Evening star., 1920-02-22
ARGUES NEED OF COOPERATION
IN CONSERVATION OF CAPITAL
Representative McFadden Introduces Bill
Providing System of Farm Credits.
Based on Personal Security.

, meth DDS. The wage earnerS of our IN
dustrial centers and many of our cor
porations should carry il. and they
would do so if it were properly pre-
sented TO them. | maintain that our
life insuranc companies should carry
at least one billion dollars of such pa
per to meet the banking obligations
under their guaranteed caSh-Sur-
render value policies. And this applies
with equal force to the policies issued
by the government under the war risk
insurance act. The average maturity
OF this farm paper Will be ABOUT
eleven months. and the banking
obligations of the insurance COM
panies are payable at the end of the
policy year. or every twelfth month.
1t is obvious. then. that this paper
just meets the banking obligations of
those institutions. by carrying line
of such liquid paper our life insurance
companies would not be forced to
throw their permanent investments on
the market during a financial crisis.
The prime object of a bank is to econ
omiZe capital. but actual practice does
not always square itself with this the
Ory. and the result is u waste of bank
ing capital. The present shortage of
capital is n world wide condition. and
it behooves us all to strain every point
to relieve it The cooperative feature
Of this bill, as we'll as the use of bills
instead of deposits. Will tend greatly
II. tcOllOHilZlIlS D3NklTS capital. 10 Dor
rowers and to agriculture it makes no
difference from what source the bor
rowed capital is raised. but to the in
ves;ng public it makes all the differ
ence whether the borrowers be treated
as partners or creditors. To illustrate
this. let's suppose the proposed system
Gees one billion dollars of business, one
half the borrowed capital being raised
from the partners GARNER commune
Stockholders) and the balance in the
open market. If that business were
done under the deposit system there
would be s27,2O0.0 900 of capital to secure
81 900. 900, 900 Of loans, whereas, under
the proposed system there would be
s521 200, 900 of capital to secure $500,
600. 900 of borrowed capital. not taking
into consideration the security furnished
by the individual borrowers. which
would exceed one billion. nor the secur
ity afforded under the cooperative fea-
ture, which would be considerably more.
Comment on Houston Proposition.
In his last report as Secretary of Ag
riculture. Secretary Houston called at
sonal rural credit facilities. but suggested
this reform should come through state
legislation. Ii the states undertake
this it will mean the placing of our
farmers in deposit banking. a strictly
local system. which is now overdone in
not afford SO broad market for pro-
ductive farm paper as would system
employing written credit instruments.
call them bills of exchange. short time
notes or what not Investors in our
Industrial centers would not have the
confidence in the paper of a corporal ation
created by a legislative body in which
they had no voice as in one created by j
legislative body in which they had an
equal voice with the sellers of such
paper. Not only would the proposed
system be safer and far more efficient
for the farmers, but it would tend to
improve our present banking system and
rid it of many existing abuses. caused
by an attempt to do class of business
i. is not designed to do. and cannot
safely do: and if the farmers employ
the same credit machinery now used by
the existing banks. they will make mat
ters worse, which will result in the
breaking down of our whole credit sys-
tenn.