers, answering the charges of inadequate credit facilities for the agrarians, particularly for Western agrarians, base their argument upon irrefutable statistics showing that “Canadian banks have loaned the three Western provinces more than the sum total of the deposits received in those provinces.” Without the elasticity of our banking system this would have been impossible. The Manitoba Free Press is compelled to admit: “No one will deny that the aggregate of loans given to farmers throughout the West within, say, the last ten years by the banks runs into large figures and that the losses have been great.” Chartered bankers emphasize that they have taken money deposited in Eastern Canada and loaned it in Western Canada, “but there is a limit even to the resources of banks, and in view of recent experiences in North Dakota, it should not be asked of our banks to pursue the policy which proved calamitous in that state.”
No Quarrel Between Bank and Farm
IS IT not true that the problem of rural finance has for too long been a political football? It has been presented as a quarrel between the chartered banks and the farmers. But, in reality, is it? Is it not rather a problem independent of the chartered banks? Is it not as distinctly removed as the financing of any vast industry which requires to be financed by investment, not banking, funds?
There is an increasing belief that the future will demonstrate conclusively that farm financing, in the main essentials, is fundamentally separate from general or commercial banking; that it belongs more properly in the category of long term industrial finance. Even so conservative a mind as Sir John Aird, president-elect of the Canadian Bank of
Commerce has expressed the conviction that the plan of farm financing “by long term securities rather than from monies repayable on demand is unquestionably sound from the economic point of view.” In short, Sir John Aird believes in a farm financing corporation. But it is questionable if our financially-menaced farmers will find as much sentiment in a strictly financing corporation as they will find among Canadian branch bankers. After all, investment funds have this much in common with banking funds, that they cannot properly be loaned except upon sound security.
At the last annual meeting of the Canadian Bank of Commerce, Sir John Aird told the shareholders: “During the discussion in Parliament this bank suggested that a possible solution might be found in money borrowed by way of the issue of long term securities, the marginal risk to be carried by the issue of stock of a corporation to be formed for the purpose, the money for which would be found in such proportion as might be agreed upon by the Dominion Government, the Governments of the various provinces interested, the banks and other large corporate interests who share in financing the farmers.”
The Regina Leader is not convinced that Sir John Aird’s proposal is best designed to meet the situation. It inclines to the creed that “some means should be devised by which the basic industry of the country will receive more assistance from the country’s capital in the creation of which it plays so important a role.” The Manitoba Free Press would scrap the commercial banks for farm financing purposes and give “the task of financing agriculture to other agencies.”
A Surfeit of Rural Credit
ON THE other hand, the Calgary Herald wonders if the farmer has not been surfeited with credit. “Is the Alberta farmer badly off?” asks the Calgary paper, continuing, “Does he need more credit by way of a farm loans board, and can the Government really assist him by legislation? And what is the cause of his trouble?
“These are vexing questions. They were asked in the legislature and the answer of the Alberta government was a bill, making the way easy for cooperative marketing associations, another establishing a farm loans board which may invest in farm mortgages up to some $20,000,000 and another bill providing potential assistance up to $1,250,000 for the Alberta wheat pool.” The Herald comments that “our neighbors in the republic to the south are asking themselves the same question,” and reviews the agricultural empasse which exists in the mid-western states, adjacent to the Canadian border. Farming has suffered acutely, and in the four states of Montana, North and South Dakota, and part of Minnesota, five hundred and fifty banks have failed. What is the cause? Garnet Garett, in a survey for the Saturday Evening Post, says, firstly, over - production, and secondly, too much credit.
“There is still no lack of credit,” writes this investigator, but “the difficulty is to find anything suitable upon which to grant credit. Farms, livestock, chattels, commodities in storage are already mortgaged for more than they are worth.” Taxes and interest have increased three-fold. “So now,” adds the writer, “the sacred credit myth is in decline.” Yet politicians and farmers
are urging the McNary bill upon the United States’ Congress, “a proposal to employ the power and credit of the government to lift the average price of basic agricultural products.”
“One wonders.” concludes Mr. Garett, “what would happen to American agriculture if only it were let alone.” To which the Calgary Herald adds: “all of which is commended to the attention of the Alberta farmer government.”
Supplying Re-discount Facilities
PALPABLY, the United States has by no means solved the riddle of its farmer. But in spite of the absence of a clear-cut solution from America’s impressive undertakings, the Manitoba Free Press considers that the American system “could be adapted to meet our circumstances.” The Winnipeg paper considers that “the key to the difficulty lies, undoubtedly, in the supplying of adequate re-discount facilities.”
The very heart of the American system, as the Free Press points out, is the organization of borrowing societies and associations, not dissimilar from the Manitoba practice of rural credits’ societies, with the supplying of facilities for re-discounting notes in the case of short term loans and for supplying mortgage money for long term borrowing. The mortgage money is supplied by the Government regional land banks, modelled somewhat upon the U.S. Federal Reserve system. Though the Government started this bank, provision was made by which every borrower became a shareholder and the bank is now in process of being acquired by the farmers. Loans are for long periods—twenty, thirty, forty years. They are paid off at fixed rates of interest, plus a percentage of the principal. The land bank gets its money for investment by issuing debentures against the mortgages it holds.
More Definitely Before Ottawa
DR. TORY’S report may possibly “bring this question more definitely before Parliament,” as the Manitoba Free Press is disposed to think. On the other hand it is known that Dr. Tory undertook his research at the personal solicitation of the Hon. Mr. Fielding. It is not known that the Hon. James Robb, Mr. Fielding’s successor as Finance Minister, is as directly or as immediately interested in the mission.
If Ottawa ultimately decides to erect a farm credit structure, no element of paternalism should be permitted to creep in. Enough of paternalism has already been seen in the provincial farm financing measures. Dr. Tory in his report has sounded a warning in this very regard. He has written specifically of the tendency found among those who have secured rural credit loans from provincial governments in Canada, “to regard lightly their responsibilities to the Government.” Dr. Tory, probably, had definitely before him the experiences of the province of Saskatchewan.
Premier Dunning of Saskatchewan, in his capacity as provincial treasurer made a statement to the effect that the farmer borrowers of the province paid their obligations to the government last of all their debts. The experience of the Province of Manitoba in this regard has been slightly more propitious.
All of which leads to the unsavory conclusion that you can legislate in all else but you cannot legislate honor. Therefore, the Government’s ultimate action must be based upon sound business.
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