10. If you had been a member of the Federal Reserve Board in the spring of 1919, what policy would you have advocated? in the autumn of 1919? Why?

11. Why could not a curtailment of stock exchange speculation suffice to relieve the monetary strain during the upward swing of the business cycle?

12. It was urged by many that an increase in production together with a decrease in consumption was all that was necessary to bring about a substantial reduction in prices and a consequent easing of the tension in the money market. Judging from the analysis of business cycles in the preceding chapter, do you gather it is possible to secure an increase in the efficiency of labor and capital at the height of a period of prosperity?

13. If the increased production is attained, not as a result of increased efficiency within particular plants, but only in consequence of hiring hitherto unemployed labor and new immigrants to engage in additional production, would there be any decrease in the demand for bank funds?

14. Judging from your previous study of business cycles, do you think that a decline in consumptive demand and an increase in production usually go together?

15. Concretely, how was it expected that a decline in prices would affect bank reserves?

16. Do you see any means whereby a decline in prices might have been effected without precipitating a business depression? Do you see any means whereby bank reserves might have been increased without either a business depression or a decline in prices?

17. If wages and salaries had everywhere been raised as fast as the cost of living was advancing, could not a decline in consumptive demand in the spring of 1920 have been avoided? Would this have prevented a period of readjustment?

18. What peculiar difficulties were there in the winter of 1920 in the way of an effective use of high interest rates?

19. "The Federal Reserve System is panic proof." Do you agree with this unqualified statement ?

20. "There can be no credit collapse so long as additional funds are available; and under the Federal Reserve System there is unlimited lending power." Is this a true statement of the situation? 21. Write a summary statement of your conclusions as to the efficacy of the Federal Reserve System as tested by the crisis of 1920.

REFERENCES FOR FURTHER READING

Laughlin, J. Laurence: Banking Progress, chap. xi.

Mitchell, Wesley C.: "Prices and Reconstruction," American Economic Review, Vol. X, No. 1 (March, 1920).

Moulton, Harold G.: "Banking Policy and the Price Situation," American Economic Review, Vol. X, No. 1 (March, 1920).

Reed, Harold L.: "The Work of the Federal Reserve Board," Journal of Political Economy, XXIX, January, 1920.

Federal Reserve Bulletin. Consult monthly bulletins for official pronouncements of the Federal Reserve Board.

CHAPTER XXVII

RAISING CAPITAL FOR AGRICULTURE

The analysis of financial operations in all of the preceding chapters has related primarily to the financing of industry and commerce, with only incidental reference to the agricultural side of our economic life. In the present chapter we shall view the financial structure from the point of view of agriculture, noting in what ways the financial institutions which have already been considered are associated with agricultural finance, and discussing, particularly, the work of the numerous special financial agencies that have been evolved for facilitating the raising of capital for agricultural purposes.

As in the case of corporate and partnership enterprises engaged in commerce and industry, we may classify farm capital as fixed and working, the fixed capital representing investments in the land, buildings, and equipment, and the working capital that utilized in the yearly operation of the farm. As the chart on page 650 indicates, however, agriculture is, as yet, almost exclusively conducted on a non-corporate basis; hence the instruments utilized and the financial institutions employed in raising fixed capital have ordinarily been essentially different from those used by industrial and commercial enterprises. We shall find that the most significant development in the history of agricultural finance has been the organization of the Federal Farm Loan System by means of which fixed capital for agriculture may now be raised by methods similar to those so successfully employed by corporate industry.

A few words are necessary by way of explanation and amplification of the chart on the accompanying page. It will be noted in the first place that a large amount of working, as well as fixed, capital is supplied directly by the owners. While, as we have elsewhere seen, some of the working capital of industrial and commercial enterprises is necessarily furnished by the

owners of the business, the percentage of borrowed working capital is typically much less in agricultural than in other lines.

Second, the chart does not make clear one important feature of the farm mortgage business. . Farms have been very commonly purchased by the method of paying part down and giving the seller a mortgage on the property for the balance. It will be seen that no intermediary financial institution is necessary in such a case; hence this method of borrowing could not well be portrayed upon the chart. Many mortgages made subsequent to the purchase are also consummated directly without the intermediation of any third person or institution. This is indicated in the chart by the straight line connecting "Fixed Capital" with "Individual Purchaser."

Third, it will be seen that savings banks and trust companies appear upon the fixed capital side of the chart in two different places. In the upper part of the diagram they are put down as distributors of farm mortgages, while in the lower part they are grouped with insurance companies as final purchasers of mortgages, and also of farm loan bonds, as is indicated by the lines connecting with the Joint Stock and Federal land banks.

It is necessary to add a word of explanation for placing commercial banks along with savings banks and trust companies as distributors of farm mortgages; for it is commonly supposed that it is no part of the business of such institutions to deal in mortgages. The truth is, however, that many commercial banks and trust companies have farm mortgage departments and engage in the buying and selling of mortgages. This applies not only to the commercial banks of the smaller towns but also to some of the larger institutions of the financial centers.

Many of the small state commercial banks purchase realestate mortgages for investment purposes; and the trust funds administered by trust companies are in no small degree invested in farm mortgage securities. The part that savings banks play as purchasers of mortgages may be seen by reference to the statistics of savings bank investments as shown on pages 328 and 333. It will also be recalled' that the insurance companies

I See p. 345.