CHART I.-The average price per acre of farm land including improvements from 1850 to 1920 as indicated by United Bureau of the Census and the annual price of corn from December 1, 1866 to November 1, 1921.

1900 1910

1920

100

90

80

70

Corn Values, cents

CHAPTER II

MORTGAGE CREDIT NEEDS OF AMERICAN FARMERS

The three major purposes for which farmers need longterm credit are: To purchase farm lands, buy equipment, and make permanent improvements. Modern farming requires large outlays for these purposes, which are money invested in capital of a fixed nature. This capital usually cannot be sold readily, and if disposed of at a forced sale, the selling price is almost always a great deal less than the amount paid for the property. Any procedure which results in such forced liquidation is bad for the farmer and for the nation, especially when there is no necessity for it. All such catastrophies can be avoided; the state of unrest among the agricultural classes quieted; and a permanent agricultural population fostered by a simple, sensible method of financing agriculture with the long-term credit it needs, which at the same time will furnish one of the most reliable investment securities for those who desire safe investment for their funds and savings.

Agriculture, for the purpose of fixed capital, needs credit for a length of term and at a rate of interest that will enable the farmer to pay for the property purchased, out of the annual net income over a period of years. The interest rate has been one of the greatest drawbacks to the proper use of farm credits in America. If the farmer earns 5 per cent on his capital after all other expenses have been met and has to pay 6 per cent interest on the capital invested, he is not doing a paying business and he is eventually doomed to foreclosure.

Until recent years interest rates on farm mortgages have been too high. Safety is one of the characteristics of a security which should make it attractive at a low interest rate. In no security is safety more certain than in a mortgage on agricultural lands. A lower interest rate on farm mortgages was needed and has been easily obtained by collecting through the Federal farm loan system the numerous small mortgages and issuing bonds against them in lots that compete with the large issues of corporations.

Farmers should not be restricted to one method of paying their mortgage debts. A flexible system of credit is needed whereby those who wish to pay by annual installments can arrange to do so, and those who wish to pay a mortgage debt in a lump sum should have the privilege. Some farmers will find it to their advantage to pay annually a certain installment on a mortgage debt; others will find it advantageous to reinvest their earnings in their business. A flexible system of mortgage credits would meet these varying conditions.

Many renters, farmers' sons, and graduates of agricultural colleges are driven out of agriculture into other professions for want of sufficient capital on terms that will give them a chance to get ahead and become farm owners. The outlay necessary for a profitable farming enterprise is so large and the possible income so small that farm boys find it is to their advantage to take up some other occupation.

The Use of Long-term Credit

The first need of the farmer is land suitable for the type of farming which he intends to pursue. The efficiency of each particular farming unit, and the profits realized therefrom will depend upon the land, the entrepreneur, the working capital, and the state of society. In this chapter consideration will be given to only one small

division of the land problem and that is the purpose for which the farmer needs to use land mortgage credit, in order that he may most adequately utilize his capacity for the best interests of himself and the state.

The making of permanent improvements on agricultural lands is, in many cases, a prerequisite to modern farming practices. Profitable farming cannot be done on raw lands. After lands have been acquired, some common prerequisites for modern agricultural production are clearing, buildings, drainage, irrigation, liming, and the setting of orchards and vineyards. All these additions require investments which cannot be regained in a single season, but must be paid for as is the land itself, by installments.

The equipment required to carry on twentieth century farming is one of the big investment considerations. A grain and hay farm will require a considerable outlay for tools and machinery including such as tractors, mowing machines, hay rakes, hay tedders, corn harvesters, twine binders, manure and lime spreaders, harrows, trucks, teams, harnesses, and wagons. A dairy farmer will have a large investment not only in these essentials, but also in a herd of cows and dairy equipment including a cold storage plant, cream separators, milking machines, and the like. The livestock farmer will require less expensive equipment than the dairyman, but he will have use for almost all the grain and hay farmer's outfit. If he is a grower of registered stock, the most expensive outlay for equipment capital will be his registered herd.

The fruit farmer will need almost all of the grain and hay farmer's outfit with the exception of the harvesting machinery. Instead of the grain and hay farmer's harvesting outfit, the fruit farmer will have to buy expensive sprayers, graders, and provide cold storage, and the like.

The poultryman, the gardener, and all other types of farmers need long-term capital investments according to the special requirements of their business. Without these investments of fixed capital, modern farming cannot be carried on successfully any more than manufacturing and railroading.

The purposes for which farmers need to use long-term credit are obvious from the use they have made of it. The only comprehensive study setting forth objects of mortgage indebtedness in the United States, is that made by G. K. Holmes and Carrol D. Wright (1890) in the Eleventh Census.1

Mortgage Indebtedness for Farms (1890)

The purchase of real estate uncombined with any other object, induced 60.63 per cent of the farm debtor families to incur 64.38 per cent of the farm debt; real estate improvements uncombined with any other object, induced 6.79 per cent of these families to incur 4.53 per cent of this debt; and real estate purchase and improvement combined, induced 3.98 per cent of these families to incur 5.31 per cent of this debt.

The North Atlantic division has the largest percentage of the mortgage indebtedness representing the purchase of real estate uncombined with any other object. For this division 71.49 per cent of the farm families incurred 74.38 per cent of the mortgage encumbrance to purchase real estate; in the North Central division 58.90 per cent of the farm families incurred 63.08 per cent of the debt for the purchase of real estate; in the South Atlantic division 53.84 per cent of the farm families incurred 48.89 per cent of this encumbrance for real estate purchase; and the lowest of all for this object is the Western

1 Eleventh Census of the United States, volume on Farms and Homes.