REPORT OF THE SUBCOMMITTEE 267 



to be built up through neglect to assist efficient small producers. The 

 writer believes, therefore, that the forest industry should have the ad- 

 vantage of Federal assistance in organization of credits in order that 

 cheaper capital may thus be made available to assist both in forest 

 production and in more efficient utilization of existing forest resources. 

 A discussion of this subject having been undertaken by the writer 

 previously,^ he will confine himself in this subcommittee report to 

 the following summary of the situation which is submitted as a basis 

 for future discussion : 



A. Necessity for Better Organisation of forest Credit 



The better organization of the credit of forest industry is necessary 

 for the following reasons : 



1. Forestry cannot be carried on by private owners who must operate 

 on borrowed capital if the interest rates on borrowed capital exceed 

 the interest rate which forestry will earn. 



2. It is generally conceded by authorities on the subject that forestry 

 will not make a current return of more than 3 to 6 per cent on the 

 investment.^ (See footnote A.) 



3. The present rates paid on forest loans are in excess of the above 

 rates of forest earnings, being 6^ to 7 per cent.^ 



4. It may. be concluded that the rates on capital borrowed under the 

 existing organization of forest industry credit are a grave handicap to 

 the practice of forestry on private lands, and also tend to force pre- 

 mature cutting where continued forest production may be inadvisable. 



1 See Journal of Forestry, Vol. XVII, No. 3, Mar^, 1019. 



2 See Roth, "Forest Valuation," page 26 and following. 



3 Report No. 114, U. S. Dept. Agriculture, pp. 14-15, "Some Public and Eco- 

 nomic Aspects of the Lumber Industry," by W. B. Greelfv. 



Footnote A. Organized annual sustained yield forestry by maintaining a 

 large growing stock (amounting to half what grows in any one rotation period 

 for the tract under management) which is constantly increasing in price makes 

 possible an additional return due to constant increase in value of stupmage. 

 This second return has in the past formed the main reason for timber invest- 

 ment, but under past exploitation policy the continuance of this return is cut 

 oflf at the same time the possibility of current annual returns is cut off by wreck- 

 ing the forest. 



This return from "unearned increment" may amount to from 2 to 8 per cent 

 in addition to the current return, but as it is realized only by a sale of the 

 property or increased capitalization due to gradually increasing earnings, it 

 is not currently available for meeting annual interest charges. 



