The Federal Farm Loan Bureau is a bureau in the Treasury Department, created to supervise and control the agricultural credit system which was established by the act of July 17, 1916 (39 Stat. L., 360). This system provided long-term mortgage credit facilities for the farmers of the country. On March 4, 1923 (42 Stat. L., 1454), a short-term or intermediate credit system for farmers was created and a part of it was placed under the supervision of the Federal Farm Loan Bureau by Congress. The Bureau is headed by the Federal Farm Loan Board which is composed of seven members, one of whom is the Secretary of the Treasury while the others are appointed by the President, subject to the restriction that only three of them may be of the same political party. The Problem. Unlike many of the government services which have come into existence from chance and unnoticed beginnings, the Federal Farm Loan Bureau was deliberately created by Congress as a solution for the problem of long-term rural credit. While it is without the scope of the present study to examine and appraise the results of this attempted solution, yet to describe adequately the history and activities of the Federal Farm Loan Bureau it is necessary to give, at least in outline, an idea of the economic problem involved. Every period of financial distress that the country has experienced has manifested itself in the field of rural credit, and in some periods the agricultural credit conditions had more to do with causing and prolonging the trouble than industrial and commercial conditions. In each case the economic distress was reflected politically. The usual results in the political field have been a reaction against the party in control; the formation of a new party with a platform designed to comply with the farmers' demands; or the capture of one, or both, of the old parties by a wing of the party urging special remedies for the rural financial troubles. From the time of Shays' Rebellion, in the crisis of 1837, in the Greenback period, in the Bryan silver campaign, down to the present the remedy almost invariably urged has been an increase in the supply of money. The repeated demand for this cure has been due not only to the general lack of knowledge of the fundamentals of economics among farmers, which permits them to be led astray by equally ignorant or insincere politicians, but also to the belief that there was no adequate banking or credit system to help them during the period of stress. Both long-term and short-term credit facilities were inadequate, but the main source of trouble has been with the short-term or so-called intermediate credit. Until very recently in the history of American agriculture, long-term credit or mortgage debt has played a relatively insignificant part. The basic reason for the unimportance of mortgage debt on American farms up to the last twenty or thirty years was the plentiful supply of rich unoccupied land. As long as it was possible for a farmer to get fertile land practically without cost by moving westward, there was little mortgage indebtedness. But with the exhaustion of fertile unoccupied land the price of land rose rapidly, and with the exhaustion of the virgin fertility of the soil more intensive application of labor, fertilizer, and machinery was needed. Both factors necessitated a great increase in the capital involved, thereby causing the rapid growth of mortgage debt and of a class of tenant farmers. The rise in the price of land was especially responsible for the increase in farm mortgages, as in the large majority of cases mortgages have arisen in the purchase of land. Another prolific source of mortgages is the process of inheritance, as, when several heirs acquire a farm, one of them usually buys out the others and mortgages the property in order to obtain the necessary funds. The rapidity of the increase in mortgage debt is shown by the census reports. The value and mortgage debt on mortgaged farms occupied by the owners, the only farms for which complete data were secured, have increased as follows:1 The official figures giving the value and mortgage debt on all farms are as follows: 2 1910 Total value of all farms.... Total mortgage debt on them. 1920 Total value of all farms... Total mortgage debt on them. $34,801,125,697 3,320,450,000 66,316,002,602 7,857,700,000 One result of the changed economic conditions, which necessitated the use of more and more capital in farming, was that the agitation and discussion of the question of rural credit facilities became prominent in normal times and not only during crises. Although the discussion involved both short-term and long-term credit, public interest centered on long-term mortgage credit. It was repeatedly argued that the banking system in the United States was designed for commerce and industry and did not supply adequate credit machinery to agriculture. And to prove that farming was susceptible of an adequate credit system, people pointed to Europe where agricultural credit systems, by which farmers obtained loans at low rates without difficulty, had been long established. The example of Europe was urged as a way of bringing the funds of the investors in the Eastern states to the 1 2 Fourteenth Census (1920), Vol. 5, p. 481. Ibid., p. 32, for the value of all farms. The figures for the total mortgage debt are estimates made jointly by the Census and the Department of Agriculture. The total value of over sixty-six billion dollars is based on reports made by the farmers themselves and is consequently probably too high. It also was made during the high prices of 1920 so that it has undoubtedly shrunk since then, while the mortgage debt has not. A study of farm mortgages is being prepared by J. E. Pope to be published by the Bureau of the Census as one of the series of monographs on the 1920 census. |