AGRICULTURAL CREDIT IN THE UNITED STATES
While agricultural credit has been a subject of intermittent
discussion in the United States for almost a generation, the
movement has had its main development within recent years.
In November, 1911, the American Bankers' Association created
a committee to study land and agricultural credit at home
and abroad. In March, 1912, American ambassadors and
ministers were instructed by the State Department to gather
information concerning rural credit institutions in Europe.
A year later the Southern Commercial Congress also
instituted a careful investigation. These acts, and reports
published gave the movement a national character and scope.
Several states, such as Massachusetts, New York, and
Missouri, have recently made legislative provision for rural
credit institutions and during the last two years very
numerous bills pertaining to rural credit have been
introduced in Congress. It seems not unlikely that
legislation providing for the establishment of a federal
system of land banks and rural credit associations,
subsidized by the Government, will be enacted in the near
future.
The functions and work of rural credit institutions in
Europe, briefly discussed in the first two selections of
this chapter, are treated more fully in connection with the
chapters on the banking systems of European countries,
notably those of Germany and France.
[197]Various European nations, with soil naturally inferior to ours,
have established agricultural credit and thereby have greatly eased the
burden of the cost of living. Hitherto we have lived on the bountiful
overflow of our rich land, and the pinch of necessity has not been felt;
but now our population has grown enormous, our standards of living have
been greatly raised, and our land is showing the effect of generations
of taking out with very little putting back. We must do better or
suffer.
By the installation of agricultural credit, farming will not only be
made more profitable, but it will in the end make country life more
attractive. The banking system of to-day is adapted to the needs of
manufacture and commerce. The processes of nature are so much slower,
however, that banking for farmers must be organised on a basis of credit
for much longer periods.
Our present system of borrowing on land is by mortgages running from
three to five years, the entire principal coming due at one time. This
is expensive, involving renewals, and dangerous from the possibility of
the mortgage falling due at a time of restricted credit so that it
cannot be renewed. On the continent of Europe this business is handled
by so-called land-mortgage banks, or rather associations.
The mortgages granted are pledged for the security of bonds which the
institution issues and sells in the general market. These bonds have no
fixed maturity, but can be retired at par or some small premium at any
time. When the borrower mortgages his land to the bank he agrees to pay
a certain fixed sum semi-annually. This is called the "annuity" and is
composed of the annual interest plus an amount, generally 1/2 per cent.,
toward the reduction of the principal of the debt and known as
"amortisation," and an additional amount, about 1/4 per cent., toward
the expenses of the bank. The borrower, therefore, at once begins to
extinguish the principal of the debt; and as each year the principal
decreases, the interest, of course, decreases also, and, the annuity
being fixed, the proportion of it applicable toward the extinction of
the mortgage increases. Thus it happens that, beginning with a payment
of 1/2 per cent. toward principal, the mortgage bearing 4 per cent. to
4-1/2 per cent., which are the general rates, the entire debt is
extinguished in between fifty and sixty years.
The mortgaging of land is known as long-term credit, and it may be
handled by joint-stock institutions or by associations of borrowers, but
in institutions furnishing the credit required by farmers for working
capital, such as the purchase of seeds, fertilizer, payment for labour,
etc., which is known as short-term credit, the aim that the borrower
should be primarily considered rather than the lender assumes
fundamental importance.
On the continent of Europe a solution of the problem of short-term
credit is found in the organisation of banks by the application of
so-called co-operative principles. The purpose is to provide
organisations in which the borrower receives consideration rather than
the lender, also to keep the money of any body of individuals for the
use of that body. Under our present system a great deal of money
belonging to farmers finds its way into Wall Street. At present the
lenders are organised; whereas the borrower stands alone.
AGRICULTURAL CREDIT CONDITIONS IN THE UNITED STATES
[198]The United States, although the leading country of the world in the
amount of its agricultural products and in the extent of its banking
business, is behind nearly every other progressive country of importance
in the development of agricultural credit, _i. e._, short-time
non-mortgage credit. Our manufacturing and commercial businesses are
financed largely by means of such credit, and the capital invested in
these industries is thereby rendered manifoldly efficient; not so with
agriculture. Most farmers apparently make little or no use of short-time
credit. There seems to be a wide acceptance in this country even among
the farmers themselves of the dictum of Louis XIV, that: "Credit
supports agriculture, as the cord supports the hanged." Is this a
correct description of the situation? If so, what is the explanation,
and what remedies if any are needed? The object of this paper is to
throw light upon the answers to these questions.
First, as to existing banking facilities for agricultural credit, and
their utilization by farmers. It is well known that the banking capital
of the country is concentrated to a great extent in our large cities--to
a greater extent than it would be if we had a well-developed system of
branch banks like Canada--and that the banks of these cities are
prevented by reason of their location from making many agricultural
loans, even if they were so inclined. Of the 7,301 national banks in the
United States September 1, 1911, 191 or 2.6 per cent. were located in
the dozen largest cities of the country.[199] The national banks of
these twelve cities, representing but 14 per cent. of the population of
the country, had 37 per cent. of the national banking capital (capital,
surplus, and undivided profits), 33 per cent. of the individual
deposits, and 40 per cent. of the loans. It should be noted, however,
that since the act of 1900, authorizing the establishment of national
banks with a capital of less than $50,000 in small towns, there has been
a continual and rapid increase in the number of national banks in small
communities. On September 1, 1911, out of the total 7,301 national banks
there were 1,966 with a capital of $25,000, and therefore presumably
located in towns of less than 3,000 population, 372 with a capital
between $25,000 and $50,000, and therefore presumably in towns of less
than 6,000 population, and 2,297 with a capital between $50,000 and
$100,000. Except for banks in towns not exceeding 6,000 population, the
law as amended in 1900 does not permit any national bank to be organized
with a capital less than $100,000.
Are the national banks which are accessible to farmers in a position
under the law to meet farmers' needs? The answer to this question must
be in the affirmative. Aside from the fact that national banks are not
permitted to make loans on real estate security,[200] there is no
restriction in the national banking act which would interfere with loans
to farmers for agricultural purposes. Personal security alone is legally
acceptable; the range of possible collateral security is practically
unlimited; and there is no limitation fixed by law as to the period of
loans. National banks therefore have a very free hand in regard to loans
to farmers.
When we inquire concerning agricultural credit in banks under state
charters we find conditions varying with the different States, but, with
a few minor qualifications, it may be said that the state banking laws
are free from restrictions that would hamper state banks and trust
companies in extending credit liberally to responsible farmers. They
are in a much better position in one respect to deal with farmers than
are national banks, that is, in the matter of accepting real estate
security. No state denies state banks this privilege, and such
restrictions as exist upon its exercise are generally not onerous.
If commercial banks are comparatively unhampered by law in making
short-time loans to farmers, it may be asked: To what extent are such
loans made? Unfortunately practically no information is available on
this question. In answer to an inquiry the Comptroller of the Currency
wrote, under date of May 27 of this year, that no information with
reference to short-time loans made to farmers by national banks had ever
been compiled by the comptroller's office. The writer has found no trace
of any investigation of this subject by state banking departments. For
about a year he has taken occasion to inquire at every opportunity of
individual bankers concerning their experience with regard to loans to
farmers in different parts of the country. The replies received are so
divergent that no conclusion can be drawn from them, except that the
practice varies widely in different sections of the country and even in
different communities in the same section, and that probably the farmers
of the North Central and Western States borrow of commercial banks more
than do those of the Eastern and Southern States. There is not
sufficient evidence, however, for this latter inference to make it much
more than a guess. In the absence of any comprehensive data, I shall
resort to the unsatisfactory but representative replies from different
parts of the country.
Neither of the two national banks in the city of Ithaca, N. Y., makes
any appreciable amount of loans to farmers. Both claim to be willing to
do so, but say there is practically no demand. In some of the
neighboring cities, however, such loans by national banks are more
common. The cashier of a national bank in a town of about 800 population
in an agricultural section of northeastern Pennsylvania writes:
Our farmers as a rule are not large borrowers and want loans
only in small amounts for short periods.
Farmers in general will not go on each other's paper no
matter how good the parties are, for they have been so often
taken in by wild-cat schemes that they are shy when their
names are required to be placed upon paper. They realize
also that they are not familiar with business methods in the
commercial world and dare not trust themselves.
There is a moderate amount of borrowing by farmers in western New
Jersey. Estimates made by bankers in Princeton as to the proportion of
farmers in that neighborhood who borrow for short periods of local banks
vary from 15 to 40 per cent.
A former president of a national bank in Indianapolis writes:
We came very little in contact with farmers. We made special
effort to secure such business by sending to a considerable
mailing list of carefully selected farmers, circulars and
personal letters ... but the business did not come. My
inference was that they dealt with the nearby small banks.
Of the situation in Lafayette, Indiana, a former vice-president of a
national bank, writes:
About 50 per cent. of our business was with farmers. They
borrow frequently from commercial banks, funds to be used
for crop planting, crop gathering, purchase of agricultural
machinery, improvements on the farm, purchase of cattle, and
the carrying of cattle or hogs to maturity. Through Indiana
these farmers' loans are very usual in the country banks,
many preferring state charters so they may make these loans
not only on personal but also on mortgage security.
Farmers are seldom able to give any but personal or mortgage
security. A large percentage of them are sufficiently
responsible to be entitled to and to receive reasonable
credit without security.
Farmers seem to endorse for each other much more readily
than do those of other classes.... The reason is, I think,
clear. Each knows pretty much everything about his
neighbor's financial status, the amount and value of his
land, his live-stock, and other visible personal property,
the amount of any mortgage and when due. So much being thus
in the open there is less of the secretive habit, so that
the extent of the invisible personal property and debts is
apt to be known.
A similar report comes from a national bank in Lincoln, Nebraska, from
which the following extracts are taken:
The farmers of this state have need of accommodations of
this kind to carry them through the crop season. As a matter
of fact, they use short-time credit to fully as great an
extent as do the business men in the city and smaller towns.
In fact, I think it is true that in the smaller towns the
bankers favor the farmers in preference to the small
business men....
There is no doubt about the average well-to-do farmer in
this state being able to furnish satisfactory security aside
from mortgaging his farm for such temporary loans within any
reasonable limitations. In some cases the banks take chattel
mortgages on cattle or other live-stock, and in some cases
where the farmer has a good equity in his farm they will not
hesitate to take his personal note.
While I do not know that there is any particular difference
between farmers and other classes in this state as to their
willingness to go security for each other, yet very little
of this is done any more. There was a time when it was not
an uncommon thing, but it has become less and less until now
there is very little signing done for others. In fact, the
farmers feel that they are able to take care of themselves
and do not ask others to sign with them, and are able to
handle themselves without such an endorsement. This is true
of all classes in this state.
I have never felt that in this locality farmers suffered in
any way from lack of credit facilities....
A former bank examiner in the state of California, himself a farmer,
writes:
The farmers of California do not to any considerable extent
make a practice of borrowing money from local banks or money
lenders for short periods....
In reviewing the various bank examiners' reports on some 500
state banks I recall very few instances of crop mortgages,
and it impresses me that in many of the cases the mortgage
was taken to obtain additional security for loans previously
granted and secured otherwise.
I think it would be safe to say that the bankers as a rule
have not favored short-time unsecured loans to farmers. They
are, however, fast awakening to the fact that as a rule
these are the safest loans a bank can make, and are making
an effort to get in closer touch with the farmer. It would
also be safe to say that the average small farmer does not
as yet realize that he _can_ obtain such credit at a bank.
Our farmers as a class are exceedingly reluctant "to go each
other's security." Two-name paper is mostly confined to
commercial transactions.
A college professor in the state of Washington informs me that
short-time loans to farmers are common in that state, but that
frequently the rate of interest charged is 2 per cent. higher than that
on commercial loans--the explanation commonly given being that a farmer
borrowing generally reduces the resulting deposit credit more rapidly
than does a merchant.
In the Southern States, particularly in the cotton, rice, and tobacco
sections, the use of crop liens for short-time loans appears to be much
greater than in other sections of the country.[201] Such meager
testimony as I have been able to secure seems to show that the amount of
short-time agricultural credit extended by banks in the South is
relatively small but rather rapidly increasing. The banks are catering
more and more to this class of business.
Other evidence might be cited, but the above gives a fair picture of the
situation as revealed by all the testimony received--a confused picture
of widely varying conditions. Public opinion is now being aroused on the
subject of agricultural credit, and pressure is liable to be brought for
hasty and perhaps radical legislation. Obviously, the first step to be
taken in the interest of a sane solution of the problem is to find out
exactly what the problem is. To this end the writer would urge strongly
the need of investigations by the Comptroller of the Currency and by the
various state banking departments of the present facilities and
practices in the matter of agricultural loans. In view of the increasing
public interest in the subject the investigations cannot be undertaken
too soon.
Although the farmers in any section of the country may not resort to the
banks for short-time credit it does not follow that they are not
receiving such credit. As a matter of fact they are often receiving it
on a considerable scale and in the most expensive way. _i. e._, in the
form of book credits with merchants. It is a common practice throughout
the country for farmers to run up book accounts with local merchants
during the spring and summer to be paid in the fall when the crops are
sold. When this is done on any considerable scale the farmer probably
pays more than bank interest under the guise of prices; and this is
particularly true when he obligates himself to sell his crops to the
creditor merchant. In the South this practice is carried to the extreme
in the familiar "store-lien" system which holds many farmers in the
cotton belt in a condition bordering on perpetual servitude. The custom
is for the farmer to buy supplies of the local general store on credit
for the year, agreeing to sell to the merchant his cotton crop in the
fall, thereby cancelling the debt. A crop lien is generally given, and
the merchant often dictates the character and the amount of the
planting. The prices paid for cotton under this system are liable to be
exceptionally low, and the prices paid by the farmer for his supplies
exceptionally high. The system has proven a curse to many sections of
the South. Witnesses before the United States Industrial Commission
estimated the interest rates imposed by this system at from 20 per cent.
upwards. Mr. George K. Holmes of the United States Department of
Agriculture testified:
The rate of interest on the liens on the cotton crop of the
South, it is safe to say, probably averages 50 per cent. a
year. All cotton men will agree that it is at least that.
The store system of the South is a sort of peonage; that is
what it amounts to with the cotton planter.[202]
Since the Industrial Commission's report was published the banking
facilities of the South have been greatly increased, and the banks are
coming into closer touch with farmers, with the result that the
store-lien system is gradually breaking down.
Another form of credit to farmers is that obtained from dealers in farm
implements and machinery which the farmers frequently buy on time,
paying interest during the credit period.
One informant, who has been a bank examiner, writes from California--and
his testimony is applicable to many other sections of the country:
The new generation of merchants is not disposed to carry the
farmer as of old and insists that overdue accounts be
covered by promissory notes which are in turn hypothecated
with their bank. In other words a clearer demarcation of
function is being gradually brought about to the best
interests of all concerned.
Such in general is the present situation in the United States in the
matter of short-time agricultural credit as evidenced by the very
indefinite and scant information available. What are the causes? Perhaps
in them will appear some suggestions for the remedy.
The chief reasons for the backwardness of the United States as compared
with Europe with regard to agricultural credit may be briefly summarized
as follows: (1) Our wonderful agricultural domain where good land could
be had almost for the asking, and where for generations land was so
cheap and labor and capital so dear that intensive cultivation was
generally unprofitable. (2) The prosperity of our farmers who have not
been forced by dire necessity to resort to credit as were the farmers of
Germany at the middle of the last century when the Raiffeisen
co-operative banks were first organized. (3) The nomadic character of a
considerable part of our agricultural population as it has moved
continually westward in taking up of new lands, and more recently as it
has been retracing its steps or moving northward. (4) The isolation of
our farmers in this country of large farms and "magnificent distances."
(5) The rapid growth of the manufacturing and commercial business of the
country--and that largely in the hands of the same class of people who
control the bulk of the banking business.[203]
Add to these circumstances the obstacles which farmers always encounter
in the matter of credit, as compared with manufacturers and merchants,
obstacles such as the uncertainty of crops and the strongly seasonal
character of the farmer's credit demands, and we have a sufficient
explanation for the backwardness of agricultural credit in this country.
To emphasize most of these causes, however, is to brand oneself as
belonging to a past generation. Our domain of free arable land is
practically gone; good farms must be bought, and for them ever
increasing prices must be paid.[204]
The era of hand cultivation is giving way to that of farm machinery
propelled by horse-power and even by steam, gasoline, or electricity,
with its resulting great increase in the efficiency of labor. Eleven
years ago the editor of _The Dakota Farmer_, in his testimony before the
United States Industrial Commission, put the matter tersely, and with
little exaggeration, as affecting his own section of the country, at
least, when he said: "When I first worked out it took five binders to
follow a machine, one man to rake off, and one to carry the bundles
together. Now the hired girl frequently drives a machine that does the
whole business."[205] Some idea of the extent of this increase may be
obtained by reference to the following figures compiled from census
reports:
VALUE OF FARM IMPLEMENTS AND MACHINERY IN THE U. S.[206]
_Year_ _Value_ _Per Cent.
000,000 Increase_
1910 $1,265 69
1900 750 52
1890 494 22
1880 407 50
1870[207] 271 10
1860 246 62
The increase in the value of farm implements and machinery per acre of
land in farms from 1900 to 1910 was from $0.89 to $1.44, or 61.8 per
cent.
An analysis of the figures for farm machinery by geographic divisions
shows a marked difference in the rates of increase, but the tendency in
all sections during the last forty years has been decidedly upwards, the
greatest growth having been witnessed in the decade ending 1910. During
that decade the lowest rate of increase in any section was that of New
England, 39 per cent., and the highest that of the Mountain States, 163
per cent.[208]
Another development which is making larger demands upon the farmer for
working capital is the increasing use of artificial fertilizers, the
expenditure for which in the United States approximately doubled from
1880 to 1900.
As the result of such tendencies and of the rapid depletion of our free
domain, farming in the United States is losing its old-time kinship to
mining and becoming more like manufacturing. More and better machinery
and more power are needed on most farms in the interest of efficiency.
This calls for short-time credit. But a supply of good machinery
requires a fair sized farm for its efficient utilization--hence the need
for larger farms and for mortgage credit to make their purchase
possible. Upon this subject there are some very illuminating data in
Warren and Livermore's _Agricultural Survey_ of four townships in
Tompkins County, N. Y., from which the following is quoted:
The value of farm machinery increases rapidly with the size
of the farm.... Any one who has ever made a list of the
necessary farm machinery will see at once how inadequately
these small farms are equipped. Yet their machinery costs
nearly twice as much per acre as that on the larger farms
that have nearly three times as much machinery. Machinery
can be used more effectively on large farms. One mower, one
hay rake, one tedder, one hay loader, one corn harvester,
one grain harvester, one grain drill, one manure spreader,
one potato digger, one potato planter, can do their work on
a 250 acre farm as readily as on a small farm. Few of the
small farms have half of these tools. If a small farm does
have nearly all the list, it cannot use them enough to pay
for the investment. The more efficient and numerous machines
become, the larger our farms should be. It is interesting to
notice how many of the tools are of very recent development.
Almost half of the value of farm machinery on a
well-equipped farm is invested in machinery that has been
perfected in the last few years.
Much the same situation exists in regard to an adequate equipment of
horses.
Three or four horses are the smallest number that can be
used efficiently with modern machinery.... The small farms
have not enough horses to make efficient teams and yet they
are over-supplied with horses compared with their area. On
these farms there are only 15 acres per horse. On the
largest farms, one horse farms three times this area, with
no resulting decrease in crop yields.... When we consider
the cost of keeping a horse we see what a great advantage
the larger farms have.
Forces like these are counteracting what is commonly thought of as the
normal tendency of agriculture to move toward more intensive cultivation
_on small farms_, with the result that the average amount of improved
farm land per farm actually increased instead of diminishing in the
United States during the last decade. This does not mean less intensive
cultivation, in fact quite the contrary; it means more intensive
cultivation, but by the efficient utilization of good machinery and of
power. It means further, as said above, a demand for mortgage credit for
the purpose of enlarging farms--and that, at rapidly increasing farm
prices.
The farming population is becoming more settled now that the free lands
are practically gone and the frontier has disappeared.[209] The
isolation of the farmer is rapidly becoming a thing of the past, with
the advent of rural free delivery, rural telephone, the automobile, and
the parcels post. The farmer no longer buys gold-bricks nor is duped by
fraudulent lightning-rod schemes except in the pages of the comic
supplements.
When seeking credit the farmer can offer better security than ever
before. His markets are larger, better organized, more certain, and more
accessible. The risk of crop failure is less, thanks to the wonderful
progress of scientific agriculture. There are few pests which cannot now
be readily controlled by the intelligent farmer, who takes time by the
forelock. The problem of moisture is growing less serious every year
with the improvements in irrigation, dry farming, and the more
scientific diversification of crops.
Conditions then point to an increasing need for agricultural credit, and
to improving circumstances for its safe development.
If the time is ripe for a greater use of bank credit in agriculture,
how is that credit to be obtained? Broadly speaking, four methods may be
mentioned, only the last two of which are deserving of much attention at
the present time. They are: (1) Establish government agricultural banks;
(2) adopt the Egyptian plan of a government guaranty to an agricultural
bank established with private capital; (3) encourage the farmers to
organize co-operative credit societies on some such plan as the
Raiffeisen or Schulze-Delitzsch banks of Germany; (4) utilize more
effectively in the interest of the farmer our present banking machinery,
and improve it where it is defective.
The suggestion of an agricultural bank owned and operated by government,
either state or federal, is not worthy of serious consideration in this
country at the present time. The history of such banks both in Europe
and America has generally been a disastrous one, although a few have
succeeded. Some exist to-day which are performing useful services to
farmers, notably in the line of mortgage credit, among which may be
mentioned those of the Australian States and New Zealand,[210] and the
recently established one in the Philippine Islands. The success of such
institutions is not such as to justify any attempt to establish them in
the United States, at least until every reasonable effort has been made
to solve the problem by means of private and co-operative effort.
The other plan, commonly known as the Egyptian plan[211] from its most
important example, seeks to eliminate the evils of a purely government
bank and to take advantage of its meritorious features. In Egypt the
agricultural bank is owned and financed by private capital; it enjoys,
however a government guaranty of principal and of 3 per cent. interest.
Its administrative expenses are kept low by an arrangement with the
Egyptian Government by which the Government tax collectors make
collection of instalments on the Bank's loans at the time of the
collection of the regular land tax, for which the Bank pays a small
commission. The Agricultural Bank of Egypt has had a phenomenal success,
rendering an invaluable service to the Egyptian fellaheen, and at the
same time yielding good profits to its owners. It was this type of bank
that the United States Government authorized established in the
Philippines by the act of March 4, 1907, but the interest guaranty of 4
per cent. has so far proved too low to attract capital into the
enterprise.[212]
A bank organized on the Egyptian plan is well adapted to do pioneer work
among ignorant farmers, where the apparent risks and heavy
administrative expenses prevent private capital from entering the field.
A government guaranty, however, hardly seems necessary in the United
States, and our people would probably look askance at any proposal for a
great agricultural bank or banks of this type with branches scattered
throughout the country. It is contrary to our banking traditions, and,
like the plan for a strictly government bank, should not be thought of
until plans for meeting the need by private initiative have been fairly
tried and found wanting.
When one considers the question of the improvement of agricultural
credit in the United States one instinctively thinks of the co-operative
credit banks of the old world, because of their phenomenal success for a
half century and more, the simplicity of their structures, the ease with
which they may be established, and their ready adaptability to the
widely varying conditions found in a great country like the United
States. The description of the wonderful success of these institutions
as told by Henry W. Wolff in his _People's Banks_ reads like a fairy
story. Although the success of co-operative banks has been great in
nearly every country of Continental Europe, nowhere else has it been so
great as in Germany, the country of their origin, and it is to Germany
one naturally turns first for suggestions. There we find four types of
co-operative credit banks, Landschaften, Ritterschaften,
Schulze-Delitzsch banks and Raiffeisen banks. The first two are
co-operative associations loaning money on land mortgages, and securing
funds largely through the issue of bonds against the collective
mortgages. Being concerned with long-time mortgage credit they do not
fall within the province of this paper. The other two types of banks
deal especially with short-time credit, the one chiefly in the towns and
cities, and the other with farmers in the rural communities. It is with
the latter that we are most concerned. Let us therefore consider briefly
the essential features of the Raiffeisen system.
These features are: (1) Organization on the strictly co-operative
principle, none but members having the right to borrow, although
non-members may make deposits. (2) Limitation of loan operations to a
very small area in which all farmers are acquainted with each other. A
bank's field of business, the founder believed, should not cover a
parish of less than 400 people nor of more than 1,500. The banks were to
be, therefore, purely neighborhood affairs. There is a sympathetic but
well-informed neighborhood opinion which prevents the squandering of
loans. (3) Unlimited liability of all members for the debts of the bank,
a necessary corollary of which is the provision that membership is
obtained only by election by those already members. (4) The working
capital of the bank is obtained chiefly from the following sources: (a)
Small savings "drawn, either from within the area covered by the bank,
in which case it comes both from members and non-members, the former
being rewarded where possible at slightly higher rates in order to
encourage membership; or from without the area, in which case it of
necessity comes from non-members."[213] (b) Loans from the provincial
bank of the district, or more importantly from the central bank of the
Empire at which the local bank keeps a current account and with which it
may rediscount its paper. Funds are also sometimes obtained from other
banks or from private individuals. (c) A purely nominal share capital
which the banks did not originally have, and which they have been forced
against their will to issue. The requirement is now usually met by the
issue of a few low-priced shares of which no member can hold more than
one and upon which no dividend is paid. (d) Two surplus funds called
reserve funds; one used exclusively to cover losses, and the other being
the principal reserve fund (_Stiftungsfund_), commonly used for
"positive improvements, such as the extension of the premises or the
establishment of a burial fund."[214] In this fund must be placed
two-thirds of the annual profits. The fund cannot be distributed among
the members, even though the bank be dissolved. In such a case it is
held in trust for a time for a new bank, should one be established, and
if no such bank is established it must be used for some work of public
utility. A recent publication of the International Institute of
Agriculture[215] analyses the total working capital of the rural banks
of Germany for the year 1909 as follows:
_Amount Percentage
in Marks
000,000_
Share capital 22.4 1.2
Reserves 51.0 2.6
Deposits on current account 189.1 9.8
Savings deposits 1,455.6 75.2
Other liabilities[216] 217.5 11.2
Total working capital 1,935.5 100.0
The striking fact brought out by these figures is that out of nearly two
billion marks placed at the disposal of farmers, less than[217] 11.2 per
cent. was furnished by outsiders, while more than 88.8 per cent., was
provided by the savings and other deposits of the farmers themselves and
of the local public. (5) A fifth feature of the Raiffeisen system is
that the bank's administrative organization is simple and democratic.
Final authority on local questions resides in the general meeting in
which every member has one vote. There is elected annually a committee
of management consisting usually of five or six directors who meet
weekly. As a check upon this executive committee there is also elected
annually a council of supervision consisting of from six to nine
members. A biennial audit is made of the accounts of each bank by an
accountant employed by the district or central union. The books of the
bank, except the individual deposit ledger, are open to the inspection
of all members. Officers of the local banks serve without compensation,
except the treasurer who has no vote in the making of loans.... (6)
Advances take two forms: the ordinary loan (of which the name is
sufficiently descriptive), and the current account which is similar to
the Scotch cash credit. The latter constitute about a third[218] of the
total and show a tendency to increase in proportion to the ordinary
loans. The period of the ordinary loan varies from six months to three
years; and in exceptional cases it may be even longer.[219] Loans are
repayable in instalments covering interest and part of the principal, or
in lump sums. Banks reserve the right to call a loan on four weeks'
notice. The average credit advanced per member is 500 marks, and the
average interest rate probably somewhere between 4 and 5 per cent.
Although mortgage and other collateral security is sometimes accepted,
the banks' chief reliance is personal security, and the great bulk of
the loans are made on two-name paper.
The Raiffeisen banks are organized into provincial federations with
provincial banks at their head, and these in turn into a national
federation with a central bank at its head. These provincial banks and
the central bank "equalize the need of credit of the individual banks,
supplying them with money when required and employing their surplus
funds."[220] A large proportion of the German co-operative banks and
other co-operative agricultural societies are federated in a single
national organization, the National Federation of Darmstadt.[221]
Such are the leading features of the greatest agricultural credit system
of the world. To the American the surprising thing about it all is that
such co-operative credit banks are practically unknown in the United
States, although there has been a remarkable development here in recent
years of other forms of co-operation among farmers.[222] This surprise
is the greater when one bears in mind that "whole counties have been
populated in the Northwest by European agriculturists who came from
neighborhoods where they were familiar with agricultural co-operative
credit, and yet not a society of co-operative credit for these
immigrants has been established from the beginning to the present
time."...[223]
What is needed now--and possibly about all that will be needed in the
future--is a campaign of education among the farmers themselves rather
than one of legislation; although the development of such societies will
doubtless be furthered in many states by legislation, such as was
recently enacted in Massachusetts (ch. 419, Acts of 1909), freeing them
from some of the hampering provisions of the general banking act of the
state. Conditions are so widely different in different sections of the
country, and among different classes in the same section, that
co-operative agricultural credit societies will need to be given a
fairly free hand in such matters as limited or unlimited liability, the
amount of share capital, receipt of deposits, etc., so that they may
adapt themselves to local needs. A reasonable amount of government
supervision on the part of the banking departments of the states seems
desirable.
Passing now to the question of the better utilization of our existing
banking machinery, we may consider it first from the standpoint of the
Government, then from that of the banks, and finally from that of the
farmers themselves.
The provisions of the national banking act _(Revised Statutes_, Sec.
5137) are too rigid in the matter of loans on real estate security.[224]
National banks are, of course, intended to be banks for business men,
and their assets should be quick assets in so far as their liabilities
are quick liabilities. But it should not be overlooked that the modern
farmer is a business man, that he needs active credit for the efficient
conduct of his current business, and that land is the only kind of
collateral many farmers can give that is acceptable to bankers. Many
worthy farmers are not willing and some are not able to secure
satisfactory endorsers to their paper. Crop liens, except in the South,
are not usually very acceptable to banks. The ability of the farmer to
give mortgage security to national banks in case of need would often
prove a great help. Furthermore, now that a majority of our national
banks have savings departments, and that savings deposits might wisely
be made withdrawable subject to advance notice, it is not unreasonable
that these banks should be permitted to invest at least a substantial
part of their savings funds in the same kinds of mortgage securities
that are open to the investment of funds of savings banks; provided, of
course, that due care be taken to prevent the juggling of accounts
between the commercial department and the savings department of the
bank.
Another form of desirable legislation in the interest of the farmer
consists in the abandonment of our unscientific bond secured bank-note
circulation for a scientific system, and in the rendering of our deposit
currency more elastic. The more the farmer resorts to bank credit as a
means of financing his current business the more will he suffer from the
seasonal inelasticity of our bank-note and deposit currency. Farming
business is pre-eminently seasonal in character; the farmers over the
greater part of the country need funds most at about the same times of
the year, _i.e._, the fall and spring. A great increase in the demand
for currency and capital, say in the fall, under an inelastic currency
and credit system like our own, means to the farmer, highest interest
rates at just the time when he needs most to borrow, greatest scarcity
of cash at just the time when his need for cash is the most urgent, and
prices depressed by a tight money market at the time of the year when he
has most to sell. It is doubtful if any class of people in the country
would benefit more from a thoroughgoing reform of our banking system
than would the farmers.
The apportionment of responsibility between farmer and banker for their
not having gotten together better is an impossible task. Although some
exceptions must be made, particularly in the Middle West, as a general
proposition neither has appreciated the opportunity which the other
offered.
The banker must be brought to realize that one of the best kinds of
paper in the world is short-time business paper bearing the names of two
responsible farmers. He should be an adviser and friend to the farmer as
much as to the city customer. He should make the farmer feel that a
productive loan to him is not of the nature of a favor reluctantly
granted--as so many farmers complain--but rather a business proposition
profitable to both, as gladly given as it is received. He should further
co-operate with the local business men in preparing financial ratings of
farmers, to fill the gap left by the inability, to be hoped temporary,
of mercantile credit agencies to rate farmers as extensively as they do
other business men of like capital.
The farmer, on the other hand, must be educated by the banker, the
press, and the agricultural school and college, to the advantages of
credit as a mean to the more efficient working of his farm. This should
be done with caution, for credit is a two-edged sword. The farmer should
be encouraged to borrow only when it is very clear that he can use
additional capital so productively that it will pay. But what
industrious farmer could not use profitably some additional capital
every year, could he obtain it at as reasonable rates as does the
merchant? The farmer must learn to keep careful accounts. He must be
made to realize that the banks are open to him as to other business men,
and that the bulk of the country's short-time commercial loans, as
likewise of the agricultural loans of Europe, are made on the very same
security he is capable of giving, _i.e._, two-name paper of honest,
industrious business men.
FARM CREDIT IN A NORTHWESTERN STATE[225]
LONG-TIME LOANS
In North Dakota the average farm mortgage runs for 4.94 years; and the
average interest rate is approximately 8 per cent. (accurately 7.88 per
cent.). This 8 per cent. does not include the expense of abstracting
titles, examining the property, and the recording of the mortgage. These
fees are invariably paid by the borrower. Nor does this interest rate of
8 per cent. take account of the bonus that is frequently exacted, in the
newer regions, from the borrower for the privilege of securing a loan;
nor does it allow for the sum the borrower loses in paying his yearly
interest in advance, which is deducted from the principal. While the
practice of exacting a bonus is not common, it is generally the custom
to deduct the entire year's interest in advance; assuming an 8 per cent.
rate, the farmer therefore pays $80 interest not on $1,000 but on $920,
which brings the rate up to 8.7 per cent.
While the average prevailing rate, according to our returns, is
approximately 8 per cent., the rate varies in different parts of the
state, depending upon the local conditions. The rates are lowest in the
eastern tier of counties, and rise gradually towards the western part of
the state, where the rate runs up to 10 and 12 per cent., which is also
the rate in the eastern part of Montana. That the 8 per cent. rate is
quite general for a large part of the state is evidenced from the fact
that 25 of the 45 counties report an average rate of 8 per cent. or
more. In only 4 counties is the rate less than 7 per cent., and in no
county does the average fall below 6 per cent.
The above figures are conservative. They are based on returns submitted
by bankers who would naturally understate rather than overstate the rate
of interest charged in their respective localities. Furthermore, we have
a check on these bank returns in the replies received from farmers. As a
rule the rates reported by bankers and farmers are nearly identical in
their respective counties. It is safe to conclude, therefore, that the
average rate on farm mortgages for the entire state is about 8 per cent.
SHORT-TIME LOANS
Short-time loans are of two kinds, bank loans and book credit advanced
by retail stores. The bank loan is made on the farmer's note, generally
unsecured, though often secured by a chattel mortgage. According to the
reports received from 125 banks, the average length of time for these
short-time loans is 8-1/2 months; and the average rate of interest is
10.75 per cent. The average rate reported by farmers residing in 22
different counties was 11.07 per cent.
An effort was made to compare rates paid by farmers with those paid by
business men on short-time loans in the same locality. The same banks
that reported an average of 10.75 per cent. to farmers averaged only
9.18 per cent. on loans made to merchants and manufacturers. Fully 95
out of the 125 reporting banks stated that the rate was higher for
agricultural short-time loans than for commercial loans; 26 reported the
rate to be the same for both classes; and only 4 reported a lower rate
for the farmer. As North Dakota, however, is not a manufacturing nor a
jobbing state, commercial paper is scarce, and consequently comparisons
of the above nature are apt to be misleading. The significant fact
remains that the farmer pays from 10 to 11 per cent. on small loans, for
short periods of time.
Store or book credit is a form of short-time loan which is perhaps more
important than bank credit. In a state where the bank charges a high
rate of interest, the farmer is more likely to buy merchandise on credit
than to borrow from the bank and pay cash. The North Dakota farmer is
rarely denied credit at a country store. To secure information on this
form of credit, questionnaires were mailed to implement and hardware
dealers, as well as to farmers. One question asked of implement dealers
was: "What percentage of farmers pay cash in buying farm machinery?" The
answer from 54 firms, located in 35 counties, was that only 13 per cent.
of the farmers pay cash, 87 per cent. buying on time. Out of 29 farmers
reporting only 6 pay cash in buying machinery and supplies. These book
accounts run anywhere from three months to two years; the average
account is carried about one year (12.37 months). The farmer
contemplates making payment immediately after his prospective crop is
marketed. In case of crop failure the retailer will carry the account
over until the next harvest season.
It is quite common for the dealer to obtain a note from the farmer--the
note generally bearing a 10 per cent. interest rate from the date of
issue. Often, however, the note does not begin to bear interest until
the farmer has failed to make payment at the expected time, that is,
immediately following the harvesting season. The 54 implement and
hardware dealers reported an average of 10.26 per cent. interest per
year on these notes.
It is more difficult to secure uniform information from dealers on the
subject of book credits, especially with reference to the interest rates
charged on such accounts. The practice varies. Usually an interest rate
is added to the credit price depending on the duration of the account.
There is no common discount rate for cash purchases, though 7 per cent.
is most common, that is, 7 per cent. of the credit price. This brings
the credit price of a $160 binder down to $150 for cash. As a matter of
fact all dealers quote two prices, the cash and the credit price, the
difference between the two depending upon the reputation of the buyer,
the shrewdness of the seller, and the degree of competition in the
particular locality.
On this point, replies from farmers do not differ materially from the
replies of the implement dealers. The difference between the cash price
and the credit price of a binder is usually given as $5 to $10, and a
wagon or plough, as $3 to $5. The general discount rate is 7 per cent.
off the credit price.
The implement dealers and the farmers are all agreed that cash payments
would be preferable if rates on bank loans were reduced. The farmer,
however, is often afraid to approach the banker for a loan. On the other
hand, the farmer does not always see that the book credit is quite as
expensive as bank credit, if not more so. The prevailing high bank
rate, however, from 10 per cent. to 12 per cent. on short-time loans,
does not encourage cash payments.
Are the foregoing rates too high as compared with rates in other
communities? The _Crop Reporter_ for April, 1913, shows interest rates
on short-time loans in every state in the Union. In 1913, the North
Dakota rate exceeded that of all other States; in 1912, it exceeded all
but Oklahoma.
Farmers as a rule think that rates are fixed arbitrarily by the bankers
and other money lenders in the community. That fundamental laws of
supply and demand have any controlling influence is apt to be
overlooked. Without attempting to justify the high rates let us state
some of the conditions which help to explain them. The demand for
capital in a growing state is always greater than can be met by the
local supply. In 1890, North Dakota farms were mortgaged for
$11,168,854; in 1910, for $47,841,587; in 1920 it will doubtless reach
$150,000,000. Outside capital is attracted into the state by high rates
of interest. Two life insurance companies, the Union Central of
Cincinnati and the Northwestern Mutual of Milwaukee, loan heavily in the
state. In 1910 the Union Central Life Insurance Company reported a total
investment of $5,489,087.33 in North Dakota real estate. Local banks use
farm mortgages in borrowing money from banks in large cities outside of
the state. Every town and village has its money-lender who acts as agent
for foreign investors in farm mortgages. Banks within the state compete
for capital by offering high rates of interest on time deposits, and pay
all the way from 4-1/2 to 7 per cent. interest on deposits. The rate on
loans must necessarily be higher under these circumstances than where
banks are paying 2-1/2 and 3 per cent. interest. The high interest rate
paid on bank deposits is evidence of the lack of local capital to
satisfy the local demand.
The inability to attract foreign capital on lower terms is due primarily
to the character of the investment. The newness of the state, the
instability of its population, the character of its agriculture, all
make for uncertainty. Hence the speculative character of the farm
mortgage as security for a loan. In the eastern counties where the land
has long been under cultivation, where the population is more stable,
and where mixed farming has in a large measure supplanted the bonanza
wheat farm, rates are correspondingly lower than in the newer portions
of the state. As the element of risk is eliminated from investments,
interest rates will come down. At least this seems to be the consensus
of opinion among bankers.
The character of the farming is frequently mentioned as a prominent
factor in the credit situation. A crop failure under a single crop
system, such as is practised in North Dakota, is likely to find the
farmer in bad straits. The payment of interest on the mortgage is
delayed or deferred. The local bank or loan company is obliged either to
carry the farmer along for a year or to foreclose. Since many farm
mortgages are held by outside investors, the annoyance is sufficient to
reflect itself in an increased rate of interest. Because of this fact
many bankers are urging mixed farming as a means of reducing rates. This
aspect of the question is well expressed in a communication from a
banker in Stark County who says:
It is our belief that the scarcity of money and the high
interest rates are largely due to poor farming. The people
having money to loan know well that our farmers here have a
very uncertain income according to their present methods of
farming, and would expect a much higher rate commensurate
with the risk taken when they can find people where money
can be placed more safely. As conditions are here now, some
people have not paid all their interest, for at least three
or sometimes four years. In the older slates, like Iowa for
example, where people farm well, interest rates are much
lower. As soon as our farmers can show that they are safe
and will take care of their obligations promptly, they can
command the lowest interest rates that may exist. We believe
it more necessary to work on better farming methods,
encouraging them, than on better interest rates, for the
lower interest rates are a natural consequence of better
farming.
Another factor is the character of the population. One prominent banker
says of North Dakota farmers: "They lack a sense of responsibility. Farm
loans require constant care, hence high rates." Another complaint is:
"Farmers are careless in not making prompt payment or renewals of
obligations." Some bankers think the high rates due to too much
borrowing; that is, too much liberality in the loaning of money.
Injudicious loaning leads to extravagance, and naturally calls for high
rates to offset the risks involved. One banker in analyzing the
situation claims that the legal restrictions placed on the loaning power
of banks is responsible for unduly high rates. In support of this view
it might be stated that while the total farm mortgages in the state in
1910 reached the $50,000,000 mark, the power to loan on real estate by
all banks, state and national, was less than $5,000,000. Banks are
forced to loan on the personal note of the farmer, secured by a
mortgage, instead of taking a direct mortgage on the property. Other
banks turn these mortgage loans over to trust companies, and collect a
commission from the farmer for placing the mortgage.
Commissions are responsible for at least from one to two per cent. of
the rate when loans are handled by real estate agents and loan
companies. In the case of loans by life insurance companies, the state
agent generally receives one per cent. and the local agent, at interior
points, receives one per cent. Two per cent. could be saved by the
farmer if the money could be borrowed directly from the investor,
without the aid of an agent.
Allowing, however, for all these local conditions--the great demand for
capital in a new and developing country, the inability to attract
sufficient outside capital because of the risky character of
investments, the irresponsible character of some elements in the
population, the character of farming methods, the commission agent, and
the legal restrictions handicapping banks--allowing for all these
conditions, and because of some of them, it is believed that the farmers
by organizing co-operative credit associations could reduce the rate of
interest on both long- and short-time loans; and, furthermore, that such
co-operative credit facilities would be a means of improving the methods
of farming, would encourage stability in population, and would make the
farmer feel that he is not being discriminated against in the borrowing
and employment of capital.
CATTLE LOAN BANKS[226]
Consumers desiring a reduction in the cost of food supplies will be
interested in a study of the operations of cattle loan companies and in
the development which these may reasonably attain as a result of the
provision in the Federal Reserve Act for the rediscounting of
agricultural paper.
The cattle loan company, commonly referred to as "cattle bank," is a
middleman between borrowing cattle-owners and lending bank-managers. Its
business methods and forms closely parallel those of real estate
mortgage loan companies except for the fact that cattle loans are of
shorter duration and secured by mortgages of the chattel variety. Cattle
loan companies, incorporated under state charters, have been operating
in such cities as Fort Worth, Denver, East St. Louis, St. Joseph,
Portland, South St. Paul, Omaha (2), and Kansas City (3), some of them
for over twelve years; and one is now being organized in Chicago. These
companies have a paid-in capital stock ranging from $50,000 to $300,000,
and are usually closely affiliated with a national or state bank, as are
trust companies in the larger cities.
These companies are informed of desired loans through country bankers,
or by receipt of direct applications, the latter usually from the larger
"cattle-growers." In some cases the company on its own initiative urges
cattlemen in whom it has particular confidence to undertake feeding
operations at a time when the beef market offers a favorable opportunity
for such production. In every case a salaried examiner of the company
inspects the plant and herd of the cattle-grower and his personal
capacity and integrity before the granting of a loan. And thereafter the
examiner, on his regular circuit, maintains a continuous inspection and
volunteers advice designed to protect the value of the security given
for the loan. When a loan application has been acted upon favorably, a
promissory note and chattel mortgage are taken. The funds of the company
then advanced to the borrowers may be utilized to buy more cattle, to
pay outstanding debts such as those for feeding expense, or, as is often
the case, to buy the very cattle which are pledged as security for the
loan. In a few cases where the cattle-grower enjoys an exceptional
credit, funds will be advanced for the full purchase price of a herd for
seasonal feeding purposes, or to develop two-year-olds into finished
four-year-old beef cattle. The loans granted are seldom less than 60 per
cent. of the known value of the cattle.
To secure a buyer for the note and mortgage is the second primary
function of the cattle loan company. If the loan is a small one, usually
$10,000, it may be sold entire, the chattel mortgage assigned and the
note indorsed to the buyer. If the loan is a larger one, of $50,000 to
$100,000, it is necessary to subdivide it in order to provide a ready
sale. The mortgage and note are assigned in parts of $5,000, $20,000, or
other denominations, to suit the convenience of the buyers of the paper.
In this case the assigned parts, since they are indorsed by the loan
company, are equivalent to a "debenture" issue secured by a pledge of
specified assets held by the company for the protection of the
note-holders. The size of mortgage loan most frequently made is $10,000,
while loans of $100,000 are exceptional.
The business of cattle loan companies approaches closely to the
functions of the commercial paper broker. The cattle loan company has an
advantage over the commercial paper broker in that the favorable
location of the company--always at the receiving cattle-market of the
district in which its loans are exclusively placed--enables it fully to
protect its interest by claiming the proceeds of sales of mortgaged
cattle. This is particularly true in the case of range cattle, which can
be readily identified by the mortgaged brands.
To cover expenses of administration the cattle loan company secures for
itself a part of the interest paid on the loan. The rate charged the
borrower is usually determined by conditions in the locality where it is
made, sometimes running as high as 10 per cent., and again, influenced
by general rates for capital, falling as low as 7 per cent. From this
gross interest charge a commission has to be given to the local banker
who makes the loan, expenses of examination and management must be met,
and an appropriation made to a contingency reserve fund to cover
occasional losses incurred from the circumstance that the companies
usually become surety, by indorsement, for the final payment of all the
loans which they have placed with lenders. These deductions determine
what may be safely paid to eastern purchasers of the paper, usually 5 or
6 per cent.
Holders of cattle paper have never suffered in times of financial panic
from failure to pay at maturity. Cattle, like grain, are a cash
commodity purchased by retailers and sold by them, largely for cash, to
satisfy a relatively constant consuming demand. This characteristic is
retained even in time of panic.
Maturities are usually six months for feeding purposes; and less often
of two and one-half years for developing two-year-olds for market. This
two and one-half year paper is occasionally converted into the six-month
variety by the sale of notes running for six months, based upon the
two-and-one-half year mortgage. These notes are taken up at maturity by
the loan company and reissued or renewed for like succeeding periods
until the original loan is repaid.
In the past this form of loan has not been so desirable as it will be in
the near future. It has been a relatively long-term investment; and
while perfectly liquid at maturity and enjoying a good rate of return,
it has not possessed a sufficiently wide market to insure salability at
those times when the demands of depositors and local customers for
accommodation press in upon the investing bank. This difficulty will be
fully corrected by the expected operations of the Federal Reserve Act.
Eastern bankers possessing these six-month notes will probably find them
readily rediscountable with the local federal reserve bank at any time
up to maturity. And a considerable amount of two-and-one-half year notes
may be held to advantage, since, if properly selected with successive
maturities, one-fifth of their total amount will be immediately
rediscountable when necessary.
By rendering this form of agricultural paper liquid before maturity the
Federal Reserve Act will have become a most important influence for
enlarging the amount of capital devoted to this branch of industry.
Already eastern bankers have scouts touring the Western States to study
this form of banking with a view to investing several millions of
dollars each. Interest rates upon these loans will unquestionably be
reduced in time through such increased competition of lenders. The loan
companies will hardly suffer, however. While charging the cattle-grower
less, they will be enjoying a larger turnover and should welcome this
new development. The four or five million dollars placed in such loans
yearly by the average loan company, as at present constituted, is but a
fraction of the loans that may be placed by them within a few years.
By reducing the interest cost charged to cattle-growers an important
service will have been performed for the consumer. Such a reduction will
increase, in the first instance, the cattle-man's profit and induce him
to increase his holdings. The benefit of increased production at lowered
expense should, in time, be passed on to the final consumer of beef.
This phase of the operations of the Federal Reserve Act will be of
distinct benefit, and possibly also the least dangerous of all forms of
legislation designed to assist American agriculture.
FOOTNOTES:
[197] Adapted from R. B. Van Cortland. _What is Agricultural Credit?
North American Review_, Vol. 199, April, 1914, pp. 585-588.
[198] E. W. Kemmerer, _Agricultural Credit in the United States, The
American Economic Review_, Vol. 2, No. 4, December, 1912, pp. 852-872.
[199] New York, Chicago, Philadelphia, St. Louis, Boston, Cleveland,
Baltimore, Pittsburgh, Detroit, San Francisco, Milwaukee, and
Cincinnati. For Buffalo, the tenth city in population, Cincinnati, the
thirteenth city, was substituted, since for Buffalo, which is not a
reserve city, satisfactory banking figures are not available.
[200] [National banks are now permitted to lend on real estate security
by the Federal Reserve Act passed in 1913.]
[201] Cf. Testimony before United States Industrial Commission
(_Report._ X, under subjects of "Credit System" and "Crop Lien System,"
_passim_.)
[202] _Report_. X, p. 161.
[203] In some states farmers themselves own considerable amounts of bank
capital. This is said to be particularly true of Iowa.
[204] The average value per acre of farm land in the United States rose
from $15.57 in 1900 to $32.40 in 1910, a rise of 108 per cent.
_Thirteenth Census, Bulletin on Farms and Farm Property_, p. 15.
[205] _Report_, X, p. 938.
[206] Exclusive of Alaska and Hawaii.
[207] Values in gold.
[208] Cf. _Twelfth Census_, V, pp. xxix and xxx. and _Thirteenth Census,
Bulletin on Farm and Farm Property by States_, pp. 13 and 15.
[209] Every census since 1870 has shown a larger percentage of the
native population living in state or territory of birth.
[210] On this subject see the writer's article on "Agricultural Credit"
in L. H. Bailey's _Cyclopedia of American Agriculture_, IV, p. 270; and
his _Report to the Treasurer of the Philippine Islands on The
Advisability of Establishing a Government Agricultural Bank in the
Philippine Islands_, pp. 9-11, 151-154.
[211] Cf. E. W. Kemmerer, _Report to the Secretary of War and to the
Philippine Commission, on The Agricultural Bank of Egypt_. (Manila, P.
I.: 1906. Also published by Bureau of Insular Affairs, Washington, D.
C.)
[212] Cf. E. W. Kemmerer, _An Agricultural Bank for the Philippines,
Yale Review_, November, 1907, pp. 262-279.
[213] C. R. Fay, _Co-operation at Home and Abroad_, p. 44. (New York;
Macmillan, 1908.)
[214] Fay, _Co-operation_, etc., p. 44.
[215] _An Outline of the European Co-operative Credit Systems_, pp. 12
and 13.
[216] Under "other liabilities" are included in addition to other items
the funds which the banks have borrowed from banks and individual
capitalists.
[217] The capital of the district banks and of the central bank came
largely from the local banks.
[218] In 1909 the figures for Germany were: Loans on current account, M
425,995,403 and Loans for fixed periods, M 1,082,446,388. The
International Institute of Agriculture, _An Outline_, etc., p. 14.
[219] _Idem_.
[220] _Ibid._, p. 17.
[221] _Idem_.
[222] "Farmers' economic co-operation in the United States has developed
enormously during the period under review [1896-1908], and it safe to
say that at the present time more than half of the 6,100,000 farms are
represented in economic co-operation; the fraction is much larger if it
is based on the total number of medium and better sorts of farmers to
which the co-operators mostly belong." The most prominent objects are:
Insurance, creameries, cheese factories, co-operative selling
organizations of numerous kinds, co-operative buying organizations,
co-operative warehouses, co-operative telephones, co-operative
irrigation, etc. _Annual Report of the Secretary of Agriculture 1908_,
pp. 183, 184.
[223] Quoted from a letter from Mr. George K. Holmes, Statistician of
the Department of Agriculture, Washington, D. C.
[224] For a statement of the more liberal privileges concerning the
making continued: of loans on mortgage security conferred on national
banks by the Federal Reserve Act see p. 750.--EDITOR.
[225] Adapted from Meyer Jacobstein, _Farm Credit in a Northwestern
State, American Economic Review_, Vol. 3, September, 1913, pp. 598-605.
[226] J. F. Ebersole. _Cattle Loan Banks, The Journal of Political
Economy_, Vol. 22. No. 6, June, 1914, pp. 577-580.