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 LETTER FROM PRESIDENT WILLIAM H. TAFT 
 TO THE GOVERNORS OF THE STATES 
 
 ON 
 
 LAND AND AGRICULTURAL CREDIT 
 IN EUROPE. 
 
 WASHINGTON : GOVERNMENT PRINTING OFFICE : 1912 
 
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 October io, 1919 
 
 DIVISION OF INFORMATION 
 Department of State 
 
 
 
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 LETTER FROM PRESIDENT WILLIAM H. TAFT TO THE 
 GOVERNORS OF THE STATES. 
 
 r 1 { 
 
 Executive Offices, 
 
 Beverly , Mass ., October n , 1912. 
 
 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¬ 
 gage-bond societies along the lines of the Landschaften societies of 
 Germany, 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 
 national land-mortgage banks, to be operated under strict Govern¬ 
 ment supervision, with the power to guarantee and market the guar¬ 
 anteed debenture bonds of the State land-mortgage banks or cooper- 
 •ative societies. I recommend for your consideration the leport 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 agri¬ 
 cultural finance and, indeed, of all persons interested in the welfare 
 of the American farmer. 
 
 The need for the establishment of an adequate financial system 
 u as an aid to the farmers of this country is now quite generally 
 
 r recognized. The governmental initiative, taken by the Depart- 
 
 d ment of State under instructions issued by my direction to the 
 diplomatic officers in Europe on March 18 last, have been effec¬ 
 tively supplemented by the American Bankers Association, the 
 Southern Commercial Congress, and by many other bodies by whom 
 this question has been agitated, and valuable work has been done in 
 
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 studying and disseminating knowledge of those great instrumentali¬ 
 ties which have been created in foreign lands to extend to their agri¬ 
 culturists credit 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 borrowed capital of $6,040,000,000. On this sum they pay an¬ 
 nually interest charges of $510,000,000. Counting commissions and 
 renewal charges, the interest rate paid by the farmer of this coun¬ 
 try is averaged at 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 consid? 
 erably higher than that paid by our industrial corporations, rail¬ 
 roads, 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? Obvi¬ 
 ously, 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 unreasonably. This is not theory. Through all the 
 changing conditions of a century the soundness and practicability of 
 such financial machinery, 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 agricultural 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 advantage 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 
 advancing increases in the cost of foodstuffs, brought about by the 
 inevitable increase in consumption and the failure of the long- 
 
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 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 
 great and pressing economic problem. 
 
 In Europe this problem has bee# successfully met, first, by re¬ 
 ducing 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 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 con¬ 
 sumer 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 
 industry hum. The farmer shares in this general prosperity. We 
 have come to look upon the farmer of to-day as one of our most pros¬ 
 perous 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 country 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 
 
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 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 
 divisible into two parts: First, the cooperative societies of farmers, 
 formed for the purpose ofj, obtaining personal credit; and, secondly, 
 the societies or private corporations formed to create a sound security 
 in land mortgages for the purpose of gaining a national or interna¬ 
 tional 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 gen¬ 
 eral principles, 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 
 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 general 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 as 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 Credit 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. 
 
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 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 bank's for incorporation understate 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 national 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¬ 
 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, 
 
 I am, my dear Governor, very sincerly yours, 
 
 Wm. H. Taft. 
 
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