farmer in selling his long-term bonds, as above outlined, so as to meet his capital requirements.

Each of these local banks will be authorized to indorse and guarantee the payment, both as to principal and interest, of long-term farm bonds, running for not less than 3 nor more than 50 years, secured on farm property in the district in which they are located, at not exceeding 60 per cent of the value at which it is assessed for taxation, and containing an amortization provision by which an annual payment of a small amount, sufficient to pay the bond in full at its maturity, will be required. Each of these banks can guarantee such bonds aggregating not more than ten times the amount of its combined capital and surplus.

As a part of this plan I have also provided for the establishment of a State central rural bank, likewise organized under and controlled by State authorities. This State central bank, owned by the local banks, will act as a clearing house and reserve agent for the local banks, will perform the usual banking functions, and, in addition, will possess the extraordinary power of likewise using its credit to aid in the selling of long-term farm bonds, issued in accordance with the provisions above outlined.

The State central rural bank will be authorized to indorse and guarantee the payment, both as to principal and interest, of longterm farm bonds to the extent of one hundred times its capital and surplus; provided that each of such bonds is secured on farm lands at not exceeding 60 per cent of the value at which it is assessed for taxation; that said bonds are guaranteed as to principal and interest by the local rural banks; and that said bonds each contain a provision for amortization payments, which payments are to be deposited with the State central rural bank whenever it guarantees such bonds. These payments will be sufficient to liquidate the bond at its maturity. The plan generally outlined above, providing for the institution and operation of a system of State rural banks, has been fully set out in United States Senate Document No. 1006, Sixty-second Congress, third session, and copies of it are available to those who wish to study its provisions in greater detail.

This plan for local and State central rural banks is complete for any given State; and the reasons why these institutions should be organized and operated under State control are fully set forth in the Senate document above referred to. Primarily the reason for such State control is that such farm bonds must necessarily be based on the value at which the land is assessed for taxation. Inasmuch as the State his supreme power to levy the assessment and the National Government is without power to do so, or to correct any assessment so levied, it seems obvious that farm bonds, based on a percentage of assessed value, should necessarily be issued and created under State laws, and should be first guaranteed by State institutions.

Having thus outlined a plan for a complete rural banking system in each State, I will now endeavor to present for your consideration a further plan, showing just what part the Federal Government should take in our rural banking system and just how it can advantageously and effectively supplement, standardize, and aid the operations of the State rural banks.

Assuming the formation in each State of the system of State rural banks as outlined, we would have 48 separate State rural banking

systems. Each would be operating under its own State laws, and each would be offering its long-term farm bonds to the investing public. Necessarily, on account of the variations in State laws, there would be some slight differences in these bonds, and, necessarily, the competition of 48 different systems for investment money would result in increased interest charges to the farmers. Such State institutions would need the services of a clearing house, of a place for their reserves, and of some central institution which might serve to standardize their methods of operation and which could act as a broker in selling the long-term farm bonds guaranteed by the State rural banks, so as to avoid competition for investment money and consequent increased interest charges.

To fill this need I have suggested the organization of a national rural bank under Federal charter. It would act as a clearing house and reserve agent for the various State central rural banks, and it would likewise lend its credit to the sale of long-term farm bonds. The national rural bank would be authorized to guarantee the payment of long-term farm bonds, such as those described, both as to principal and interest, to the extent of one hundred times its capital and surplus, provided all such bonds were secured on real estate at not exceeding 60 per cent of its assessed value, provided they were guaranteed as to both principal and interest by both the local rural bank where the farm was located and by the State central rural bank, and provided further that the amortization payments made on such bonds were deposited with the national rural bank when it became guarantor on the same.

Moreover, the national rural bank would be authorized, in addition, to sell its debentures in an amount not exceeding one hundred times its capital and surplus, provided such debentures were secured by 125 per cent of their face value in long-term farm bonds, similarly guaranteed, and taken by it under similar conditions and restrictions, as above set out.

My contention is that the farmer needs primarily the money with which to meet his capital requirements. He needs the services of institutions not only authorized to do a banking business, but further authorized to lend their credit to the sale of long-term farm loans, which will provide the needed capital. If such long-term farm loans must be sold in order to produce this capital, then some method of guaranteeing them, so that they will be bought by the investing public, must be provided. I respectfully suggest that the method outlined is a feasible and practical method of satisfying and securing the investor, with a minimum of risk to the guarantors.

Having thus called attention to the needs of the farmer, and particularly to his need of capital, and having outlined a plan for supplying these needs, let us next examine the third question, namely, How are these needs provided for in the pending Federal reserve act? I think it will be admitted that our present national banking system is a system of commercial banking; that it was organized and has been built up more especially to meet the needs of merchants and manufacturers, and to fulfill the requirements of commercial banking. It was not intended as a method of meeting the financial requirements of the farmers. One of the fundamental principles of the whole system has been the inhibition against real estate loans. As the farmer's principal asset is real estate, and as national banks

are by law prohibited from lending on the security of real estate, it can hardly be successfully contended that our present national banking system was ever designed as a means of meeting the banking requirements of the farmer.

In examining into the question as to how the farmer's needs are provided for in the pending Federal reserve act, I will now endeavor to explain the scope of that act and to demonstrate that it is an act for general banking reform, and not simply for currency reform, and that it absolutely fails to provide for the financial requirements of the farming class.

With this end in view it might be wise to examine the title of the act.

Senate bill No. 2639, being the bill introduced by Senator Owen on June 26, 1913, which is usually referred to as the "currency bill," and which is designated in its first section as the "Federal reserve act," has the following heading:

A bill to provide for the establishment of Federal reserve banks, for furnishing an elastic currency, affording means of rediscounting commercial paper, and to establish a more effective supervision of banking in the United States, and for other purposes.

Does a bill to provide for the establishment of Federal reserve banks meet the financial requirements of the farmer? By an examination of the bill and an investigation of just what is meant by a Federal reserve bank it will be seen that a Federal reserve bank is a banker's bank, intended to operate as a clearing house for the constituent national banks, and expressly prohibited from lending money to anybody except to a national banking institution or on its credit.

Does a bill for furnishing elastic currency offer any means of relief to the farmer? To ask the question is to answer it. The portions of the bill dealing with the currency have no relation to the farmer, except in so far as all of us are interested in the establishment of a sound and elastic currency system to meet the business needs of the country as a whole.

Does a bill affording means of rediscounting commercial paper offer any method of relief to the farmer? If there is one thing on earth that a farmer never has, I should say that it is commercial paper, in the ordinary acceptance of the meaning of that term. The rediscounting of commercial paper will obviously never afford any relief to the farmer.

Does a bill to establish more effective supervision of banking in the United States provide for the needs of the farmer? The title would indicate that perhaps it might; but when the bill is investigated it is found that the banking which is to be supervised is commercial banking, as now exercised by our national banks; that no provision for rural banking is made; and that no adequate provision is made for the use of the national banks to meet the rural requirements.

So much for the title. By an examination of the bill. itself it will be seen that it is a bill reforming our whole method of national banking. It provides for the creation of new banks, to be known as Federal reserve banks, and to be capitalized by the sale of the stocks of such new banks to existing National and State banks. It provides for a central reserve board to direct and control the entire banking system. It changes the existing regulations as to the amounts and place of deposit of banking reserves. It formulates

new regulations for rediscounting, for bank examinations, and bank management. It practically covers the entire field of national banking, and provides for reforming and altering that system in the most vital particulars. Of its 29 sections, not over 4 deal with the currency in any way. The other sections constitute the regulations for general banking reform and practically for a new banking system. Now, let us see just what the bill provides and just how far it goes in meeting the requirements of the farmer.

Absolutely the only provision in this bill in reference to rural banking or farm loans is contained in section 27, which reads as follows:

LOANS ON FARM LANDS.

SEC. 27. That any national banking association not situated in a reserve city or central reserve city may make loans secured by improved and unencumbered farm land, and so much of section fifty-one hundred and thirty-seven of the Revised Statutes as prohibits the making of such loans by banks so situated shall be, and the same is hereby, repealed; but no such loan shall be made for a longer time than nine months, nor for an amount exceeding 50 per cent of the actual value of the property offered as security, and such property shall be situated within the Federal reserve district in which the bank is located. Any such bank may make such loans in an aggregate sum equal to 25 per cent of its capital and surplus or 50 per cent of its time deposits.

The Federal reserve board shall have power from time to time to add to the list of cities in which national banks shall not be permitted to make loans secured upon real estate in the manner described in this section.

Now, I propose to show you that if the national banks loaned to farmers every dollar that they are authorized to loan under this provision they would be providing only an amount of money equal to about one-fourteenth, or 7 per cent, of what is now being actually borrowed on farm mortgages.

In the year 1910 the value of all farm property in the United States, including land, buildings, implements, machinery, and live stock, was $40,991,449,090. In that year there were mortgages against 1,327,439 farms. There were 2,361,283 farms not mortgaged. The mortgaged farms represented 33.6 per cent of all the farms in the United States.

From the best information I can get the average rate of interest on farm mortgages in this country is about 8 per cent, as against an average rate of less than 5 per cent in countries where facilities for rural banking have been provided. In 1910 one-third of our farms were mortgaged. Exact figures are not available, but let us assume that this one-third of the farms represented one-third of the value. We have seen what the total value is, and we find that one-third of this value is approximately $14,000,000,000. If these farms were mortgaged at 25 per cent of such value, approximately three and onehalf billion dollars would be required. This amount would be sufficient simply to take over at a reasonable rate of interest the assumed existing mortgages.

Now let us see what the Federal reserve act provides to meet these requirements. And let us remember that the farmers, in order to meet their capital requirements, need a great deal more money than this present mortgage debt would indicate, and that any suggested method of providing their capital needs must contemplate the provision of an amount largely in excess of the figures above stated.

Senator Owen, who presented the Federal reserve act in the Senate, has published Senate Document No. 117, which was referred to the Committee on Banking and Currency on June 27, 1913. In this document he has given a statement in regard to the bill referred to. In commenting on section 27 of the bill he says:

Section 27 provides for somewhat greater liberty in making loans on farm lands by national banks, not exceeding, however, 25 per cent of their capital and surplus or 50 per cent of their time deposits. This would make a possible release for such purposes of $250,000,000.

So that the Federal reserve act makes no provision for farm loans, except that it would be possible for the national banks to loan on the security of real estate the sum of $250,000,000 if every bank loaned every dollar that it was authorized by law to loan. And this $250,000,000 is absolutely the only money available under this act for ineeting the farmers' capital requirements.

Moreover, if the bill itself be read carefully it will be observed that when such farm loans are taken by the banks they become, to a large extent, a dead asset under the terms of the bill. The national banks are allowed to rediscount with the Federal reserve banks in order to meet their requirements, but the class of paper which may be so rediscounted is described as-I quote from the bill

notes and bills of exchange arising out of commercial transactions; that is, notes and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, the Federal reserve board to have the right to determine or define the character of the paper thus eligible for discount within the meaning of this act; but such distinction shall not include notes or bills issued or drawn for the purpose of carrying or trading in stocks, bonds, or other investment securities, except notes or bills having a maturity of not exceeding four months and secured by United States bonds, or bonds issued by any State, county, or municipality of the United States. Notes and bills admitted to discount under the terms of this paragraph must have a maturity of not more than 45 days.

If the national banks can not rediscount notes or bills issued or drawn for the purpose of carrying or trading in farm bonds, and if all notes and bills admitted to discount must have a maturity of not more than 45 days, I think it may be pretty safely predicted that loans on farm lands will not be generally available to be used for rediscounts. And if the banks recognize that farm loans will not be rediscounted by the Federal reserve banks in times of stress, they will be indisposed to accept farm loans even to the limited extent to which they are authorized to go under the terms of the bill as above set out.

Moreover, the loan of money to a farmer for nine months, to meet his capital requirements, is on its face an absurdity.

The farmer might possibly meet his annual requirements with loans for not exceeding nine months; but such annual requirements or temporary needs, as heretofore explained, ought not to be provided by mortgages on the land. These mortgages should be used to produce his capital requirements, not to meet annually recurring banking needs. It is perfectly obvious that a nine months' loan would not meet his capital requirements, could not possibly be paid when it fell due, and would in no sense serve to furnish the capital which must be furnished before the question of banking accommodation for annual requirements need be seriously considered.