Economic History of the United States

By Chester W. Wright | Go to book overview

CHAPTER XL
FINANCIAL INSTITUTIONS SINCE 1860.--(Continued)

Agricultural Credit Institutions. It has previously been pointed out that the banking systems of the country as they developed during the nineteenth century had been signally deficient in providing for the financial needs of agriculture. These needs had been stressed once more in the discussion of the reorganization of the country's banking system, but the depression of 1920-1921 which, after the speculative wartime boom had hit agriculture with great severity, occasioned a renewed cry for further aid that became still more clamorous after 1929. In fact the farmers' demand for relief at this time in many ways resembled the previous agrarian movements in times of depression; on this occasion, however, there was relatively more stress on cheap and easy agricultural credit than on cheap money. All this resulted in a series of laws more specifically providing for these needs than any previous legislation.

The provisions of the Federal reserve system had marked some advance in permitting the rediscount of short-term paper based on agricultural transactions and by allowing national banks to carry a limited amount of mortgage loans. But the farming interests claimed that still more was required and in 1916 secured the passage of the Federal Farm Loan Act designed to set up a separate system of Federal banks to provide for the financing of farm mortgages. Under this law a Federal Land Bank was created in each of twelve districts into which the country was divided. The general administration of the system was placed in the hands of a Federal Farm Loan Board. The capital of each bank--not less than $750,000--to be subscribed by the public or the government was in fact mostly provided by the latter. Farmers wishing to borrow on mortgages were required in groups of ten or more to organize National Farm Loan Associations which turned the mortgages over to the land banks. The latter then used them as security for tax-exempt bonds which they issued and sold to the public. In spite of the rather complicated difficulties in organizing these associations, the outstanding loans so secured rose to over $1 billion by 1925.

The law also provided a simpler method through permitting private individuals to organize Joint-Stock Land Banks that could deal directly with the individual farmer. These banks at this period took mortgages

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