for the purchaser of small means, the mortgage being held "in trust" after the fashion of corporate mortgages. In some instances also, the bonds run for long periods of time, rather than for three or five years merely, in which event the amortization principle of paying off the mortgage is usually incorporated.1

The farm mortgage companies have in recent years grown rapidly in number, size, and influence. They are now united in a Farm Mortgage Bankers' Association of America, composed of about two hundred members, including banks and trust companies with mortgage departments. The purpose of the association is to raise the standard of mortgage-bank practice, promote constructive farm-mortgage legislation, and oppose legislation regarded as inimical to their own and to the general welfare. During the last two years, for example, the association has conducted a vigorous campaign against the Federal Farm Loan System.2

III. THE FEDERAL FARM LOAN SYSTEM

The agricultural credit structure that has been described in the preceding pages was never regarded with favor by the farmers of the country. The interest rates that prevailed in many sections of the country were very high-in the view of the farmer exorbitantly high-while the commissions, legal fees, and renewal charges greatly increased the actual cost of the funds secured. This situation, together with the agricultural depression that prevailed more or less continuously from the end of the Civil War until the late nineties, was in no small measure responsible for the greenback and free-silver movements of that period. While the general prosperity that began in 1897 and continued almost uninterruptedly for a decade served to quiet for a time the farmers' discontent with

For an illustration of the amortization principle see p. 679.

2 See pp. 688-89 for a discussion of the basis of the opposition to the Federal Farm Loan System.

monetary conditions, there nevertheless remained a deepseated conviction that agriculture was seriously handicapped by virtue of inadequate credit facilities.

An insistent agitation for the reduction of rates on agricultural loans and for an improvement in the general conditions on which credit is extended to farmers began about ten years ago. At that time the movement for the establishment of a "panic-proof" commercial banking system was already well under way; and an improved agricultural credit system appeared to be a necessary complement. The agitation was given a great impetus by the timely appearance of a number of striking articles, which indicated that farmers in many sections of the country were paying from 8 to 12 per cent for money, as contrasted with rates in our industrial centers of only 4 or 5 per cent. It was also pointed out repeatedly that farm loans in Europe could be secured in unlimited quantity at rates varying from 3 to 5 per cent.

While much of the agitation on the subject of rural credits is due to false assumptions and to an inadequate grasp of the principles governing the rates of interest on different classes of loans, there was unquestionably just cause for complaint. Because of an inadequate organization of credit machinery, agricultural loans bore unnecessarily high rates of interest; while the short term for which mortgages were made commonly necessitated the payment of additional legal fees and renewal commissions, for which there was no sound economic reason whatever.

As a means of affording relief numerous proposals were advanced, the most popular of which was the making of government loans direct to farmers at merely nominal rates of interest, one or two per cent, the doctrine that the government should "do something" for agriculture, the nation's basic industry, always finding many eager adherents. Sounder ideas eventually prevailed, however, and the advocates of self-reliance and self-help won the day. The ultimate outcome was the authorization in 1916 of a Federal Farm Loan System, modeled after the Federal Reserve System.

The Federal Farm Loan Act passed on July 17, 1916, marked the beginning of a new era in agricultural finance. In brief, the purpose of the law is, through an improved organization of credit facilities, to raise the credit standing of farm borrowers, to reduce commissions and legal fees, to lessen and equalize interest rates, and to enlarge the supply of funds available for agricultural development. In pursuance of this task the law provides for the organization of (1) Federal Land banks and National Farm Loan associations; and (2) Joint Stock Land banks. The former constitute the distinctive feature of the rural credit system; the provision for the latter marks an attempt to develop private mortgage companies under constructive governmental supervision.

1. Administrative framework of the system. The rural credit system is under the general supervision of the Federal Farm Loan Board, composed of the Secretary of the Treasury (ex officio) and four other members, appointed by the President with the approval of the Senate. The members serve for eight years and receive a salary of $10,000 per annum, together with necessary traveling expenses. The duties of the Farm Loan Board are analogous to those of the Federal Reserve Board and the Comptroller of the Currency in connection with the national banking system. In brief, they supervise the chartering and organizing of Federal Land banks, Farm Loan associations, and Joint Stock Land banks, regulate interest rates and other charges on loans, supervise the issue of Farm Loan bonds, conduct examinations of the banks in the system and publish annual reports, which show the condition of the various farm loan institutions and present such additional data as may have a bearing upon agricultural credit in general.

The act provided that continental United States should be divided into twelve districts, in each of which should be located a Federal Land bank. In creating these districts the organization committee endeavored to group together, as far as possible, states of diverse character and development, as a means of minimizing the results of a crop failure in any one region. In determining the location of the farm loan bank in

each district the Board sought to secure (1) reasonable approximation to the geographical center of the district; (2) prompt and frequent train and mail service; (3) climatic conditions that would not impair the health of the officials; (4) congenial environment. As a rule the larger cities were not selected; but rather those which had already shown an interest in agricultural development, or had been disappointed in not being selected as sites for Federal Reserve banks. The map on page 676 shows the district boundaries and the cities within which the Federal Land banks have been located.

2. Federal Land banks. Each Federal Land bank is managed by a board of nine directors: six of them local directors, elected by the farm-loan associations of the district; and three of them district directors, appointed by the Federal Farm Loan Board. The capital stock of each bank, required before beginning operations, is $750,000, divided into shares of $5.00 each, which may be subscribed for by any person, firm, corporation, or state, or by the United States. The law holds that any part of the capital stock which is not subscribed for within thirty days shall be subscribed by the United States government. Stock that is owned by the government, however, receives no dividends.

3. National Farm Loan associations. The Federal Land banks occupy a position in the rural-credit system similar to that of the Federal Reserve banks, while the National Farm Loan associations, authorized by the rural credit law, may be regarded as analogous to the individual member banks of the Federal Reserve System. They differ from the member banks in one very important particular, however, namely, that they are co-operative associations organized by a group of farmers for the specific purpose of securing credit through the Federal Land bank; they are not privately organized institutions conducting a general banking business, as is the case with the units of the Federal Reserve System.

The law provides that "ten or more natural persons who are the owners, or about to become the owners, of farm land qualified as security for a mortgage loan under this Act," may