268 JOURNAL OF FORESTRY 



B. Possibilities for Cheaper Capital. 



The following facts justify the expectation that cheaper capital may 

 be available to forest industry under certain conditions : 



(1) Cheaper loan capital is available to those industries v^hose assets 

 are in no danger of shrinking to less than the face value of the loan 

 secured by these assets, whose assets are marketable, and whose credit 

 is well organized. The steel and railroad industries are examples. 



(2) Forest industry holds not less than six to seven billion dollars of 

 assets in the form of standing timber, constantly increasing in value, 

 together with mills and logging plants. If loans were placed against 

 the various units of the industry to the amount of 50 per cent of these 

 assets, there is no probability of such shrinkage of their value as to 

 jeopardize the security. Forest industry, indeed, possesses a vast 

 volume of the most stable assets. 



(3) The high interest rates paid by the industry can therefore be 

 accounted for only on the ground on unorganized small borrowing, 

 which can not draw on the money markets of the world on equal terms 

 with those industries which are financed on a wholesale scale. 



C. Organising Credit of Forest Industry to Secure Cheaper Capital. 



1. The average individual borrower in forest industry, on account 

 of his small borrowings, cannot expect to secure cheap capital. Organ- 

 ization of borrowers is therefore necessary. 



2. The Federal Farm Loan Board forms a guide to the kind of 

 organiziation advisable. A Federal Forest Loan Board should Ibe 

 authorized, which will act along similar lines. It should loan its 

 capital to existing individual and corporate owners of forests and 

 forest industries, taking first mortgages with adequate margin of safety, 

 as security therefor. These mortgages should then be used as collateral 

 security for large bond issues which will be salable in the money mar- 

 kets of the world. 



3. Attention is specifically called to the fact that the function of the 

 Federal Government as here contemplated is to assist in organization 

 of a worthy activity, something which might be expected by any 

 industry. Any funds which it may advance to the Forest Loan Board 

 will be in the nature of a loan, so that the aid here contemplated to 

 be given by the Federal Government does not constitute a subsidy 

 to the industry. Since the consumer should expect to pay such a 

 price for forest products as will make their production profitable, a 

 subsidy is wholly unnecessary and inadvisable. 



