240 JOIRNAL OF FORESTRY 



Icaz'itiy all on the i)idii'ichta]. as docs the federal Farm Loan Board 

 under its policy. To date we have induced the individual to take all 

 the risks by promising high rewards for success. This system ruins 

 some and makes millionaires of others. Happiness will be more general 

 with fewer of each class in evidence. This result can be facilitated by 

 institutions which will absorb some of the risks in industry, so that 

 smaller rewards need to be offered to secure production. The solution 

 of this problem, so far as it concerns finance, is relatively simple. Since 

 the interest rate consists of three elements — (a) payment for the use 

 of capital itself, (b) the cost of investigating the loan, and (r) payment 

 to cover the element of risk — in the present 7 per cent rate on forest 

 loans perhaps 3 to 4 per cent represents value of use of the capital, yi 

 to I per cent cost (^f investigating the security and ])reparing the loans, 

 and 2 to 3 per cent to cover risk. Proper organization of credit will 

 eliminate part of the cost of investigating loans and much of the risk 

 element, except in certain loans necessary to the industry, but inher- 

 ently risky. These are taken care of by increased interest rates, as 

 considered below. 



This brings us to consideration of the proper constitution of a Forest 

 Loan Board and a brief statement of its methods. 



MAK1;-U1' oF FORFST LOAN r.O.\RT) 



The board should consist of five to seven members appointed by the 

 President. Part of these members might well represent such present 

 governmental organizations as the Treasury Department, Forest Serv- 

 ice, Department of Commerce, etc.. and the remainder be selected from 

 representatives of forest industry. Its duties should be to fix the gen- 

 eral policies and supervise the operation of the Forest Loan lianks. 



REGIOXAL ORGAN IZ.VTIOX OF BANKS 



The plan of organization should provide for decentralization, as in 

 the Federal Reserve and Farm Loan Banks. The country should be 

 divided into eight or more districts, as, for example, ( i ) Xew England 

 and Northern New York; (2) the Lake States: (3) the Central Hard- 

 wood and Appalachian Region; (4) the Southeast; (3) the Northern 

 Rocky Mountains; (6) the Southern Rocky ^Mountains ; (7) the South 

 Pacific Coast ; (8) the North Pacific Coast. Further subdivision may 

 be desirable. Each regional bank should reflect the local viewpoint and 

 have a full staff' of forestry, timber, and financial experts. 



