more urgent matters. Several plans have been suggested, but the one receiving the indorsement of the United States Commission and introduced by Mr. Moss, provides for national incorporation and supervision, but the activities of the local bank are limited to the state in which it is located. The fact that there are forty-eight states, with rates of legal interest varying from 6 to 10 per cent, and with widely varying laws governing conveyancing, registration, foreclosure, exemption, taxation and other matters relating to land control, makes it seem imperative that the local banks should conform as nearly as possible to state laws as is consistent with firm federal supervision. Under the bill proposed any number of banks may be organized in a given state and may extend their operations over a part or the whole of the state. Ten or more persons may organize such a bank, and they may issue land bank bonds not to exceed fifteen times the amount of their capital stock, and may loan on farm lands at not to exceed 50 per cent of their market value. The amount that the bank can charge the borrower is strictly limited to a maximum of 1 per cent more than the rate of interest paid on the bonds. This should permit an interest rate on the bonds that would be attractive to capital, permit a reasonable profit on the capital stock of the bank, and still keep the interest rate to the borrower low enough to effect a great saving. The banks may be either cooperative in principle or be operated for profit, as desired. The volume of business permitted should yield a good profit at the rate allowed. The land bank bonds created under this act should be recognized as being of the same class and as entitled to the same standing as the very highest grade of railroad or industrial bonds. These bonds should be officially recognized as suitable for legal investments of all classes of savings and for insurance reserves. They should be a legal investment for any moneys of widows or orphans under control of the courts, for postal savings funds, and for all those funds around which the greatest and most rigid safeguards are thrown. The proposed bill recommends that bonds run from five to thirty-five years and that mortgages be limited to the same periods of time; mortgages must be repaid on the amortization plan, but after five years the borrower may have the privilege of repaying his entire loan at any interest date. Recognizing that a mortgage tax is simply double taxation on the land, the bill provides that all of the mortgages and deeds of trust held by the bank, and all of the land-bank bonds issued by the bank against such mortgages and deeds of trust shall be exempt from taxation. Following the Federal Reserve Act, which exempts the Reserve Banks from taxation, the capital stock of these land banks is also exempted. When this matter is fully understood the farmers of the country will be almost a unit in its favor. There is in it no plea for special privileges nor government aid-merely the demand that the farmers be given the benefit of a safe and sound loan system that will enable them to borrow money on as good terms as any other class of business men. The idea of special privilege is antagonistic to the spirit of our institutions, and as a farming class we do not desire any special privileges. The security of our farms, the value of which is over $40,000,000,000, yielding nearly $10,000,000,000 annually in gross value, is ample for the creation of a liquid security which will be readily accepted by investors and which will enable the farmer to use his asset of land as readily as the merchant uses his stock of goods. The farmer needs no special privilege and wants no special privilege, and none should be extended to him. Some Principles Which Should Govern Credit BY C. K. WILLIAMS, MANAGER MORRIS BROTHERS, INC. While the Oregon country has been partially settled up for a long period of years, its principal resources are as yet largely undeveloped. Oregon's one great enduring asset is her wealth of agricultural lands and diversified land products which should, year by year, far surpass the fruits of all other industry. The continued growth and development of our cities, our factories, our trade and commerce depend's primarily upon the development of our farms; the settling up of vast sections. throughout the State which are now largely unproductive. The one great crying need of this State is for thousands of industrious, thrifty settlers-families who will go out from our cities and till the soil. In this day and age, a certain amount of social and economic development, in the way of public improvements, is necessary to establish and encourage rural life. The building of permanent highways, public schools, telephone lines, electric railways, etc., are the great positive factors in the real development of any country. Capital is required for all improvements of this character and to secure needed capital we must establish and use both our public and private credit. The character of our laws, the burdens we impose upon outside capital coming into the State, and, in fact the attitude of the public generally toward all classes of property rights, directly affect both our public and private credit. While our laws on the whole have encouraged legitimate investment, Oregon has undoubtedly suffered very materially from illadvised legislation proposed in the State from time to time and which, if enacted, would unquestionably keep out a great deal of capital. Since we will require borrowed capital for years to come, in order to fully develop our resources, every good citizen should take a vital interest in such matters. PUBLIC CREDIT One of the first principles involved in the establishment of public credit is the fixing, preferredly by constitutional limitation, of the total amount of indebtedness the State, the county, the city, the school district or other incorporated municipality may incur. This debt limitation is usually fixed at a comparatively small per centum of the assessed value of all taxable property in the community. While there is no standard debt ratio for municipal loans, it is significant to note that the laws of New York, Massachusetts, Connecticut and other New England states governing the investments of savings banks, trust funds, etc., which are the result of years of experience, permit of the purchase of certain classes of municipal bonds, provided the total net indebtedness of the community so involved does not exceed seven per cent of the assessed property valuation. The Oregon Constitution prohibits the State from issuing any bonds or other permanent loans. This was likewise true of counties in the State until the amendment of 1913 was adopted, permitting counties to issue so-called "Good Road Bonds" and restricting the same to not over two per cent of the assessed valuation. The statute limits school district indebtedness to five per cent of the total amount of property valuation of the district. The State Constitution provides that the amount of indebtedness any city may incur must be restricted and limited by its charter at time of incorporation or by subsequent amendment thereto. Public credits or loans are based upon (1) the aggregate taxable value of community property as a whole, (2) the established character and reputation of the community, (3) the legal restrictions that have been imposed to safeguard such loans, (4) and to some extent the purpose for which the loan is intended. Given these factors, municipal bonds as a class rank next to government bonds in safety, and, as a result, uniformly bear comparatively low rates of interest. As already suggested, municipal loans are based upon the aggregate taxable wealth, as well as social and economic conditions of the community as a whole. The average American commonwealth, city, school district and other incorporated municipality shows a steady growth in population and wealth through a succeeding period of years. It is inferred at the time municipal loans are originally incurred that the factor of security which then exists will, if anything, increase rather than diminish in the future. In other words, the element of uncertainty is largely eliminated. Such being the case, municipal loans or bond issues running for a long period of years can be floated very readily. This is not the case with either farm loans or industrial loans, as will be pointed out further along. Actual provisions should be made for the payment of public loans at the time they are incurred. The useful period covered by most all public improvements, such as paved streets, hardsurfaced highways, bridges, school buildings and the like is limited. From an economic standpoint, therefore, it is evident that repayment of by far the greater amount of public borrowing should begin soon after the indebtedness is originally incurred and adequate provision should be made to retire the loan in full well within the actual life of the improvement involved. This form of debt amortization finds its best example in serial bond issues-the ideal form of public loan. Where such loans are paid wholly from taxation, in addition to the amount raised each year to pay the interest, a sufficient tax levy is included to retire a fixed portion of the principal. In this way the loan is gradually reduced without imposing a severe burden upon the property owner. There are no new economic principles involvel by such methods. Furthermore, the fact that definite provisions have been made to gradually retire the loan, unquestionably tends to make issues of this type all the more marketable and in growing favor among investors. We have recently had some good examples of this type of public loans near home. Multnomah County, Oregon, has just authorized and sold on favorable terms $1,250,000.00 five-per-cent bonds to build permanent highways. This bond issue matures at the rate of $125,000.00 annually, beginning in five years from date thereof. In other words, the loan will be paid off in 10 equal installments by very moderate tax levies, and well within a reasonable period of time, taking into consideration the nature of the improvement. |