Evening star., 1939-07-09

about 100000 900 900 Of the national in
come. A few days ago the Treasury
made successful offer to exchange an
issue Of maturing 13s per cent notes
for new issue running TO June, 1914.
The interest rate was the lowest ever
fixed for a long-term obligation. 1t
was three-quarters of one per cent. Not
long before two banks, instead of COL
lecting interest. actually paid the Treas
ury 1914 for the privilege of lending it
sl0,OO0,OOO. The banks saved money,
it was explained by thus avoiding taxes
on liquid" capital which obtain in
some commonWealths.
Once Paid 5I2 Per Cent.
In the prehistoric" days of 1924 the
Treasury paid 5iz per cent on a note
issue of s103,Ooo00O. It's average bor-
rowing rate in 1929 was 394 per cent.
In 1887 1t was ass. The Government
regards any loan payable in less than
five years as short-term obligation,
The interest it has been paving on such
bills is per cent or less The Treasury
has Just advertised an auction sale, on
a discount basis, Of S100000000 in ei-
day notes, to bear no interest whatso-
ever.
Various agencies of the New Deal
have proceeded on a theory that the
classic rate OF or per cent has be-
come too high, The huge volume of
loans extended by the Public Works
Administration has been at 3 per cent
The Rural Electrifcation Admlnistra-
tion charges from 273 to per cent on
its allotments. The interest rate of the
United States Housing Authority, deal
ing with low-rental construction. is 325
per cent. Even the Export Import Bank
mas MADE certain loans at 36 per cent.
deliberate effort to rescue aqricul-
ture from exorbitant interest charges
often 10 or II per cent, has been made
through the Commodity Credit Corp.
which advances money on cotton, corn,
wheat and the like at per cent; and
the Farm Credit Administration, which
asks per cent on mortgages and Al
per cent on short-term production loans.
On the other hand, the Federal Hous-
ing Administration and the Home
Owners Loan Corp. adhere to the once
standard rate of per cent.
Law of Supply and Demand.
Competent observers do not credit the
New Deal with an articulate policy of
destroying the institution of interest
The Treasury, according to Secretary
Morgenthau, operates strictly under the
law of supply and demand. Present in
terest rates, it is declared are due to
an unexampled glut of savings in the
banks. With credit at the lowest cost
in the country's history, the theoretical
result should be stampede of private
enterprises for borrowed money. Why
this has not occurred evokes a number
of explanations.
Businessmen are afraid to take risk,
1t is said, because of their fear of what
Washington may do next and of world
war. Another theory is that the bank
ing system is not geared to the coun-
tryS present need, which largely in
wolves long-term capital financing. In
VeStment banks are organized to deal
with millions rather than tens of thou
sands, and are thus unavailable to small
businessmen. Commercial banks. by def
milton. are restricted to short-term loans
The savings banks, with long-term de-
posits and negligible interest obligations,
are regarded as ideal for financing such
projects as low-rental housing. But the
investment of their resources remains
limited by statute.
FlOurisheS in Some Areas.
There remain, Notwithstanding areas
in which the practice of interest and
even eXtortion still flourishes unabated.
The two divisions correspond roughly
to the classes into which interest has
been historically separated-th is, in
terest on distress" borrowing and inter-
est on commercial borrowing. the latter
being the rental of money with hope
of using 1t so as to defray interest
charges and in addition earn a profit.
In ancient times distress" borrowing
was the rule, with the lender accepting
the debtors body as security and reduc-
ing him to actual or virtual slavery in
case of default.
AS distress" loans may be regarded
those in sums of less than $500, regard
ing which 81 States have enacted
statutes for the debtors protection, it
is illuminating to observe that the legal
rates average from 80 to AZ per cent a
year. A modern variation is that of
borrowing without standard collateral.
Small businessmen testified before the
T. N. E. c. that for capital loans they
were compelled to pay as much as
a per cent.
For the protection of contract bor-
rowers, most Of the States have laws
fixing maximum interest returns, known
as "usury statutes" These are generally
8 or 8 per cent year, though a few
commemorative permit IL per cent. The
fact OF present importance is that,
throughout virtually the entire field of
Federal lending and borrowing, as well
as vast sections of private investment.
these defensive rates have become a.
obsolete as the dodo.