A NATIONAL PLAN FOR AMERICAN FORESTRY 1131 



Farm values serve as a good illustration. Census statistics 3 show 

 that the values of farm land and buildings in different years were as 

 follows : 



1920__ _ $66,316,002,602 

 1930 47,879,838,358 



It is by no means improbable that value shrinkages were even 

 greater than reported and that the aggregate value at the present 

 time is still lower. By 1931 farm debt had risen to between 

 $13,000,000,000 and $14,000,000,000, with interest averaging 6 per- 

 cent on mortgage debt, 8 percent on short-term credit, and 15 to 20 

 percent on merchant credit. 4 The total annual interest charge approx- 

 imated $900,000,000. In 1930 the gross income of agriculture, includ- 

 ing the value both of commodities sold and of commodities consumed 

 on farms, was $9,401 ,939,000. 5 Interest charges in 1930 were therefore 

 about 9% percent of gross income. Since income has continued to 

 shrink, interest charges constitute an increasing percentage of gross 

 income. Railroads supply another example of heavy indebtedness 

 that has carried serious difficulties. Consideration of these examples 

 warrants the conclusion that in undertaking to serve the nee"ds of 

 forest enterprises organized for continuous yield the use of permanent 

 credit in excess of 30 percent of the total capital in any individual 

 enterprise should be discouraged. Temporary credit in excess of this 

 percentage will frequently be necessary in the process of assembling 

 and organizing such properties. 



INTEREST RATES AS RELATED TO EARNING 

 CAPACITY 



When interest rates are paid by an enterpriser in excess of the 

 earnings of his project the lender receives the earnings of his own 

 capital plus part or all ofthe earnings of the borrower's capital, or the 

 surplus rate may be absorbed by costs of placing and administering 

 the loan or ^by risks on that class of loans. A leading function of 

 credit organization is to reduce costs of placement and administration 

 of loans and to distribute risks. As a result of efficient organization 

 the borrower should be required to pay^no more than necessary for 

 the use of the credit with minimum costs incident to carrying the risks 

 and to administration and financing, and the lender seeking safety for 

 his capital should receive an approximation to the riskless rate. ~The 

 chief factors to be considered are the adequacy of business volume to 

 distribute overhead costs and risks, the building up of reserve to 

 insure meeting unusual risk, and loaning on an amortization plan to 

 avoid frequent refinancing charges. Limitation of loan percentages 

 together with systematic amortization underlies the elimination of 

 risk. 



When all possible has been done by these means to establish low 

 interest rates, comparison may be made between the interest rates and 

 the prospective earning rate of the enterprise. The available means 

 for supplying credit capital at still lower rates are virtually limited to 

 the use of tax-collected public funds or of funds raised on securities 



3 Bureau of the Census. Fifteenth Census of the United States, 1930. Vol. II, Agriculture, Table 1. 



* United States Department of Agriculture Yearbook, 1932, p. 501. 



* United States Department of Agriculture Yearbook, 1932, p. 890. 



