Ashland tidings. [volume] (Ashland, Or.) 1876-1919, 1913-07-07
INDEBTEDNESS, PRIVATE AND
PUBLIC.
Sixth in Series.l

dividual, or community, to advance
rapidly in wealth through borrowing
money.
When the city of Los Angeles had
a population of but forty thousand
it had an Indebtedness of but five
million and it's tax rate was about
forty mills. Now it owes about forty
million, has a tax rate of but sixteen
mills for all purposes, and has a pop
ulation of some three hundred thou
sand. 1t is one of the few cities in
America whose tax rate has de-
creased while its interest-bearing
debt increased.
Whether an individual or a COM
munity advances in wealth by bor-
rowing depends upon what use is
made of the money.
The banking business is fair
illustration. The banks pay four per
cent on time deposits and loan the
money at eight. Deposits are but
loans to the banks. Ordinary depos-
its call loans and time deposits
period loans. 1t is the purpose of
every bank to get as much time de-
post as possible, because the more
they borrow at four per cent, and
loan at eight per cent, the greater
their profit.
The same applies to an individual
or community. / have known indi-
viduals with specially good credit to
borrow money at five per cent in the
east and loan it at eight in the west.
So long as the security for loans
made was as sure as that given for
his loan, he made money. The more
he borrowed the more he made.
If a community borrows money
and employs it in a way that
each dollar will CREATE NEW tax
able volue, enough so that the in
come arising from the new acquisi
tion will more than offset the inter-
est and sinking fund charge on the
loan, without raising the assessed
value or the tax rate, on property
existing before the new Indebtedness
was created the more it borrows
the wealthier it becomes.
Keep this in mind: Money invest
/ ed so as to ADD taxable values and
money invested in a way to CREATE
NEW wealth are entirely different
propositions. A man, or commun-
ity, may absolutely ruin his or its
finances by borrowing to provide lux
uries, or conveniences, if too much
is employed in nonproductive use.
For example: Should the county
of Jackson borrow five million dol
lars at five per cent, and invest ii
in good roads,. Notwithstanding such
amount rightly expended would give
the county better road system than
could be found anywhere else in the
SOuhbiy anu w iNoSOI vi IL MUS
would be made more accessible here
than in any other locality on the
coast, and new people and new devel-
opment would be added, the sum
would still be so out of proportion
to the possible increased productivity
that the interest and sinking fund
charge would work the financial ruin
of the county by raising taxes so high
that no industry could be made prof
table.
Conversely: If the same amount
should be borrowed and employed,
say, in a practical irrigation project,
so that all of the idle land in the
county would be brought into profit
able production and the land now in
use made to produce it's utmost vol
ume, so that the increased production
would more than offset the interest
and sinking fund charge on the obli-
cation, the resulting prosperity would
be in proportion to the excess OF
wealth production over the cost OF
the money employed in the project.
In the last case the creating OF
the obligation would be as profitable
as in the first case it would be ruin
Gus.
Should an individual borrow a
large sum of money and invest it in
great house for home, house so
large it would tax his income to
maintain it without providing for the
interest he had to pay on the loan
or the sinking fund necessary to
liquidate the debt wnen due, 1t
would prove foolish and unprofit-
able transaction and would likely re-
suit in his ruin. Many a man nas
gone broke living in too fine house.
Just so with community. There
Is limit to the amount of money
that can be safely borrowed for en-
ployment in nonproductive use, or in
a way as to only raise assessed val
ues without creating new values COM
mensurate with the cost of the funds
employed in the investment.