degree the credit facilities of the farmer. In general, no narrow spirit was evidenced either by the Federal Reserve Board in providing for the eligibility of agricultural paper or by the various Federal Reserve Banks in passing on the acceptability of such paper. The extent that the resources of the Reserve Banks have been used in agriculture has depended more upon the individual farmer and his local bank than upon either the Federal Reserve Board or the Federal Reserve Banks.

There are no accurate data that show the amount of Federal Reserve bank credit that has been used in agriculture. It is true that the Reserve Banks classify their paper according to the purpose for which the proceeds of the discounted notes are put, as commercial, industrial, or agricultural. But the figures given under the classification marked agricultural do not present an accurate picture of the amount of Federal Reserve credit used by agriculture. In the first place, a large number of member banks rediscount agricultural paper only as a last resort. Owing to the fact that commercial paper usually runs for shorter periods, they tend to rediscount more of this class of paper. The proceeds, however, may be used to loan to agriculture rather than to other kinds of business.

Again, the banks in the larger cities frequently loan large sums of money to the small country banks. In turn the city banks frequently secure these funds from the Federal Reserve Banks. The

paper which they rediscount, however, is practically always commercial paper, as that is the only kind they have. But the loans which they make to the small country banks are practically all used to finance agriculture, although the paper is classified on the books of the Federal Reserve Bank as commercial rather than agricultural. Thus it is impossible to tell from the records kept by the Federal Reserve Banks how much credit is extended by these institutions which ultimately goes to finance the requirements of agriculture.

The Federal Reserve Banks mobilized the credit resources of the country so that they were made more available to agriculture. Their operations widened the market for agricultural paper and tapped sources of credit hitherto inaccessible to the farmers. The concentration of bank reserves made it possible to use these reserves more fully and consequently made the agricultural districts more nearly self-supporting. The rediscount facilities provided by the reserve banks made it easier for country banks to secure adequate outside credit accommodation to take care of their seasonal demands for loans. This opened a way whereby surplus funds of one locality could be used to meet the credit demands of another."1

The Reserve Banks also furnish the agricultural

21 No attempt is made here to enumerate all the beneficial effects that accrued to our credit structure from the establishment of the Federal Reserve system. We are merely pointing out some of the most outstanding improvements that were made in the farmers' banking facilities.

sections of the country with a dependable source of currency supply. At last the farmers were being furnished with adequate currency for crop moving purposes without being forced to call upon the treasury. In fact, the establishment of the Federal Reserve system made it no longer necessary to ship currency from the Eastern Seaboard to the South. and West during the spring and fall. The Federal Reserve Banks with little delay, and practically no cost, were able to furnish the banks of their districts with all the currency that their customers required. There is no doubt that country banks were in a better position to meet the requirements of agriculture for currency and credit than they were prior to the establishment of the Federal Reserve system.

So substantial was the progress being made in improving the farmers' banking facilities that it is quite likely, had there been no serious disturbance in general business conditions, the farmer would have been content to let this progress work itself out. But the abnormal economic conditions incident to the post-war readjustment prevented this, for when the severe depression of 1920 hit agriculture further credit relief suggested itself to the farmer as a means of meeting the difficulties of this reorganization period. During this depression the farmers had difficulty in securing credit, and inevitably this provoked criticism of existing institutions and created a demand for the establishment of new ones to meet more fully the farmer's needs as he con

ceived them. In order to understand at all adequately the character of this new rural credit agitation, we must examine in the next chapter the credit position of agriculture in 1920-21, in order to see what was the underlying cause for the farmer's demand that the Federal Reserve Act be amended and that additional credit facilities be provided for his industry.

CHAPTER III

THE FARMERS' CREDIT POSITION

IN 1920-21

For an understanding of the rural credit agitation which culminated in the passage of the Agricultural Credits Act of 1923, we must look to the changes which the World War wrought in our agriculture.1 The abnormal war demands caused the prices of agricultural products to mount rapidly. Stimulated by the high prices and by fervid appeals to their patriotism, the farmers greatly increased their production. Both the intensive and extensive margins of cultivation were extended. So great was the desire to increase production that many unwise ventures were undertaken. Land which was ill suited for permanent cultivation because of an unreliable climate was put under the plow. Ranches were broken and pastures were plowed in the attempt to stimulate the production of crops needed for war purposes. The one-crop type of farming with all its dangers was encouraged by the war. The acreage planted to wheat was particularly expanded. Cattle

1 For a fuller discussion of this question see author's article, "Credit Aspects of the Agricultural Depression," Journal of Political Economy, 1925, Vol. XXXIII, pp. 94-107, 217-34.