Conditions in Cass County, Iowa, may be taken as fairly typical of the banking situation in the better agricultural sections. The county has 17 banks with a total capital of $690,000, total deposits of $3,563,000, and loans aggregating $3,345,000. These banks are located in eight towns of which the largest, with a population of 4560, has five banks. Five towns with populations of 1118, 949, 603, 552 and 490, respectively, have each two banks, and two towns with populations of 266 and 239 have one bank each. All the towns depend on agriculture for their prosperity and the owners and patrons of the banks are mainly farmers.

Holmes estimates that in 102 counties of Illinois 921 banks afford two-thirds of all the personal credit obtained by farmers and that in Vermont the farmers obtain 70% of their credit from the banks, while in the southern states of Virginia, Georgia, Arkansas and Mississippi they get from two-fifths to three-fifths of their credit from the banks. For the country as a whole, outside the South, he estimates that from onehalf to seven-tenths of the credit to farmers comes from the banks.2

Closely associated with the question of the amount of bank credit to farmers is that of its cost. Contrary to a common opinion, banks are no respecters of persons, and if the farmer pays more for his credit than other classes of producers, it is because it is more expensive to loan to him. As a rule this is the case. In the first place the credit required by the farmer is very different from that required by the merchant. The term is longer, renewals are more frequent, and partial payments are unusual. While the moral risk is good, payments are slow, supervision is more difficult and the average size of the loan is smaller. Altho the farmer's

1 Bankers' Register, 1912.

Business America, February, 1913, p. 123.

current account deposits have shown a decided increase in the last twenty years, they are not of sufficient importance to warrant the bank in loaning to him against his balance.

Since the average farmer receives his income in lump sums and at infrequent intervals, he makes savings deposits rather than current account deposits. The merchant, on the contrary, receives his income in daily increments, which he immediately puts at the disposal of the banks through current account deposits. Since, therefore, as the banker would say, the merchant is borrowing his own money he is entitled to a somewhat lower rate than the farmer. In a community mainly agricultural the large amount of interest paid on time deposits imposes a heavy burden on the banks. In the South and in the newer states of the West, time deposits usually bring 5% and often 6% interest and as long as such rates must be paid to attract and hold free capital in the community, just so long must the bank's borrowers feel the burden of high interest rates. Finally, since the credit demands of the farmer are not evenly distributed throughout the year, the bank often has idle money which it must invest in short term commercial paper at a rate lower than that charged the farmer for his loan. This is not, however, as is often stated, discrimination against the farmer, for if the bank did not invest in such paper, he would have to pay a still higher rate for his loan.

II. PROPOSALS FOR REFORM

For some years the sentiment has been growing, that agricultural credit facilities in this country are inadequate, that rates are too high, and that in general credit institutions discriminate against the farmer, who has

to get along with unorganized credit and endure the attendant evils. As remedies, there are suggested the formation of coöperative unions for the supply of personal credit and the creation of land mortgage banks, the funds of which shall be obtained through the issue of debenture bonds. Certain states have taken the initiative in this reform by the removal of the restrictions on the formation of coöperative credit unions or by holding out special inducements for the creation of mortgage institutions. During the last two years the question of agricultural credit has claimed the attention of the Federal Government, which, in coöperation with the Southern Commercial Congress, sent a commission to Europe in the spring of 1913 to make a first hand investigation of agricultural credit conditions.1

EUROPIAN METHODS AND EXPERIENCE

In many European countries, interesting and instructive results have been attained in the development of agricultural credit. It is from France and Germany that the United States has most to learn in this connection. Within the limits of the present article it is possible to give only the briefest outline of the agricultural credit systems of these two countries.

In Germany the greater part of the personal credit of the owners of small and medium sized farms is furnished

1 This joint commission, composed of (1) the American Commission, organized under the auspices of the Southern Commercial Congress and consisting of delegates from the different states of the United States and the different provinces of Canada and (2) the United States Commission, appointed by President Wilson, was itself known as The American Commission. Its voluminous report contains much valuable information on agricultural credit in Europe. But the essential points are often hidden in a mass of irrelevant material, and the unwary reader is likely to be led astray by insecurate statements and faulty translations. Moreover, both statistical data and critical analysis are almost completely lacking. But the most serious fault of the report is the acceptance at their face value of the statements of men who, if not partisans of the institutions under discussion, are at least too intimately associated with them to be unbiased in their judgment. As a result, the report conveys altogether too favorable

an impression. It would be instructive to compare this report with the above-mentioned English report by Cahill.

by the Raiffeisen coöperative banks. Previous to the formation of these banks, of which the first was founded about the middle of the nineteenth century, there were no organized credit institutions to which such farmers could apply. Hence they were dependent on private lenders and were preyed on by usurers. Their common need and their common racial and religious sentiment facilitated the establishment of the Raiffeisen organization, which was based on the parish community, with the teacher, the priest and the public official as leaders. Out of these elements there grew a credit movement which is the admiration of the world and which has brought untold blessings to the German peasants. Not only has it afforded them ample and cheap credit but through its educative influence it has brought about their social regeneration. But the advocates of a similar system for this country overlook the fact that the conditions which made the German movement successful are almost entirely wanting in the United States. American farmers are not poverty-stricken; they are not victims of the usurer, and they are not without organized credit facilities; in neither race nor religion have they any bond of union; nor is the teacher, the priest, or the official a leader in their community life. Furthermore, the struggle which has been required to create and maintain these institutions in Germany and to keep them true to their original purpose is too little understood in this country.1

In France most of the farmers are men of small affairs and without experience in the use of bank credit and they were practically without organized personal credit until the last quarter of the nineteenth century, when such leaders as Durand, Rayneri and Rostand under

1 See minority report of The American Commission for an excellent statement on this point. Sen. Doc. 261, 63d Congress, 2d Session, p. 7 seq.

took to do for France what had been done for Germany and Italy.

The various banks which these leaders founded have rendered splendid service to small farmers, especially in southeastern France. But so great were the obstacles to be overcome that the progress of the movement was slow and consequently the Government felt called upon to undertake the reform of agricultural credit. After various attempts, it finally created a system of local and regional banks, which derived their funds from free grants by the Bank of France. These banks have made loans to farmers at the discount rate of the Bank of France and often at a much lower rate. Yet, despite the tempting rates, the French farmers, much to the chagrin of the Government, have availed themselves of but a small portion of these funds. No adequate provision for the reimbursement of the State has been made.

In Germany a large part of the mortgage loaning is done by institutions especially organized for the purpose: (1) the Landschaften, which are coöperative associations of borrowers; (2) the State and Provincial Banks, which are public institutions and (3) the Joint Stock Mortgage Banks which are commercial institutions organized under the Imperial Mortgage Bank Act of 1899. Of the other institutions which make mortgage loans, the savings banks are the most important. The total farm mortgage indebtedness in Germany is approximately $2,000,000,000, and of this slightly over one-half is borne by the specially organized institutions, as follows; (1) the Landschaften, $750,000,000; (2) the State and Provincial Banks, $100,000,000, and (3) the Joint Stock Mortgage Banks, $170,000,000. The

1 Of the 100,000,000 francs withdrawn from business for agricultural credit but 42,000,000 francs are actually employed by farmers. People's Banks, H. W. Wolff, 1910, p. 449.