l B 540,320 E. -
62n Congress | SENATE Document 2 O º
3d Session No. 967
PRELIMINARY REPORT
ON
LAND AND AGRICULTURAL
CREDIT IN EUROPE
Including the letter of President
William H. Taft to the Governors
of States and the Recommendations
of Ambassador Myron T. Herrick
in connection with the proposal of
PRESIDENT TAFT
to introduce
COOPERATIVE CREDIT IN THE
UNITED STATES
3.
PRESENTED BY MR. FLETCHER
DECEMBER 5, 1912.-Ordered to be printed
WASHINGTON
GOVERNMENT PRINTING OFFICE
|Q12


LETTER FROM PRESIDENT WILLIAM H. TAFT TO THE
GOVERNORS OF THE STATES.
3-ºmsºmºsºsºsºmsº
ExECUTIVE OFFICEs,
Beverly, Mass., October 11, 1918.
MY DEAR GoverNOR:
For some months past, at my direction, the Department of State,
through its diplomatic officers in Europe, has been engaged in an
investigation of the agricultural credit systems in operation in cer-
tain of the European countries. Although the investigation is still
under way, a preliminary report has been submitted, together with
the recommendations of Ambassador Myron T. Herrick in connection
with my proposal to adopt this system in the United States.
A study of these reports and of the recommendations of Ambas-
sador Herrick, which I am sending you, convinces me of the adapta-
bility to American conditions of the cooperative-credit plan as set
forth in the organization of the Raiffeisen banks of Germany. The
establishment and conduct of such banks, however, are matters for
State control. I suggest, also, the establishment of land-mortgage
banks under State charters and the formation of cooperative mort-
age-bond societies along the lines of the Landschaften societies of
ermany, provided that uniform State legislation can be secured to
govern their organization and operation. As a later step I favor the
enactment of laws by Congress permitting the organization of na-
tional land-mortgage banks, to be operated under strict Govern-
ment supervision, with the power to guarantee and market the
guaranteed debenture bonds of the State land-mortgage banks or
cooperative societies. I recommend for your consideration the re-
port and recommendations of Ambassador Herrick, now published
by the Department of State for general distribution. This report
should receive the attention of everyone interested in the problem of
agricultural finance and, indeed, of all persons interested in the wel-
fare of the American farmer.
The need for the establishment of an adequate financial system
as an aid to the farmers of this country is now quite generally
recognized. The governmental initiative, taken by the Department
of State under instructions issued by my direction to the diplomatic
officers in Europe on March 18 last, have been effectively supple-
mented by the American Bankers' Association, the Southern Com-
mercial Congress, and by many other bodies by whom this question
has been agitated, and valuable work has been done in studying, and
disseminating knowledge of those great instrumentalities which have
been created in foreign lands to extend to their agriculturists credit
3
4 LAND AND AGRICULTURAL CREDIT IN EUROPE.
facilities equal in benefits to those enjoyed by their industrial and
commercial organizations. The handicap placed upon the American
farmer through the lack of such a system and the loss sustained by
the whole citizenship of the Nation because of this failure to assist
the farmers to the utmost development of our agricultural resources
is readily apparent.
The twelve millions of farmers of the United States add each year
to the national wealth $8,400,000,000. They are doing this on a bor-
rowed capital of $6,040,000,000. On this sum they pay annually in-
terest charges of $510,000,000. Counting commissions and renewal
charges, the interest rate paid by the farmer of this country is aver-
aged at 8% per cent, as compared to a rate of 4% to 3% per cent paid by
the farmer, for instance, of France or Germany.
Again, the interest rate paid by the American farmer is consider-
ably higher than that paid by our industrial corporations, railroads,
or municipalities. Yet, I think, it will be admitted that the security
offered by the farmer in his farm lands is quite as sound as that
offered by industrial corporations. Why, then, will not the investor
furnish the farmer with money at as advantageous rates as he is
willing to supply it to the industrial corporations? Obviously, the
advantage enjoyed by the industrial corporation lies in the financial
machinery at its command, which permits it to place its offer before
the investor in a more attractive and more readily negotiable form.
The farmer lacks this machinery, and, lacking it, he suffers unreason-
ably. This is not theory. Through all the changing conditions of
a century the soundness and practicability of such financial ma-
chinery, based upon the peculiar credit needs of the agriculturist,
has been tried out, and so successful has been its operation that in
Germany, in times of financial stress, money has been taken out of the
commercial field and placed in the keeping of that Empire's agri-
cultural cooperative banks for safety. The value of this assistance
to the farmer receives unquestionable testimonial in the growth of
the system in the countries of Europe. . More specifically this ad-
vantage may be seen in the fact that through this machinery the
German farmer has received money, at times, at rates lower than
those current in commercial loans.
But the advantages to be gained by the adoption of this plan go
beyond the direct saving in interest charges to the farmer. The
great necessity which prompted the establishment and extension of
this plan throughout Europe was that of checking the rapidly ad-
vancing increases in the cost of foodstuffs, brought about by the
inevitable increase in consumption and the failure of the long-
drained soil to afford a corresponding increase in production. That
problem faces the people of this country to-day; not in so severe a
form as it threatened the older countries of Europe, but still as a
eat and pressing economic problem.
In Europe this problem has been successfully met, first, by reducing
the cost to the farmer of producing his crops, and, secondly, by
increasing his production through the adoption of improved methods
of cultivation. Both the Federal and State Governments in this
country have done much to afford the farmers instruction in improved
agricultural methods. But it still remains for us to reduce the cost
of the farmer's production by affording him the necessary capital

LAND AND AGRICULTURAL CREDIT IN EUROPE. 5
for the exploitation of his soil upon the most advantageous terms.
He must be afforded the money necessary for him to adopt improved
methods. It must be made profitable for him to place every acre
of his ground under cultivation. This offers the consumer relief
from the increasing cost of foodstuffs.
It is this portion of the task that still remains to be performed in
this country, and it is in this task that I invite your cooperation.
The country enjoys to-day great prosperity. The factories are
busy, the workingmen employed, and everywhere the wheels of in-
dustry hum. The farmer shares in this general prosperity. We have
come to look upon the farmer of to-day as one ...? our most prosperous
citizens. The proposal which I make is not to subsidize the American
farmer. Fortunately for this country, he does not need it, nor would
he accept it. What this plan offers is a means to secure to this coun-
try greater productivity, at less cost, from the farms that are now
under cultivation, and, above all, to give us more farms and more
farmers. It will make it profitable for the farmer to return to the
cultivation of the abandoned farms of the East and to open up the
vast areas of untilled land in the West.
All this can be done, and I am convinced that in this country it
must be done, by the efforts of the farmer himself. It is natural that
some of the European Governments should have extended a paternal
protection over the systems of agricultural finance and to have given
them financial as well as legal assistance. This, however, must be
guarded against in this country. We must establish a credit system
of, for, and by the farmers of the United States. It were better,
otherwise, not to consider the matter at all. It is an interesting
commentary on the value of paternalistic governmental support to
note that this plan of agricultural cooperative credit has thrived
best—in fact, has enjoyed a substantial development only—in those
countries where the movement has grown up from the farmers and
where the government has to the greatest, degree refrained from
attempts artificially to nurture the plan by subsidy, and has restrained
its interference to the proper field of imposing restrictional legisla-
tion for the purpose of preventing speculation.
: The entire field of agricultural cooperative credit is properly divisi-
ble into two parts: First, the cooperative societies of farmers, formed
for the purpose of obtaining personal credit, and, secondly, the socie-
ties or private corporations formed to create a sound security in land
mortgages for the purpose of gaining a national or international
market for bonds based upon farm-land mortgages. Both of these
forms of cooperative credit may be found in many of the European
countries under varying forms of organization. The general prin-
ciples, however, are very much the same.
It is not practicable here to go into the details of the organiza-
tion followed in European countries in the formation of these coopera-
tive societies. A very good law has been enacted by the State of
Massachusetts allowing the incorporation of credit unions, which
should furnish an excellent example for other States. Their estab-
lishment is generally a matter for State legislation and encourage-
ment, their organization and management are wonderfully simple,
and the experience of the European countries shows that their suc-
cess is practically inevitable where the environment is congenial to
6 LAND AND AGRICULTURAL CBEDIT IN EUROPE.
their growth and where proper laws are passed for their conduct.
Although undoubtedly the organization followed in the European
countries could not be adopted in its entirety in this country, I
would advocate the º principles followed by the so-called
Raiffeisen banks of Germany. These smaller societies should
restrict their loans to personal credit. . They are not intended to
make large loans on land mortgages, although, indirectly, the lands
of all the members form the security. Above all, the cardinal prin-
ciple should be followed that all money loaned should be for a
strictly creative purpose. No loan for the purchase of anything
merely for consumption should be tolerated.
The business of furnishing money on loans on real estate is the
proper province of the cooperative societies or private corporations,
which I have placed in the second class. In Germany this is done
through cooperative societies known as Landschaften and through
mortgage banks. In France it is done through the Crédit Foncier.
The chief advantages brought to farmers through such institu-
tions are lower interest rates and easy amortization, whereby the
borrowing farmer may repay his loan bit by bit, extending these
payments over a long number of years. Thus, his obligations are
made proportionate to his annual receipts from the exploitation of
his soil, and the danger of foreclosure is vastly reduced. To ap-
preciate what this amortization plan would mean to the farmers of
this country, it is only necessary to consider the foreclosure records
of some of our States.
It is not my purpose here to lay down any one plan as necessarily
the one most suitable for adoption in the United States. From the
reports of our ambassadors and ministers in Europe and from the
recommendations of Ambassador Herrick, to whom was given the
task of compiling from these the general report, I am inclined to
suggest the suitability of organizations similar to the German land-
mortgage banks for incorporation under State charters in this coun-
try. It will be most desirable, if not, indeed, essential, that the
laws creating and governing such institutions should be uniform
throughout the States, in order that they might be well understood
by the investor, and their debentures should be given character both
at home and abroad. As a later step it may prove advisable to urge
the enactment by Congress of laws permitting the creation of national
land-mortgage banks similar to those of Germany and France, with
limited privileges, and surrounded and guarded by strict supervision,
but with sufficient appeal to American initiative and opportunity,
with the power to guarantee and market a guaranteed debenture
bond of the State mortgage bank or cooperative society. Securities
issued by such j institutions would probably find a ready
market in Europe at low rates of interest, since they are a favorite
and familiar form of investment in those countries by the conserva-
tive investor.
The most essential point to bear in mind is the need for the
assumption by the Federal and State Government of the responsi-
bility for economically and honestly conducted institutions. Such
assumption is the essential precedent for obtaining the confidence
of the American as well as the European investing public. In this
field, as in all others, there is room for harmful exploitation for per-
LAND AND AGRICULTURAL CREDIT IN EUROPE. 7
sonal gain. That must be guarded against. Therefore, I invite you
to make this matter the subject of earnest study and exchange of
views between the State executives, and I now extend to you, with
the governors of the other States, a cordial invitation to confer with
me in Washington, on the occasion of the next annual conference of
governors, in order to consider means for the adoption of an agri-
cultural credit system as a benefit to the American farmer. I under-
stand that the congress of governors is to occur in December.
Were not the interval so short, my conviction of the importance of
this subject would impel me to invite you to a special conference at
a still earlier date.
Renewing my request for your hearty cooperation in a work of
such nation-wide benefit to the farmer, the consumer, and, indeed,
to the Nation at large. x
I am, my dear governor, very sincerely yours,
WM. H. TAFT.
LAND AND AGRICULTURAL CREDIT IN EUROPE.
It is the purpose of this report to give but a brief description of
the land and agricultural credit associations and corporations in
Europe, their origin, development, and relations to the state, the laws
creating and governing them, the results obtained for the farmer and
investor, and a few suggestions for improving the land and agricul-
tural credit facilities in the United States.
The investigation conducted thus far warrants the conclusion that
land and agricultural credit are so thoroughly organized in most of
the European nations that real-estate securities are as liquid and
sound as municipal bonds, while the honest, capable, and industrious
farmer is able to supply himself with working funds for short or
long time when desired. The institutions and also the systems de-
vised for these objects have certain basic features in common, but vary
considerably in type, and thereby show a remarkable adaptability to
all sorts of social and economical conditions such as exist in America.
The rates of interest at which they are able to obtain and lend money
fall even below the European commercial rate and are about one-
third to one-half less than what prevail in the United States.
Farmers in many parts of Europe are as familiar with the credit
and banking business as the tradespeople in towns and cities, and
the great bulk of their loans have been made on personal or chattel
security. The loans secured by land mortgages as a rule are not re-
payable in lump at the end of a few years, but run on for 30 or 50
years, and are gradually wiped out by small semiannual payments
coming out of the income of the property. Foreclosures are infre-
quent, and no company dealing principally in these so-called long-
term “amortizable?” farm loans #. failed or occasioned loss to in-
vestors in recent times. Farm paper and mortgage bonds are con-
sidered investments of the safest sort—the latter being listed on the
bourse or stock exchanges and having an international market.
This almost complete organization of land and rural credit in ad-
vanced European nations was not a haphazard and spontaneous
growth. . . It was brought about by the insistence of public and pri-
vate individuals, philanthropists, scholars, bankers, legislators, agri-
cultural Societies, government commissions, and national assemblies,
all studying and working in a common cause. The history of their
efforts in the middle of the past century reads much like an account
of the agitation which has been started in the United States by the
American Bankers’ Association, the Southern Commercial Congress,
the Federal authorities at Washington, and other bodies and indi-
viduals, for financing the farmer, improving agricultural conditions,
S. Doc. 967, 62–3—2* 9
10 LAND AND AGRICULTURAL CREDIT IN EUROPE.
and encouraging the movement back to the soil. In Europe the agri-
cultural banks and credit facilities were created before agricultural
or even general education was attempted. The United States began
at the opposite end. The American colleges and systems for teaching
agriculture are among the oldest and best in the world, and millions
of dollars have been appropriated by the Federal and State Legisla-
tures since the passage of the Morrill Act in Lincoln's administra-
tion to aid this science in one way or another. Incalculable good has
come therefrom, but the results would have been far greater if finan-
cial education had gone hand in hand with this work. It would have
led to the study and introduction of the rural banking methods of
Europe generations ago, and so familiarized the American farmers
with the uses of credit that the lack of capital and excessive interest
rates would not now be interfering with the agricultural development
of the country.
COOPERATIVE CREDIT ASSOCIATIONS.
Personal credit in agricultural Europe is obtained usually by
means of the cooperative credit associations. They are also used
by artisans and small tradespeople in the towns and cities. These
associations are in fact the only banks which the farmers will patron-
ize for short-time loans in the nations where they abound in the
eatest numbers. With their aid poverty, and usury have been
banished, sterile fields have been ºft fertile, production has been
increased, and agriculture and agricultural science raised to the
highest point. Their educational influence is no less marked. They
have taught the farmers the uses of credit as well as of cash, given
them a commercial instinct and business knowledge, and stimulated
them to associated action. They have encouraged thrift and saving,
created a feeling of independence and self-reliance, and even elevated
their moral tone. &
The picture can hardly be overdrawn. Every traveler who visits
the places where these little associations exist speaks in glowing
phrases of the prosperity and contentment that prevail. They are
organized on such simple lines that their management requires only
§. intelligence. Failures have rarely occurred. In France
and other countries they hold a record of having never lost a cent.
The working capital and number of members of individual associa-
tions are so small as to be insignificant, yet they do one-third of the
banking business of Italy; while the combined amount of their opera-
tions in Germany equal that of the commercial banks. But the
mutual banks, both in town and country, are looked upon with favor
in the financial world because they keep millions of dollars of petty
sums in circulation which, except for them, would be idle and
hoarded. They are, in fact, feeders for the commercial banking
SVstem.
y; 1909 in Belgium 458 banks, with a membership of 25,762, had
outstanding (roughly calculated) $4,000,000 of loans; in France 96
regional banks did upward of $25,000,000 of business on a capital
of $2,983,646, while the 2,983 local banks, with a membership of
133,382 farmers, had $2,622,241 of capital and a record of over
$20,500,000 of operations. There were nearly 6,000 banks in Aus-
tria. The membership was over 725,666, and the loans ran over
LAND AND AGRICULTURAL CREDIT IN EUBOPE. 11
$86,500,000. In Italy 690 banks that furnished reports had a work-
ing capital of over $170,091,946. In Germany there is one bank for
every 1,600 of the population, and the total business done was over
$4,888,000,000. In one Province there is a bank for every 3,000 acres
of land; and so on for all other nations that have cooperative credit
institutions. The rate of interest charged was one or two points
lower than in commercial circles, yet these banks, with a few excep-
tions, made a fair profit on the turnover of their capital. In some
instances it ran as high as 5 per cent and 7 per cent.
With this striking array of figures to show its stability and use-
fulness, it is remarkable that the farmers of the United States have
been so slow to adopt this system of banking for temporary loans
on personal security. . It has existed in Canada for 22 years. In the
Province of Quebec there are a number of mutual banks that have
loaned hundreds of thousands of dollars. But Massachusetts is the
only State in our country that has made an attempt to encourage its
introduction. It already has a law allowing the incorporation of
credit unions. It was passed in 1909 after a careful study of Euro-
pean legislation, and furnishes an excellent example for the other
States. The first concern to start under this law was the Myrick
Credit Union at Springfield. In 12 months it had 105 members, a
capital of $3,000, and $10,000 of outstanding loans. Interest rates
have been low, yet it paid over 6 per cent dividends on its capital.
Thirteen new unions were formed in 1911 and have $25,000 of capital.
A pamphlet issued by the State bank commissioner gives a compre-
hensive description of the fundamental principles that a mutual
association for personal credit must adhere to. We can not do better
than to quote from it. They are as follows:
First. That the association shall be organized on Cooperative lines. As the
members may be either borrowers or lendºrs, according to circumstances, its
affairs must be conducted in such a way as to give fair and equitable treatment
to both classes. -
Second. That the association shall be one of persons and not of shares. To
this end each shareholder has one vote, irrespective of the number of shares
he holds. Furthermore, a limit is set to the number of shares or the amount
of deposit which a member may have in the association, in Order that no one
person may have a too dominating influence or be able to damage the associa-
tion by Suddenly withdrawing large Sums.
Third. That loans shall be made only for the purposes which promise to
result in a saving or a profit to the borrower. Each applicant for a loan must
state the object for which he desires to borrow, in Order that the credit Com-
mittee, which passes on all loans, may rigidly exclude thriftless and improvi-
dent borrowing.
Fourth. As loans are made only to members and as any member may become
a borrower, care must be taken to admit to membership only men and women
of honesty and industry.
Fifth. As personal knowledge of the character of the members is essential,
the membership in an association must be restricted to citizens of a small
community, or of a small subdivision of a large city, or to a small group or
organization of individuals.
Sixth. Every provision must be made to bring the association within the
reach of the humblest citizen. The par value of the shares should be Small
(it averages about $5), and they should be payable in very small installments.
Loans of very Small amounts should be made and Should be repayable by
installments if desired.
Seventh. In making loans it should be recognized that character and in-
dustry are the basis of credit, and a loan may be made to a member who has
not adequate Security to pledge for it, provided he can obtain the guaranty of
one or more other members, but no member is obliged to guarantee the loan of
another member unless he desires to do SO.
12 LAND AND AGRICULTURAL CREDIT IN EUROPE.
Eighth. Borrowers must carry out to the letter the conditions of repayment
agreed upon at the time their loans are made. Prompt payment of obligations
is a fundamental requirement of these associations.
It should not be inferred from the great success and good accom-
plished that the cooperative credit associations could be taken as
models in their entirety or that the establishment of such societies
would act as an immediate panacea for all the troubles that beset
agriculture in America. They seem to be adapted only for localities
where the population is fixed and settled and welded together in
close relation by community of interests. In Austria, Germany,
Finland, Ireland, France, Russia, the Balkan States, and practically
everywhere the State has in some way or other given aid to these
banks. A very general practice is the distribution of subsidies
through State-endowed central banks at rates that allow the peasants
to obtain money below the ordinary market figures. It is not con-
ceivable that American farmers would accept such assistance from
the Government and thus become a privileged class supported in
part by the rest of the people. The State-aid program in Europe
has made its way against the opposition of the true exponents of
cooperation, because it violates the cardinal principle of self-help
upon which the idea is founded. Mr. Henry W. Wolff, the best
English authority on the subject, writes as follows:
No doubt a government may, by exerting its authority or temptingly chink-
ing its gold in the ears of necessitous people, bring about the formation of a
large number of credit Societies. Now, unquestionably the formation of a con-
siderable number of societies must appear in itself a desirable object. How-
ever, there is an object even more desirable still, and that is that the societies
formed should be sound societies and qualified to stand by their own strength
and endure. Government propaganda does not provide for this, because it can
not discriminate, because it does not leave it to the judgment of the members
themselves forming the Society—who are the only competent judges—whether
they want a society and whether they will do their best to support it. The
government and its officers have no means of discriminating, no means of prob-
ing the convictions and intentions of the people whom they urge to form a so-
ciety. In France we shall see that those people will not form ; or that, when
they form, they will not burden themselves with any responsibility, which re-
sponsibility is the soul of cooperation. In Italy, likewise, people hang back
and allow the money voted for them to go a-begging. You can not—even the
wisest German bureaucrat can not—determine for another man whether he
wants a credit society, nor make him put his shoulder to the wheel to make
such a society answer. But if he does not, and if he does not want the bank,
the society is more likely to do harm than good. There had better in that
case be no society at all. Why will these all-wise governments so needlessly
overshoot the mark? There truly is so much that they might do for cooper-
ative credit in a thoroughly legitimate way. They might remove hindrances;
they might pass appropriate and amend inappropriate laws; they might do any
amount of good in the way of instruction of cooperation in schools and in
special classes. And no one would grudge a penny that they might choose to
spend in such ways. Instead of this they put the cart before the horse—urge
people to form societies without taking care that they know what forming a
Society means.
To go on to the next point—that is, to assistance with money—the essence
of cooperation, its absolute sine qua non, is self-reliance. A cooperative society
is not to be simply a station for the distribution of enduring or else ephemeral
public largess. It is to be a body rooted in the soil, possessing sufficient stamina
to endure, grow, and, as Mr. Gladstone calfed it, “make men ". The same
clear-sighted statesman insisted, when our industrial and provident societies
act was before Parliament as a bill, that in consideration of the particular
object in view, the Government might well remit taxation in favor of cooper-
ative societies, but that it should not on any consideration support them with
gifts of money. However, foreign governments open the tax-payers' purse
freely, and thereby positively train their supposed protégés away from self-
LAND AND AGRICULTURAL CREDIT IN EUROPE. 13
reliance. State aid so applied does grievous mischief, in the first place, because
it teaches so-called COOperators to look to the Supply of money rather than to
the creation of Security, which is once more, and in a far more dangerous Sense,
to put the cart before the horse; for security will at all times command money.
In looking for such supply of money, in the next place, state aid thus falsely
applied teaches people to rely upon others and not upon themselves. Under the
sway of such false principle they’ can not be expected to want to make an
effort. We see the result everywhere. In France they will not undertake any
liability. In Italy they even refuse to form Societies. In Germany members
will not either raise share capital or collect deposits so long as State aid lasts.
They go on piling liability upon liability till the foundation almost gives way.
And can you make sure that, under such circumstances, they will repay what
they borrow? To a State-aided society, debt becomes a natural condition of
existence. Take State aid away, or, more correctly, provide a motive for getting
rid of it, and effort becomes apparent at once. Money is collected; debt is paid
off. Without effort and self-reliance there can be no cooperation. O.
The state intervention that has marred so many European systems
was the outcome of conditions that have never been paralleled in the
United States; and in considering this point the paternal care which
princes formerly exercised in their domains should not be overlooked.
The peasant was released from serfdom in Germany in 1807 and in
Russia in 1861, and in other nations at intervals between these dates.
His release did not bring him complete freedom. It was not until
the feudal system and all manorial rights were abolished and grievous
servitudes and dues commuted to fixed charges that the peasant be-
came a full-fledged citizen, capable of acquiring title to land. This
finally came to pass in Germany as late as 1848. He emerged from
his bondage benumbed in mind and sensibilities by ages of oppres-
sion, unambitious, ignorant, and lacking the power of initiative. He
spun and wove his own flax, as his ancestors had done; made his own
clothes and household utensils; built his thatched house with the aid
of neighbors; and raised whatever he ate. If, perchance, anything
had to be purchased it was paid for with farm products. Even taxes
were paid in this way. He had no credit and very little need for it.
So he lived with all his kind.
This Arcadian existence was rudely disturbed by the rise of modern
industry. Gradually the old fashions of life in the country disap-
}. More taxes were levied. The growing cities required more
oodstuffs, and the peasants who were equipped and trained only for
local demand began to produce for the open market. This meant
commerce, with business knowledge, banking facilities, and money,
but of these they had none. On account .# their abject ignorance
and poverty they were at the mercy of the money lenders and middle-
men, and became the victims of the most grasping forms of usury.
Their plight was rendered desperate when improved methods of
transportation and the great steamships brought to the European
shores the cheap grains from over seas. Innumerable plans and
efforts were made to remedy the situation. Some of them got on the
statute books, and naturally a strong trace of them remains. Over
200 different projects were submitted to the National Assembly of
France iš 1852 for improving rural credit facilities. But the
solution of the problem was not brought about by governmental
action. The mutual banks that began to spread over Europe in the
sixties of the past century and which finally brought credit in abun-
dance to the farmers were the results of the life work of two active
philanthropists whose theories were antagonistic to State aid and
14 LAND AND AGRICULTURAL CREDIT IN EUROPE.
based on the idea of self-help alone. The achievements of these men
may be truly ranked among the greatest romances of finance. As
their names are still used to designate the two principal types of
banks, the important facts of their lives should be known.
The cooperative idea for personal credit was originated in Ger-
many by Francis Frederick Schulze a little before the middle of the
nineteenth century. It passed over into Austria and Hungary in
1851, into Italy in 1860, into Belgium in 1864, into France in 1883,
into Scotland in 1889, and into Ireland in 1894. These dates are
given to show the order of advance and the recentness of the move-
ment in some parts of Europe. The first German association was
formed in 1849 by Frederick William Raiffeisen. Herr Schulze did
not get his started until the following year.
Herr Raiffeisen was poorly educated but deeply imbued with
religious feelings. He lived among peasants in a sparsely settled and
impoverished locality, and his object was to º the lowest classes.
The associations which grew up under his guiding hand were mu-
tual societies confined to small farming districts. The thought of
profit was discarded and they were managed by the gratuitous
services of their members. Herr Schulze was a talented writer and
speaker, and when he took up his life work was holding a judicial
post in his native town of Delitzsche. His philanthropy, although
intense, leaned to the practical side. He believed in paid services
and fair returns for money. The associations formed under his
leadership were located mainly in towns. They were managed by
salaried officers, and membership was dependent upon the purchase
of shares on which dividends were allowed. But both kinds were
founded upon the fundamental principle of combining persons
together and using the credit created by their united guaranty for
providing funds for members who might wish to borrow.
In the early days the mutual credit associations were formed
simply by articles of agreement in the nature of a ºp COIl-
tract, and members were jointly and severally liable without limit
for all the loans that were made. In course of time, when the Gov-
ernment began to take official recognition of the associations, some
of the followers of Schulze favored a limit to this liability. Hence
the mark of distinction became clearly defined between “IRaiffeisen-
ism” and the “Schulze-Delitzsche” propaganda. The German law,
as it now stands, requires mutual banks to have share capital, but
allows them to be organized upon the limited or unlimited liability
lan. All true Raiffeisen banks, in order to preserve their character,
ave shares of only a nominal value and devote dividends to educa-
tional or charitable purposes. In Germany these local banks are
grouped under central banks, which in turn are linked together by
two general central banks, and their funds are made to move freely
for agriculture throughout the Empire. The centralization of the
system has also been inaugurated in France.
This brief description is sufficient for the purpose of this report,
and no further º need be given. Full and detailed infor.
mation of all the various European associations and systems has
been printed by the Government at Washington and is now available
for the public. The documents printed for free distribution include
translated bulletins of the International Institute of Agriculture at
LAND AND AGRICULTURAL CREDIT IN EUROPE. 15
Rome, the historical sketch compiled by Mr. Edwards I. Peters for
the Department of Agriculture in 1894, and the findings and com-
ments of the American ambassadors and ministers in Europe which
have ºn forwarded to the State Department during the past five
months. - .
The cooperative credit associations have been of incalculable value
to agriculture in Europe. There is no question on this point, and
the investigation so far conducted shows quite as conclusively that
such societies could be of great benefit to farmers in many parts of
the United States. The mutuality of the organization is not an
untried idea in America. The mutual life insurance companies, fra-
ternal aid societies, and building and loan associations have pros-
pered. Four-fifths of the savings of the people are to-day deposited
in mutual savings banks; and these institutions are organized for
encouraging thrift and industry and for handling small sums, as is
the case with a credit society in Europe. But their operations are
largely confined to cities and towns. This is also true of the savings
banks in European nations. The only system yet devised to give
ample banking facilities to farmers and afford them personal credit
for short-time loans seems to be that of local societies grouped to-
gether under central banks, managed by the farmers themselves, and
exclusively devoted to their particular uses. In 1903 there were
16,106 credit associations in Germany; 14,084 were in the country,
and over one-third of the members of the remaining 2,022 belonged
to the agricultural class. This ratio prevails in all other nations
and proves the peculiar adaptability of the mutual-credit idea for
the use of farmers. The establishment of the societies in America
would be a matter for State legislation and encouragement, just as
Massachusetts has pointed out the way. After the societies have
been thoroughly tried and tested and become a real part of the bank-
ing systems of the country, an equitable portion of the millions of
dollars pouring into the postal savings banks might be loaned to
or deposited with them, thus putting these funds to safe and pro-
ductive uses, and solving at the same time a vexatious problem now
facing the Federal Government. But we can not be too emphatic
in cautioning against hasty action. In Germany and Italy, where the
best models may be found, success has been attained by slow growth
and toilsome labor upon carefully worked-out plans.
The rural cooperative credit associations are, as we have shown,
local mutual societies for encouraging thrift and granting loans for
small amounts and temporary purposes on what may be called
“character” security. The #. banks have over $45,000,000
loaned out on mortgage, but the chief business by far is loans on
current account or for short, fixed periods, running with renewals no
longer than from harvest to harvest and secured by the guaranty
of two associate members. The societies obtain money for their
purposes by the deposits of members and nonmembers, and in the
Schulze-Delitzsche banks by share capital also; but lending is
strictly confined to members. The size of the average deposit is
around $370, the average loan $150, and membership 95 persons.
These are figures for the German banks. In other nations the aver-
ages are smaller. The farmer in Europe, when obliged to mortgage
his farm, does not go to this credit society. This should be kept in
16 LAND AND AGRICULTURAL CREDIT IN EUROPE.
mind. Real estate credit is usually obtained from the life insurance
companies or the savings banks, as in America, or from the land-
mortgage banks.
THE OLD LANDSCHAFTEN.
The land-mortgage banks are either joint-stock corporations or
societies of borrowers. These latter are typified by the well-known
German Landschaften, and are the originals of all land banks. Be-
fore them the private money lender reigned supreme. The organi-
zation of land credit in fact began with them. They undoubtedly
also suggested the cooperative idea to Herr Schulze, because five,
with nearly $60,000,000 of mortgage loans, were in existence in 1848,
when he was trying to start his personal-credit society at Delitzsche.
These peculiar institutions are associations of landowners, and have
no shares and pay no dividends, the profits, if any, going to reduce
the loans; and since they and their borrowers are identical, and
managerial services gratuitous, they have been able to lend money
at lower rates than any other kind of companies.
The establishment of the old Landschaften was the outcome of the
indebtedness and distress of the nobility, and their membership in
Germany is still composed mainly of that class and large landed
proprietors. After the Seven Years' War the nobles, who owned
nearly all the land, lacked the working capital necessary to repair
and cultivate their damaged estates, and so were unable to pay their
creditors. Frederick the Great ordered the suspension of interest
on all estate debts for three years. The period was subsequently
extended. The result was the withdrawal of the monev lenders
from agriculture, the rise of interest to ruinous rates, and a finan-
cial stringency that involved the public welfare. In order to relieve
the situation this autocratic King decided to adopt plans that had
been submitted by Herr Bühring. a Berlin business man. Accord-
ingly, in 1769, by a royal fiat, he forced the nobles of Silesia to join
an association whether they wished to borrow or not, and their lands
were made jointly liable without limit for all loans granted by the
association. Loans were granted onlv upon the consent of the
directorate elected by the members themselves. Great care was
naturally exercised, so no losses occurred, while immense credit
came to the association.
This was the first Landschaft. Others were formed in the same
fashion. Nine more were formed by the Provinces and one volun-
tarily. Then two companies were organized on the cooperative
principle, so that there are now 25 Landschaften. The mortgages
held by them, all on farm lands, exceed $500,000,000, and the interest
rate runs as low as 4 per cent and 3.5 per cent per annum. The
bonds by which the money for these loans were obtained are secured
by the mass of underlying mortgages and genéral assets of the issu-
ing association, and ultimately by the unlimited liability of all its
members. The collective guaranty and the fact that loans are made
only to members constitute the characterizing features of a true
Landschaften; but there is a growing tendency to limit this liability
and substitute reserves in place of it.
Originally a Landschaft did not give cash to a member in ex-
change for his mortgage. It gave him a bond which simply con-
LAND AND AGRICULTURAL CREDIT IN EUROPE. 17
tained a promise to pay in the event the interest and principal could
not be collected from the debtor. The bond was of the exact size
of the mortgage, primarily secured by it, and made payable to
bearer on a few months’ notice. In case of default the holder had
to resort to foreclosure proceedings, so the bonds had only a limited
circulation, and were often sold below par. This was but a slight
advance on private money lending. Later the associations under-
took to collect the interest and principal. Finally they assumed
direct responsibility, and began to give cash to members for their
mortgages, raising funds for this purpose by issuing and selling
bonds of even denominations for large and small amounts. The
practice of requiring mortages to be paid in lump was abolished,
and in place thereof the loans were made repayable by annual install-
ments running through a long period of years, and the installments
were set aside for redeeming the bonds. These steps brought
about a complete revolution in land credit and marked the begin-
ning of the land-mortgage business as it is known to-day. The
whole theory of the organization of land credit is based upon this
debenture bond and system of amortization and sinking funds
devised and introduced by the Landschaften. One without the other
two is useless. The three must be combined, and also coupled with
strong management under wise laws in order to attract a stead
flow of cheap money to agriculture. It is remarkable that this trut
has never been realized or applied to the United States for farm-
mortgage loans. In spite of the example of practically every nation
in Europe for generations, the lending of money on mortgage in
America still remains largely a mere brokerage business unrestricted
by proper governing laws, either by individuals or corporations,
while mortgages continue to be drawn up for three or five years,
when experience shows that the average life of a loan is far in excess
of that period and needs to be renewed time and again, with added
expense to the debtor and trouble for the creditor. Had the Euro-
pean amortization system been employed the companies dealing in
western farm mortgages between 1890, and 1894 probably would
have escaped the misfortunes that brought them down to ruin.
Amortization is simply a method of paying off a loan by return-
ing a little of the capital each year. These payments are called
annuities and are composed of the interest and contributions to the
sinking fund and the cost of conducting business. They are calcu-
lated #. periods of 10 to 75 years, and at the end of the period
the mortgaged debt becomes extinguished and the property returns
to the owner free and clear of all encumbrances. The prevailing
interest rate on amortizable mortgages in France at present is 4.3
per cent. But by adding a little over 3.2 per cent to this, and pay-
ing 7.5 per cent a year, a French farmer can extinguish his debt
within 20 years and obtain a satisfaction piece in full from his
creditor. Thus, suppose he borrowed $10,000. He pays $750 annu-
ally twenty times for the interest sinking fund and expenses.
This makes a total of $15,000, interest included, and his debt
is paid off. A farmer in the Southwestern States would pay this
much for interest alone, and his debt would still be unsatisfied.
Amortization has a twofold value. It lessens the debtor's burden year
by year and increases in an equal ratio the security of the lender,
18 LAND AND AGRICULTURAL CREDIT IN EUROPE.
provided, of course, the sinking fund created by the accumulated
annuities be properly and honestly kept for the redemption of the
debentures. The Landschaften were very particular in this respect.
Hence, their debentures obtained the confidence of the public, and
through their means they were able to draw capital from all parts
of the country for distribution among their members at the lowest
rates on record. If a holder of a bond wished his money back he had
merely to sell his bond in the open market. In this way fluidity
was given to real estate securities for the first time in history and
the dream of “mobilizing the soil” accomplished at last. For these
reasons the Landschaften hold the most prominent place in the
literature on land credit, and everybody who studies that subject
must begin with them.
The old Landschaften, however, have many characteristics pecul-
iar to their own localities and dates of their foundation. They are
in fact governmental institutions, and their head officers are public
functionaries clothed with summary executive and judiciary powers
over the property, and, to some extent, over the actions of their
associate members. These powers were simply an enlargement of
the feudal and manorial rights possessed by princes in early times,
and so, in many respects, are contrary to modern ideas. But the
new Landschaften, which have adopted the best principles, present
points worthy of careful study. A description ..?these latter insti-
tutions taken from the excellent report of Sir. F. A. Nicholson to
the Madras Presidency in India follows.
THE NEW LANDSCHAFTEN.
These new institutions are of different patterns. Several are an-
nexes to the older societies, but most are independent and resemble
ordinary mortgage banks, except in the essential point that they
have no share capital earning dividends. They are, as the old socie-
ties, simply syndicates of borrowers formed to supply proprietors
with capital on the lowest possible terms and repayable in the easiest
manner. They are gratuitous intermediaries between the outside
capitalists and the borrowers, and while performing services of the
highest importance in testing the security offered by the borrowers
and in guaranteeing to the public the safety of the capital lent by
them, they charge absolutely nothing for their services beyond a
small commission, perhaps one-fourth of 1 per cent, or even one-tenth
of 1 per cent, to cover actual expenses. It is usual for each associa-
tion to be restricted to a particular area of operations within which
every proprietor, whether noble or peasant, may obtain a loan if he
can offer sufficient security. There is always a minimum limit either
to loans or to the value of property on which loans will be given.
This is usually low. In the new Bradenburg Landschaft, affiliated
to the old Kur-und-Neumark Landschaft, loans may be granted on
property having a net income of only $25. The minimum limit is
seldom even approached.
Members are those who borrow from the bank, They are gen-
erally responsible in all their property, not merely for their own bor-
rowings, but for the debts of the society to the outside public. But
in some cases only the property pledged to the society is responsible;
LAND AND AGRICULTURAL CREDIT IN EUROPE. 19
in others they are bound, in case of need, to pay a sum propor-
tionate to the amount of their own borrowing. There are no shares
to be paid up except in two societies. These two resemble coopera-
tive societies, for the shares are personal and nontransferable, are of
unlimited number, varying with the number of members, and their
value is claimable by a withdrawing member. The share seems to
be demanded simply to provide a first working capital and the
nucleus of a reserve. The amount of the share is frequently a cer-
tain percentage of the amount of the loan required. Some societies
demand an entrance fee of a few cents, which goes to the reserve.
This reserve will be dealt with below.
The societies in general, having no share capital, do not lend
their own funds. The candidate for a loan asks that debentures may
be issued against a mortgage of his property. This is then examined.
If the Security is approved the candidate executes a mortgage deed
to the society, which thereupon issues debentures which are placed
on the market and, being sold, provide the funds for the loan.
In the old banks the debentures are simply handed to the borrower,
who sells them for himself. In the new land banks either this is
done or the bank sells them and pays the borrower the value if
below par, or if they sell above par then the face value, the surplus
going to the reserve; or they simply issue debentures on the market
and pay the borrower the amount of the loan as settled. It will be
seen, then, that the banks have no capital and no need for it.
The debentures are for the usual class, Secured not by the par-
ticular mortgage on which they are issued, but by the whole mass
of mortgages held by the bank and by all its proper forms of security,
viz, the property of the members, the reserve or guaranty fund, and
even the sinking funds. In some banks a debenture holder has the
right (never needed, however) of requiring a court to assign a par-
ticular mortgage against his debenture as a specific security in case
the bank should fail to pay him his interest or capital due. A deben-
ture holder can hot demand payment of his debenture, except when
it is drawn for payment. But the bank can call in any at six months’
notice, besides withdrawing them by lot in the usual way. These
debentures enjoy an excellent position, the 4 per cents selling usually
at or above par. Since cheapness of loans is the sole object of the
bank, it is customary to call in debentures selling at a premium and
issue a fresh series at a lower rate. g
Loans are usually applied for to the district committee which
each bank has, with a statement of the property, the amount required,
and all documents necessary to prove title and freedom from encum-
brance. Properties may be valued by a special valuation, or a mul-
tiple of the net income as assessed to the land tax may be taken.
In both cases, however, an inspection of the property is necessary
unless under a special rule. Half to two-thirds of the estimated
value is allowable as a loan. The interest paid by the borrower on
the loans is that paid by the bank on the debentures, the bank being
merely an intermediary between the borrower and the actual lending
5ublic. But where the bank pays the loan in cash it charges such
interest as it thinks proper, in order to make up any loss should the
debentures sell below par. Loans are repayable almost entirely by
amortization, usually in about 53 years. Some short-term loans are
20 LAND AND AGRICULTURAL CREDIT IN EUROPE.
granted, with corresponding debentures. The bank can not demand
repayment of a loan except in case of waste, deterioration, or the
like. On the other hand, the borrower is at liberty to repay in whole
or in part whenever he pleases, but must pay the entire interest for
the half year in which he repays. The loan is repaid by an annuity
consisting of the interest, sinking fund (usually beginning at one-
half of 1 per cent), with a contribution to the reserve or guaranty
fund, and another for the expenses of administration. The annuities
have totaled 6 per cent, but they now average around 4 per cent or
lower; e. g., interest being 3 per cent, sinking fund one-half of 1
}. cent, guaranty fund one-fourth of 1 per cent, and expenses one-
ourth of 1 per cent. Some of the banks also require a lump pay-
ment on the grant of the loan of 1 or 2 per cent, to be credited either
to the working or to the guaranty fund. The working fund is
formed by the contribution made for the expenses of management
and any special sources.
Hungary is the only nation outside of Germany that has a true
Landsc .# of the original type. But modified forms exist in Rus-
sia, Austria, Switzerland, Denmark, and Roumania, where they have
been useful in supplying agriculture with cheap capital. There is
no older principle in land credit than the Landschaften idea. It
has been tested and proved by over 130 years of success, and could
undoubtedly be employed to advantage by water users' associations
in the irrigated regions of the West and in other parts of the United
States where landowners might unite to raise funds for drainage or
other improvements for their common good. Some of the banks of
Switzerland and the credit associations of Denmark, with the laws
governing them, perhaps furnish the best models, as appears from the
reports of the American ministers to those countries that have been
forwarded to the Secretary of State. &
The most noticeable fact revealed by the investigation of the
European land-credit institution is the all-pervading presence of the
state in every nation. Most of the older joint-stock corporations
have a public character equal to that of the German Landschaften.
Every one that dates back to 1850 to 1860 was directly organized by
the state or brought into existence by a Government §: or favoring
legislation, subsidized in some way or other and granted special
privileges. The supervision now exercised over them all is most
stringent, going into the minutest details and varying from direct
control to surveillance by state officials, usually by special laws that
impose heavy penalties for malfeasance or even neglect of regula-
tions. Continental Europe is accustomed to state intervention.
Commercial credit was organized by means of central banks con-
nected with the Government, and so this régime was naturally fol-
lowed in organizing the land credit. For this reason the results
obtained, at least in some instances, can not be used by way of com-
parison to illustrate the possibilities of organization along the lines.
of private and independent endeavor.
But whatever may be the opinion entertained for the State inter-
vention in the land-credit system of the Continent, there can be no
doubt that the working principles and business methods of the Euro-
pean land-mortgage banks are the best ever devised, and that they
will have to be introduced into the United States if it be hoped to
make the farm mortgage a fluid and popular form of investment and
LAND AND AGRICULTURAL CREDIT IN EUROPE. 21
direct a flow of capital in sufficient volume to agriculture to enable
it to keep pace with the progress of the Nation. The main features
of this system are the limitation of the interest rate that can be
charged, the amortization of the debt, and wise and equitable regula-
tions and restrictions relative to loans and the issuance of debentures
which protect the farmer from extortion and thriftless borrowing,
and at the same time bring safety and a feeling of confidence to the
investing public. These features, with modifications and additions,
appear in all European land banks, whether they be semipublic as
they are in France, Spain, and Russia, or of a private character, as
with some cases in Germany, or of the mixed type of Switzerland
and Italy, but are best exemplified in the great Crédit Foncier of
France—the largest and most successful land bank in the world.
THE CREDIT FONCIER of FRANCE.
This famous institution was formed in 1852 under the law enacted
that year for organizing the land credit and improving agricultural
credit facilities. It was immediately placed under Government con-
trol, given a subsidy, and granted a monopoly for 25 years. The
monopoly was not renewed, but all its original special privileges re-
main, which perhaps accounts for its being the only land bank in
France. Its relation with the State is very close, and many of its
most important features were taken bodily from the Landschaften.
Inasmuch as the institution has been the model for all Europe and is
now being widely discussed in the American press a description at
length will be given of it.
The governor and two subgovernors of the Crédit Foncier are
appointed for life by the President of the Republic. It is subject
to the surveillance of the Treasury Department of the Government,
and three of its directors must be high officers of the department.
It may use the Government treasuries for the receipt of its dues and
the deposit of its surplus funds and enjoys a reduction in stamp and
registration duties.
ts debentures are registered or payable to bearer, and the claim of
a third party to them can not be made in court except in case of theft
or loss. Trust and public funds may be invested in them. Its mort-
gages are exempt #. the decennial registration and consequent
charges required of other mortgages. It has a cheap and speedy method
of “purging” the title of real estate in case of disputes. In the event
of default the courts can not grant the debtor any delay and pay-
ments due it upon loans can not be garnisheed or attached. #. is
allowed summary proceedings for attacking mortgage property in
case of violation of contracts. . If dues are not paid or if the prop-
erty deteriorates it may attach and sell the property simply upon
notice and publication. During attachment proceedings it has a
right to all returns from the estate. The sale may be by auction in
a civil court or at a notary public's office, if the court permits, and
no adverse claim to the proceeds of the sale can be allowed until its
claims are fully satisfied. .
The regulations under which the Crédit Foncier transacts its busi-
ness are very strict. The mortgage loans must be first liens. The
property must have a clear and unencumbered title and yield a cer-
tain and durable income. Loans on theaters, mines, and quarries are

22 LAND AND AGRICULTURAL CREDIT IN EUROPE.
not accepted. The amount loaned on any property must not exceed
half its value, or one-third the value for vineyards, woods, orchards,
and plantations. Factory buildings are estimated without regard to
their value for particular purposes. A borrower can not bind him-
self to pay a greater annuity than the total annual income of the
roperty mortgaged, while on the other hand the society is not al-
É. to charge borrowers 0.6 per cent over the rate at which it ob-
tains money on its debentures issued at the time of the loans. An
excess of only 0.45 per cent is allowed on loans to municipalities.
The outstanding loans and debentures issued must exactly correspond
in amounts.
After paying a 5 per cent dividend the Crédit Foncier must set
aside between 5 and 20 per cent of the balance of the profits each
year for the obligatory reserve, and continue to do so as long as the
same does not equal one-half of the capital stock. The investment
of this reserve is left to the board of directors. The capital stock of
the society must be always maintained at the ratio of one-twentieth
or more of the debentures in circulation and is the primary guaranty
of its obligations, especially the debentures. The capital at present
is $40,000,000, divided into 400,000 shares of $100 each; but authority
has been obtained to increase the same to $50,000,000, represented
by 500,000 shares, which will be done before the debentures in circu-
lation pass the legal limit. One-fourth of the capital must be
invested in French rentes or other treasury bonds; one-fourth in
office buildings of the society, or by loans to French colonies, or in
securities deposited with the Bank of France as a guaranty for
advances. Shares can not be issued at a price below par. They
are nonassessable. The surplus may be loaned on mortgages or to
municipalities or may be used in other mortgage business allowed
by the statutes; and for buying its own debentures, making advances
to borrowers in arrears, or purchasing mortgaged property in fore-
closure; and for acquiring commercial paper acceptable by the Bank
of France or securities to be deposited with that bank.
The governor of the Crédit Foncier must be the owner of at
least 200 shares of stock of the society. He receives a salary of
$8,000. The subgovernors must hold 100 shares each. Their salaries
are $4,000. They perform such functions as are delegated to them
by the governor, and in order of their nomination fulfill his duties
during his absence on account of illness or other causes. The gover-
nor appoints and dismisses all agents of the society and superintends
the organization of the service in Paris and elsewhere. He counter-
signs the debentures and signs the share certificates and all other
papers and documents and must strive to promote the interests of
the society in every way. The #. is the head of the board of
directors, which is composed of himself, the two subgovernors, the
auditors, and 20 to 23 directors. This body possesses the adminis-
trative powers of the society and is beholden only to the laws and
the general assembly of the stockholders for the proper exercise of
the same. The three auditors are the guardians of the society. Their
duties are to watch, investigate, and make reports. The only power
they have is to call extraordinary general meetings of the share-
holders.
The fº. assembly of the stockholders meets regularly once a
year. It consists only of the 200 largest stockholders, of whom 40
LAND AND AGRICULTURAL CREDIT IN EUROPE. 23
make a quorum if they hold one-tenth of the stock of the society.
Each member has one vote for every 40 shares of stock held, but
can not cast more than five votes in his own name, nor more than 10
in his own name or by proxy. He has, however, a right to one vote
even though his shares be less than 40 in number. The general
assembly receives the report of the governor, and also of the auditors,
if any. It elects the directors and auditors and decides on all resolu-
tions or proposals for the increase of capital, the amendment of the
by-laws and constitution, and generally on all matters not otherwise
specifically provided for.
The only places outside of France where the Crédit Foncier can
do business are Algiers and Tunis. Under a clause in its charter
which allows it, with the sanction of the Government, to enter into
projects for improving the soil, developing agriculture, and to extin-
guish existing debts on real estate, etc., the society has been author-
ized to finance drainage projects and to advance money on the paper
of the Sous-Comptoir des Entrepreneurs, an incorporated association.
of builders. It may also receive deposits up to $20,000,000, one-
fourth of which must be kept in the Government treasury and the
balance invested in Government paper, treasury bonds, or high-class
bankable commercial notes and securities. In connection with its
banking house it has large deposit vaults.
The Crédit Foncier is permitted to take short-term mortgages
and does a big business in that line. But the true purpose of its
existence and the greatest part of its operations are the granting
of long-time loans. These are made on mortgages to individuals
and without mortgage to municipalities and public establishments.
The periods run from 10 to 75 years. The annuities required to be
paid for amortizing the loan for the average period used are so small
as to appear insignificant. The success achieved by the Crédit
Foncier in popularizing the amortization principle for real estate
loans is the chief cause of its great renown. At present its interest
rate for mortgage loans is 4.3 per cent per annum, for public estab-
lishments 4.1 per cent, and 3.85 per cent for municipalities. The
total annuity, including both interest and amortization sum, for a
25-year mortgage loan is a little over 6.5 per cent. With this small
annual payment the debt is gradually wiped out, and nothing is left
to be paid at the end of the term. The longer the term the smaller
the annuity, and vice versa. The loans now exceed $870,000,000. An
amortization table of the society follows:
Annuity of a capital of $100, interest at 4.8 per cent, payable semiannually.
Duration. Annuities. Duration. Annuities.
5 years----------------- - - - - - - - - - - - - - $22.440405 || 45 years---------------------------- $5.043495
10 years----------------------------- 12.409111 || 50 years------- 4.881758
15 years----------------------------- 9.115217 || 55 years---------------------------- 4.758.895
20 years----------------------------- 7.504843 || 60 years---------------------------- 4.663,140
25 years----------------------------- 6.566976 || 65 years---------------------------- 4.588.881
30 years----------------------------- 5.964436 || 70 years---------------------------- 4. 530558
35 years----------------------------- 5.552593 || 75 years------- g= 4.484.483
40 years--- 5.259040
The Crédit Foncier is obliged to keep the interest and amortiza-
tion payments in separate accounts, the latter going to create a
sinking fund for the retirement of outstanding debentures. As
24 LAND AND AGRICULTURAL CREDIT IN EUROPE.
stated above, the amounts of the loans and debentures must balance
each other; consequently, as loans are paid up debentures must be
aid off. Borrowers have the right to pay in advance, which they
requently exercise, so the proper adjustment of the balance is be-
yond the control of the society. It is for this reason that the
debentures, although calculated to be redeemed synchronously with
the loans they represent, have no fixed time for maturity and are
recallable at option. In each issue a certain number are repayable
by lots, with prizes for the lucky holders. A bond last year drew a
prize of $40,000. The right to give prizes at the lottery drawings
is one of the special privileges of the society. The debentures are
of two kinds—those representing the mortgages are called “fon-
cières” and those representing the loans to municipalities and public
establishments are called “communales.” They are issued in series.
The smallest denomination is $20. They may be bought by install-
ments and are the most popular form of investment in France,
being held largely by farmers and poor people in the cities. The
issue of 1912 for $100,000,000 at 3 per cent, payable within 70 years,
was oversubscribed 18 times. The total land mortgages and munic-
ipal indebtedness in France is figured at $2,800,000,000. Nearly
one-third of this is represented by the loans of the society.
Such is the Crédit Foncier of France. The control exercised over
it by the State through the appointment of its head officers, the
simplified foreclosure proceedings, and the other judicial, adminis-
trative, and fiscal privileges accorded to it are common practices in
continental Europe. As mentioned above, all the older banks are
specially privileged, and consequently have a practical monopoly of
the mortgage-bond business in some of the nations.
GERMAN MORTGAGE BANKS.
In view of this fact the mortgage banks of Europe may be classi-
fied generally as public or semipublic, and as strictly private insti-
tutions. The first have just been described. The latter are all those
which, whether they consist of lenders or only of borrowers, operate
under general laws and have absolutely no privileges. The State,
however, does not leave these companies entirely to their own devices.
They are limited in the conduct of their business by strict rules and
regulations, and are subject to the most scrutinous supervision. The
best law of this kind is that enacted in Germany in 1899. It is the
last word in legislation for private joint-stock mortgage banks, and
with slight modifications could be easily adapted to the United
States, as it was framed to overcome the troubles occasioned by the
conflict of authority between the sovereign Provinces of which the
Empire is composed. Remarkable as it may seem, these companies
in Germany have outstripped the old established and specially
privileged public banks. They now have $2,618,000,000 loaned out
on mortgage, or over five times more than the Langschaften. The
capital is $170,563,000, the smallest being $238,000 and the largest
$14,000,000. The bonds in circulation amount to $2,548,009,000,
with interest at 34 or 4 per cent per annum, while the average
returns on mortgage loans are 4.22 to 4.33 per cent per annum. As
6 per cent and even 14 per cent dividends are yearly declared, the
figures again furnish a favorable comparison with the Landschaften
Q.
LAND AND AGRICULTURAL CREDIT IN EUROPE. 25
and Crédit Foncier. The provincial head, however, selects the presi-
dent of one of these newer German banks, while the Imperial Gov-
ernment watches over them all. The supervision is carried out by
royal commissioners and extends to the minutest detail. These in-
specting officials have the right to verify the securities and cash on
hand, and demand information regarding every separate transac-
tion. They may also send a representative to general meetings of
stockholders and to sittings of boards of directors and take all
measures that may seem fit to enforce the proper conduct of busi-
ness. They also approve the appointment of the auditor and assist-
ant auditor, who are charged in each bank with the duty of seeing
that debentures are issued only upon the conditions and within the
limits legally prescribed. This German law of 1899 has been so
effective in directing the flow of cheap money through these banks
for the purchase and improvement of real estate, and furthermore
illustrates so clearly the trend of modern European legislation that
a translation of its chief provisions has been made and is given below.
Companies of limited or unlimited liability founded in Germany
for the purpose of lending money on real estate and for the issue of
bonds on such mortgages, and the institutions known under the
name of mortgage banks, require, in order to carry on such business,
the consent of the Federal Council. If in the statutes of a mort-
gage bank it is declared that such bank will only make mortgage
loans in the State of the Empire in which it has its head office, the
authorization shall be given by the authorities of the State in ques-
tion. The consent of the council is also necessary for any change
in the statutes of any mortgage bank.
Mortgage banks shall be subject to Government inspection. This
inspection shall be carried out by the inspector in the State in which
the bank shall have its head office. The inspection shall extend to
the entire business of the bank and shall continue after the dissolu-
tion until completion of the liquidation.
The total amount of mortgage bonds issued shall be secured by
mortgages of at least equal value and bearing an equal rate of inter-
est. Such security, as far as mortgages on agricultural property are
concerned, shall consist to the extent of at least one-half of the mort-
gages with amortization, and with a yearly amount of amortization
of not less than one-fourth of 1 per cent of the mortgaged proper-
ties. The banks may, however, in cases in which mortgages are paid
back before they are due, and until the amortization period has run
out, make use of the interest as cover. If the bank takes over a prop-
erty on which it has a mortgage in order to prevent the loss of the
said mortgage, it shall only use this property as cover for mortgage
bonds to the extent of one-half the price the bank paid when it pur-
chased said property. If on account of repayment of mortgages or
any other causes the mortgage bonds are no longer secured, and if
the necessary security can not at once be replaced, the bank shall,
for the time being, replace the failing mortgage securities by Impe-
rial Government bonds or by those of the Federal State or by cash.
Such Government securities shall be valued at 5 per cent below their
price on the bourse at the time of purchase.
A mortgage bank shall not issue mortgage bonds for any sum
exceeding 15 times the amount of the paid-up capital and the reserve
26 LAND AND AGRICULTURAL CREDIT IN EUROPE.
funds which shall have been created solely for the purpose of cover-
ing deficits or for the security of the holders of such bonds.
Loans by mortgage banks shall be limited to real estate in Ger-
many. Only first mortgages on such real estate shall be allowed.
The amount advanced by a mortgage bank on the security of such
property shall not exceed three-fifths of the total value of the prop-
erty. The authorities may permit loans to be made on agricultural
properties to the extent of two-thirds of the value.
The estimated value of the property on which money is lent on
mortgage shall not exceed the estimated sale price arrived at after
a careful valuation of the property. In the estimation of such value
the permanent value of the property and the revenue therefrom shall
alone be considered; that is to say, the value which the property
should produce when properly managed by its owner. In the case
of a valuation having been made by a public official of the State in
which a given property lies, the Federal Council may decide that the
estimation of value made for the bank for the purpose of a mortgage
shall not exceed, the valuation made by the official in question.
Mortgages on building lots or on uncompleted buildings which pro-
duce no revenue shall not be utilized to cover mortgage bonds for
more than one-tenth of the total value of the mortgages used as
cover for such bonds and shall not exceed one-half of the total paid-
up capital of the bank. Mortgages on real estate which does not
yield a permanent income shall also be excluded from those mort-
gages which may be utilized for securing mortgage bonds.
Each mortgage which serves as cover for the issue of mortgage
bonds shall be recorded by the bank in a special register, which
shall contain a complete record of each specific operation. In the
first month of each calendar half year the auditors shall deliver to
the inspecting authorities a certified copy of the mortgages which
have been recorded during the preceding half year, which certified
copy shall remain in the possession of the inspecting authorities.
ach mortgage bank shall appoint an auditor and an assistant
auditor. The appointment shall be made through the bank inspection
authorities after consultation with the bank. The inspecting au-
thorities may at any time revoke such appointment. The auditor
shall satisfy himself that the necessary cover for the mortgage
bonds issued is at all times existent. He shall not, however, concern
himself as to whether these securities have really the value given to
them, in the event of such properties having been duly approved and
certified by the inspecting authorities. The auditor shall further
satisfy himself that the mortgages and securities, which are intended
to cover the issue of mortgage bonds, have been duly entered in the
mortgage register. The auditor shall certify on each mortgage bond,
before its issue, that the necessary cover is existent and that it has
been duly recorded in the mortgage register. Mortgages or securi-
ties recorded in the register shall only be removed therefrom with the
consent of the auditor, in writing. This may be effected by his in-
dorsement of the mortgage register. The auditor, together with the
bank, has the custody of all documents regarding the mortgages and
securities recorded in the register and such money as serves as cover
for the mortgage bonds. He may only hand over these objects to
the bank in conformity with the provisions of the law. He is bound
on the demand of the bank to hand over the mortgage deeds as well
LAND AND AGRICULTURAL CREDIT IN EUROPE. 27
as the securities and money, and to cooperate in the extinction of the
record of such securities in the register in so far as the remaining
mortgages on the register suffice to cover the mortgage bonds, or in
cases where the bank shall create other securities. Should the bank
have to surrender to the borrower the mortgage deed to carry out
the operations required by the civil code, the auditor shall hand over
the deeds, except in the case where the exceptions described in the
civil code exist. When a mortgage is repaid the money shall be
handed over to the auditor to be taken care of.
Should the bank temporarily require a mortgage deed the auditor
shall hand it over without the bank’s being bound to provide other
cover. The auditor is authorized to inspect the books and writings
of the bank at all times, in so far as they refer to the mortgage bonds
and the mortgages recorded in the mortgage register. A mortgage
bank is bound to make constant communication to the auditor
of the repayment of the capital of the mortgages entered in
the register, and all the changes regarding these mortgages which
concern the holders of mortgage bonds. Disputes between the audi-
tor and the mortgage bank shall be settled by the inspecting au-
thorities. The auditor may demand from the mortgage bank a suf-
ficient honorarium for his services. The amount of the honorarium
agreed upon shall be communicated to the inspecting authorities;
failing an agreement the amount shall be settled by the inspecting au-
thorities themselves. Auditors who intentionally do anything to the
prejudice of mortgage bondholders shall be punished for betrayal of
trust according to the provisions of the criminal code.
Whoever knowingly shall issue for a mortgage bank mortgage
bonds above the amount for which they are covered by the mort-
gages and securities or money in the hands of the auditor shall be
punished with a term of imprisonment not exceeding one year and
a fine not exceeding $5,000. A similar punishment shall be given to
any person who, acting on behalf of a mortgage bank, shall know-
ingly sell or change a mortgage or other security entered in the
register of the bank when the remaining mortgages or securities
inscribed on the register do not suffice to cover the mortgage bonds.
A similar punishment also shall be given to any person, who shall
fail to observe the law by not handing over to the auditor money
paid in redemption of a mortgage. If there are extenuating cir-
cumstances only a fine may be inflicted. Whoever shall issue for a
mortgage bank a mortgage bond which does not bear the certificate
provided by law shall be punished by a fine not exceeding $250, or
with imprisonment not exceeding three months. Nonobservance of
other provisions of the law shall be punished with a fine not exceed-
ing $750.
CONCLUSION AND RECOMMENDATIONS.
With this brief account the preliminary report on European land
and rural credit facilities is closed. Enough has been told, it is
hoped, to show the working principles upon which they are based.
No more has been it: There are 20 or more nations in con-
tinental Europe. They have all been confronted by the problems
which worn-out soils and increasing population have finally thrust
upon the United States, and each has proceeded to solve these prob-
28 LAND AND AGRICULTURAL CREDIT IN EUROPE.
lems after its own fashion and in ways adapted to its peculiar con-
ditions and customs. How well they have succeeded is attested by
the general acknowledgment that endurable existence of their teem-
ing millions would not be possible except for the means which have
been devised for financing the farmer and landowner. In many
nations where the situation was desperate—more desperate than can
ever be feared to happen in America—the State intervened, granting
enormous subsidies and free use of money for agriculture. In other
nations the churches and public-spirited men, endowed with wonder-
ful energies, have directed their disinterested efforts to effect com-
binations for associated action. But these are subjects for subse-
quent investigation. The object of this report is to present the
plans which were developed by the farmers themselves, and rest
.# unassisted and independent endeavor for the accomplishment
of their purpose.
The nation that furnishes the best examples of this kind is Ger-
many—the birthplace of land and rural credit systems, and where
to-day they have reached their fullest and most useful development.
As explained above in this report, cooperative credit, real and per-
, sonal, started in Germany, and as it spread throughout Europe it
underwent modifications. But these changes were corruptions rather
than improvements of the original idea. The true rural credit
society is a small group of farmers—the smaller the better—inti-
mately known to each other and holding themselves liable without
limit for their associated obligations. This unlimited liability is the
main thing. It compels the exercise of caution in the selection of
members and inspires confidence in the public so that loans may be
obtained up to the full value of the collective guaranty. In most
nations such societies have never lost a cent, while the losses that
have occurred in all Europe for the last 30 years are too trivial to be
mentioned, so there need be no hesitation in adopting the unlimited-
liability plan. After a society is well established it attracts deposits
from members and outsiders. It becomes, in fact, a little loan and
savings bank, with funds on hand sufficient for its operations and
only rarely is obliged to borrow and put its collective guaranty to
the test. # passes from the rôle of a borrower to that of a lender,
and as it confines this function solely to its members, who are
identical with itself, no profit is sought, interest rates are reduced,
and practically no risk is incurred. These societies in Germany are
so sound that during panics funds have been withdrawn from com-
mercial banks and deposited with them for safe-keeping, and at
times they have had more money than they knew what to do with.
The example of one successful society encouraged the formation of
other societies in its neighborhood. In every nation the movement
has spread rapidly when once it got fairly started. Two hundred
new central societies and 474 local ones were formed in Germany
last year. The record of previous years has frequently exceeded
this. As they increase in number they become affiliated according
to geographical or political divisions, and organize central banks
for exchange purposes and to connect them with the general banks.
This is the natural way a system is developed. It can not be begun
by beginning at the top. The growth must be voluntary, prompted
by necessity, and based on the small local units self-managed and
making loans to members only. Thus was the great German system

LAND AND AGRICULTURAL CREDIT IN EUROPE. 29
evolved, the statistics of which have been cited above. The 12,000,000
farmers of the United States are adding over $8,400,000,000 to the
national wealth each year. They are doing this on a borrowed
capital of $6,040,000,000, on which $510,000,000 of interest is annu-
ally paid. Counting commissions and renewal charges; the rate is
averaged at 8% per cent for this country as against 3% or 4% per cent
for Germany. If the American farmers had a thoroughly organized
system of mutual credit societies they would not only save this dif-
ference of 200 or 250 millions of dollars to themselves individually,
but in course of time the entire debt would be transferred to the
Societies, the interest paid to them, an economic waste stopped, and
this stupendous sum restored to agriculture. The assertion is neither
fanciful nor extravagant. It is below the actual ratio obtained by a
comparison with the German figures.
Too much emphasis can not be laid on the fact that these small
credit societies are not organized for making loans on real estate.
The deposits and funds received by them are withdrawable on short
notice. This privilege must be allowed in order to attract the capi-
tal needed. But as loans to members yield interest considerably
under the ordinary marked rate, the only way they have of paying
for the use of this capital is by making quick and numerous turn-
overs with it. In Germany they have taken long-time mortgages,
but the practice is strongly denounced by all students who have
investigated into the cause of the remarkable success of the Raiffeisen
and Schulze-Delitzsche systems as contrary to the theory on which
they are founded. Credit is indispensable to every business. It is
the means whereby $1 is made to do the work of $50, as the saying
goes, but its classifications arid limitations can not be ignored without
anger. A loan to acquire something merely for consumption is
not tolerated, no matter what may be the security offered. The loan
must be strictly for a creative purpose. This is the first cardinal
principle, and so rigorously is it adhered to in Europe that the
credit societies invite to their circle only those who are producers
of wealth, while the better class of mortgage banks discountenance
all borrowing except for the purchase of the improvement of real
estate. Another principle is that personal and real credit are in-
herently and irreconcilably separate and distinct, and each must have
specially adapted institutions for carrying on its operations.
The recognition and observance of these principles have done much
to prevent thriftless debt among farmers, and are undoubtedly the
reasons why the land credit is so thoroughly organized on the Euro-
pean Continent. A loan on chattel or character security should
naturally be for a short time and for temporary purposes, for such
security is perishable and subject to loss or change. The long-time
loan requires an unchanging and permanent security, and the only
thing possessing this quality, is mother earth herself. But when
capital is once sunk in land it becomes fixed and can never be re-
covered except from the income created thereby or the amortization
sums paid in representation of that income. A debtor should not
be called upon to pay back the loan in lump or in advance of his re-
ceipts from the land. To do so leads only to further borrowing,
usually on more burdensome terms, when the mortgage expires. On
the other hand, a private individual can not be expected to take his
money back in driblets or wait long years for its complete return.
30 LAND AND AGRICULTURAL CREDIT IN EUROPE.
So, private lending on real estate is a theoretical and also a prac.
tical wrong. The proof of this lies in vast numbers of foreclosures
and the excessive interest rates of farm mortgages in western United
States, where they are largely held by persons. The smallness of the
annual payments and the length of an ordinary loan in Europe are
shown in the tables of the Crédit Foncier, which have been included
in this report. A glance at them makes it apparent that amortiza-
tion, the basic principle of a land loan, can be brought into full play
only by the aid of large corporations or associations with charters
perpetual or lasting a long time.
An incorporated body has a further advantage over private indi-
viduals provided it gains the confidence of the public and carefully
reserves the sinking fund created by the amortization payments.
t can issue debentures against the mortgages, sell the same, and so
immediately recover the entire capital lent regardless of the length
of the loan. This debenture bond by which a land mortgage is made
fluid was invented, as has been previously mentioned, by the German
Landschaften, or Ritterschaften, as the older type of these associa-
tions are called. Nothing like it has been used in America. By ren-
dering amortization possible it brought benefit to debtors. As it runs
for long periods, 50 to 75 years, synchronously with the loans, and is
recallable only by lot or option of the maker, the issuing banks can
not be embarrassed by sudden withdrawals of money during panics
or at inopportune times, and from the standpoint of the lender it
leaves nothing to be desired. If he choose, it may be drawn payable
to bearer and sold and transferred by the simple act of delivery
without legal or fiscal expense, thus enabling the holder to regain
the whole or any part of his savings pºli, at will. These bonds
have been an almost perfect security for generations. The safe-
guards thrown around them by law make them a safe and sound in-
vestment, open for the poor as well as for the rich, and by their
means large sums and petty hoards have been collected from all
quarters of the Continent and wisely used for the improvement of
land and the development of agriculture. It should be noted that
the tendency to centralize is as strong in the land-credit organiza-
tions as in the rural cooperative credit systems of Europe. All the
nations have either one or only a few banks. In Germany a central
bank has been formed by a group of Landschaften and another has
been formed for the mortgage banks. The local concerns arrange
the loans and send the documents, including the mortgage indorsed,
over to the central banks, which issue debentures against them in
several languages. They are sold readily in foreign markets.
The time has now arrived for action in the United States. Very
little now can be gained by further study of the European field.
The investigations which are being carried on through the agencies
mentioned in this report have already gathered nearly all the mate-
rial required concerning the working principles, business methods,
and achievements of the farm and land-credit systems; and full and
complete information will soon be available, with all details. The
rural mutual-credit societies, as is well known, have been operating
successfully as far back as 1862, and have made the farmers not only
their own bankers, but by aiding cooperation in all its branches have
also enabled them to become their own merchants, buying supplies
at wholesale and selling produce directly in all the nations where
LAND AND AGRICULTURAL CREDIT I. |
8
they flourish the best. The Landschaften and other mortgage ...
tutions have evolved the true theories of the mortgage loan—never
tried in America—and have made real-estate securities so safe, con-
vertible, and cosmopolitan that in Europe they sell as readily as
government bonds, and thus collect and distribute cheap money for
use in the improvement of the soil and development of agriculture,
and this has been going on for over 130 years. The models and the
proof of their worth are at hand. With some modifications they
could be easily adapted to the agricultural needs of many parts of
the United States.
There is practically no limit to the amount of capital that could
be advantageously employed for rehabilitating worn-out and aban-
doned farms, opening up new areas, and introducing modern meth-
ods of cultivation; and it is of vital importance that this capital
be obtainable at once in sufficient volume and on easy terms. The
world-wide problem caused by the pressure of population upon the
means of subsistence now confronts the United States in the very
face of its matchless natural resources and vast acreage of arable
lands still remaining untouched by the plow. The $385,000,000 of
foodstuffs exported last year barely equaled 76 per cent of the an-
nual interest charges on the debts the farmers owe.
The cause of the trouble is the lack of capital, and the remedy lies
in financing the farmer and the landowner. This is the indisputable
conclusion logically reached from examination into the actual condi-
tions and from comparisons furnished by recent European history.
The solution of the problem concerns the general welfare as much
as does the currency and monetary reform, and it is gratifying to
note that it seems destined to go side by side along with this under-
taking. For as soon as the alarm was sounded the best talent of
the nation became enlisted, and now bankers, merchants, professional
men, legislators, and private individuals in town and country; many
impelled purely by patriotic, and disinterested motives, have com-
bined their efforts to better the situation before it pass to the acute
and critical stage.
The establishment of agricultural cooperative credit associations
is largely a matter for State legislation and encouragement. The
making and the management of these little Societies are so simple
and their success so inevitable, where the environment is congenial
to their growth, that without doubt they would spring up in multi-
tudes as soon as the proper laws were passed, and in course of time
develop systems as large and effective as those of Germany. A great
many cooperative stores already exist in this country. Cooperation
has $º taught by farmers’ journals for years, and the spirit of it
is in the air. The organization of land credit, however, is a compli-
cated task, especially since the idea is new in the United States, and
involved in a tangle of conflicting State laws and antiquated land-
registration and taxation systems and foreclosure procedures. Many
changes, amendments, and additions would have to be made in re-
spect to all these before the way could be made clear for the forma-
tion of land-mortgage banks. In addition to the uniformity of laws,
a uniformity of business methods must also be brought about. This
means statutory regulations and limitations such as have been de-
scribed in this report; and also official supervision. But this super-
vision need be not the bureaucratic kind of Europe, but similar to
liſm
32 LAND AND AGRICULTURAL CREDIT IN EUROPE.
that exercised in the United States over national banks, savings
banks, and public-utility corporations. Free scope for private enter-
prise and initiative should be allowed and encouraged, but the days
of “wildcatting" in the United States are gone for good, and pro-
moters should never again be given the opportunity to exploit the
necessities of debtors and prey upon the public as was done during the
farm-mortgage craze 18 or 20 years ago.
The only instrument by which land-mortgage banks can finance
themselves, draw money from the public for investment in loans,
are the debenture bonds, but these bonds will not circulate freely
nor far from the place of issue unless they are known to have the
same underlying values and give the same rights to the holder,
regardless of whether they be secured by mortgages in Texas, Mas-
sachusetts, or in any other States. But possessed of these charac-
teristics as guaranties of law, there is no reason why debentures of
large mortgage banks and Landschaften should not be listed in stock
markets and sold, negotiated, and exchanged as readily as railway
and municipal securities, and thus equalize and reduce interest rates
for farmers throughout the country.
The objects of the investigations set on foot by the Departments
of State and Agriculture have been accomplished. The public is
aroused, and the movement has finally been started for organizing the
land credit and improving agricultural-credit facilities in the United
States. The nonpartisan character of the interest awakened clearly
indicates the next step to be taken. The persons foremost in this
movement should get together, open headquarters at some conven-
ient place in the Middle West, systematize the work of propaganda,
and see that it advance along similar lines in all the States. Special
conventions should be held in those States where the needs are most
urgent. Later on a national convention should be assembled or at
least a national committee appointed to sit in continuous session.
Every effort should be made to secure the uniformity so much to be
desired in State laws, and to give a * er direction to any Federal
legislation which should be proposed. Such is the recommendation
of this report.
O