182. PLANS FOR IMPROVING FARM CREDIT WITH LOCAL

BANKS'

By C. W. THOMPSON

Three different plans are here presented by which farmers have improved their personal credit with local banks. Each plan has enabled farmers to borrow money at reduced rates of interest and on more favorable terms of repayment than usual. The loans secured under these plans were all used for the purchase of improved dairy stock. However, it is believed that similar arrangements would help farmers to improve their credit in connection with other farm enterprises, such as cattle-breeding and hog-raising, or in securing suitable farm equipment.

PLAN I

Under Plan I farmers enter into an agreement with local bankers or with other persons who supply the loans to adopt a uniform and approved system of dairy improvement. The security given by the farmers is not different from that ordinarily required. Those furnishing the funds also buy the dairy stock, usually under the advice of dairy specialists connected with the State or Federal Government. The stock is sold to the farmers at actual cost plus a certain percentage (say 2 per cent) to cover incidental expenses. The lender takes in payment the farmer's personal note with or without indorsement, or with mortgage security on the stock purchased.

Under this plan, as worked out in certain localities in North Dakota, the farmer has borrowed money on his personal note with interest at 8 per cent, whereas the usual local rate is 10 or 12 per cent. The notes were drawn for periods varying from six months to a year, but permitted renewals and partial prepayments on the principal.

The same general plan was carried out during the fall of 1912 with a group of farmers in southern Idaho. In that instance three or four banks took up the work together, each agreeing to finance a carload of dairy stock.

As a third example may be cited the work undertaken in a western Nevada community in the summer of 1913. Here the financial backers of a local creamery supplied the loans. The farmers gave indorsed paper together with mortgages on the stock purchased. The creamery withheld a part of the returns from milk and cream delivered.

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1 Adapted from Bulletin 654-15; Office of Markets and Rural Organization.

There are regions, however, where such arrangements are not sufficient to enable farmers as individuals to attract the necessary capital. Some additional security is necessary to what each farmer is able to furnish.

PLAN II

In the plan here described this additional security is obtained by having the farmers collectively assume a certain guarantee of the notes given by the members under the agreement. An illustration of how this has worked out is afforded on an irrigation project in southern Montana. Nineteen farmers organized an association in dealing with a local bank. The trustees were authorized to guarantee a limited amount to the bank on the joint and several liability of the association members. By adding this guarantee to the security offered by the individual farmers the latter were able to secure the necessary capital for the purchase of two carloads of heifers which were shipped in from another State in August, 1913. The local bank placed $5,000 to the credit of the association at 8 per cent, whereas the general bank rate is 10 per cent or, more frequently, 12 per cent. In this instance two men from the association were sent to make the purchase. After the stock had been secured, a proportionate share of all outlay, such as freight, travel, and incidentals, was added to the purchase price of each animal, and charges were made accordingly. As in the illustration given from western Nevada, provision was made for the periodic payment of the loans out of the dairy products. The articles of agreement also provided that the purchaser should give the animals proper care and breed them only in such a manner as the trustees might approve. Such safeguards are a desirable feature in any contract of this kind.

PLAN III

If; in place of the limited guarantee supplied by farmers themselves jointly, as described under Plan II, a similar guarantee from a third party be substituted, the essential features of Plan III will be the result. Such a plan was carried out in northwestern Wisconsin in the spring of 1913 and in northeastern Minnesota in the winter of 1914. The third party consisted of local business men who realized their common interest with the farmers in the general improvement of agricultural conditions in their territory. One agreement was made between the farmers and trustees appointed by bankers and another agreement between the trustees and business men. The latter sub

scribed a certain percentage of the funds loaned, with the understanding that the money was to be a guarantee fund to protect the bankers. The first purchase made under this plan in northwestern Wisconsin included several carloads of dairy stock, the advances from the banks amounting to $9,475.

183. SHORT-TIME PERSONAL CREDIT AMONG JEWISH FARMERSI

BY LEONARD G. ROBINSON

Last year a poor Hebrew immigrant-let us call him X-bought a small farm in Nassau, Rensselaer County, New York. Ten years in a sweatshop had impaired his health, and he was advised by his physician to live in the country. By dint of pinching economy he had saved up $1,000. The farm he bought cost $3,000. He paid down his $1,000 and gave a first mortgage for the balance of $2,000 at 6 per cent. With a bare farm on his hands he turned to the Jewish Agricultural and Industrial Aid Society of New York. From that society he received a loan of $1,000 to equip his farm.

Everything seemed to go along fairly well. But in the spring, when in the midst of his plowing, X lost one of his horses. His first thought was of the aid society. Time was very precious, however, and every day counted just then. He therefore went to Y, from whom he had purchased his first team. Yes, Y would be glad to sell him a horse, but he must have at least half cash. X then went to Z, who, he knew, lent money occasionally to the farmers in the neighborhood. Z could let him have $50 for three months provided he signed a note for $75 at 6 per cent. X had no alternative. He took the $50 and bought a horse for $100, giving a note for the balance of $50 for three months, also at 6 per cent. It therefore cost X $26.88 for the use of $100 for three months, or at the rate of 107 per cent per annum.

The following spring X again lost a horse. He saw three or four of his neighbors, and within an hour he obtained a loan of $100, for which he paid interest at the rate of 6 per cent per annum, or $1.50 for the same accommodation for which he had paid $26.88 only the season before.

What was it that caused the extraordinary change in this farmer's ability to borrow? The answer is co-operative credit.

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Adapted from "The Pioneer Credit Associations in the United States," United States Bureau of Education Bulletin No. 30, 1913.

While the Jewish Agricultural and Industrial Aid Society had long realized the need of short-time personal credit by the American farmer, it was not until 1909 that we were prepared to attack the problem in earnest. But the work has progressed with great rapidity, and we have today 17 thriving credit unions-the first and so far the only co-operative credit banks on American soil. Eight of them are in New York, five in New Jersey, and four in Connecticut. Three were organized in 1911, five more in 1912, and nine more this year. The eight credit unions doing business last year reported on December 31 a total membership of 251. Their outstanding shares ($5 each) were 865. They had been in operation for a period averaging 13 months, during which time they made 411 loans, aggregating $28,140, nearly seven times their share capital. Their net profits for this period amounted to $545.48, or at the rate of about 12 per cent per annum on that capital.

One of the most marked benefits resulting from these credit unions is the virtual stamping out of usury in the communities in which they exist. The farmer, finding no difficulty in obtaining a moderate loan for productive purposes quickly and cheaply, no longer has to depend upon the generosity of his neighbors, the forbearance of the local storekeeper, or the cupidity of the usurer.

Not the least important is the moral and educational value of these credit unions. They teach their members business methods and self-government. They imbue them with self-reliance and selfrespect. They endow them with a high sense of mutual responsibility, stimulate them to further efforts in the direction of co-operation and mutual self-help, and make them better farmers and better citizens.

184. THE ARGUMENT FOR DIRECT GOVERNMENT LOANS TO FARMERS1

By E. R. BATHRICK

The argument for direct loans to farmers by the government is based upon two fundamental propositions:

First, the conservation of agriculture, and, as a legitimate corollary, the perpetuation of the food supply, is a vitally important national policy, and so considered by all nations. I think we can agree on that.

Adapted from Testimony at Joint Hearings before the Subcommittee on Banking and Currency, 63d Cong., 2d sess., 1914, pp. 865–86.

Second, this important national policy, so vital to all our people, should not be relegated to a few private people for exploitation and profit.

This much being agreed upon, I contend that the safest and best way to carry out this policy for and on behalf of the people of the Nation is for the Nation to do it itself. Private persons do not act with patriotic deference to public needs in the conduct of business where their investments and livelihood are at stake. No exigency could be greater than the failure of agriculture, and no greater danger to the existence of government could arise than a short food supply. No tenet of free government can quiet a hungry people, and, in the face of such a contingency, the true government philosophies would avail nothing. We do not stand close to such a condition now, but we face the steadily rising price of food, whereby many of our people are confined to a pitiful selection of edibles. The condition as it applies to production and consumption of food is bad enough, and we shall not fulfil our best functions as legislators if we fail to choose the speediest and most efficacious remedy. Every leading nation on earth is lending money procured by the sale of its bonds, or appropriations from its tax funds to farmers, either directly to the borrower or through mutual credit associations. Many of the nations, either by Federal Government or by provincial or State government, are guaranteeing bonds or debentures issued against farm mortgages. From my research of authentic public documents and official reports I have compiled a total of expenditures of this character wherein the "faith and credit" of these governments were pledged to the extent of nearly $5,000,000,000.

My proposition is that the Government borrow money at not to exceed 3 per cent and lend it to farmers direct or through farmers' farm-credit associations, and not through capitalists' farm-credit associations. I would not ask a law preventing anybody from lending money to the farmers. I do not desire to confine lending to farmers; but if we will pass a bill which is a combination of farmers' self-help and Government aid, the capitalist lender will follow our terms and interest rates without any law made for him at all. It is the experience all over the world that joint-stock mortgage banks will go into the business at the lower rate. With organizations made up of farmers the Government can encourage self-help and co-operation among farmers. But the capitalists can help themselves, and in a farm-credit bill it is not the province of Government to encourage