THE FARMER AND FINANCE1

MYRON T. HERRICK

THE importance of agriculture as an economic and social factor is not a newly discovered fact. As long ago as 1859, in a speech before the Wisconsin Agricultural Society, Abraham Lincoln said, "Population must increase rapidly, more rapidly than in former times and ere long the most valuable of all arts will be the art of deriving a comfortable subsistence from the smallest area of soil. No community whose every member possesses this art can ever be the victim of oppression in any of its forms. Such community will be alike independent of crowned kings, money kings, and land kings."

Unfortunately, perhaps the truth contained in Lincoln's words was not sufficiently well appreciated to modify the course of the economic development of the country. Nations, like individuals, are accustomed to regard lightly those things that are easily acquired. Conditions in this country always have been so favorable to agriculture that it has been accepted as an industry needing little encouragement. On the other hand, manufacturing and commerce did not seem to possess the inherent qualities of self-development, and, as a result, the economic policy of the country has been consciously framed to build up these industries, not exactly at the expense of agriculture, but at least with the consequence of diverting the attention of the people from the danger of neglecting farming interests. Consequently, the industry of

1 From The Atlantic Monthly, vol. cxi, pp. 170-178. Reprinted by permission of the author and the publishers.

cultivating the soil has been left to develop along the lines of least resistance, that of seizing temporary profits, without regard to future possibilities. The complaisant indifference with which agricultural development has been regarded has had its logical result. Agriculture has failed to progress with anywhere near the rapidity with which the population of the country and the demand for food-products have increased.

From 1900 to 1910 the population of the United States increased twenty-one per cent; during the same period the number of farms increased only ten and five-tenths per cent; which indicates that, in the ten years, rural population increased about one-half as much as the total population. In 1909 the per-capita production of cereals was only forty-nine and one-tenth bushels; in 1899 it was fifty-eight and fourtenths, a decrease of nine bushels per head in ten years. Between 1899 and 1909 the aggregate production of cereals increased only one and seven-tenths per cent, but their market value was higher by seventy-nine and eight-tenths per cent in 1909 than in 1899, — the increase in price being fortyseven times the increase in quantity. In 1909 there was one farm for every thirteen and two-tenths persons; in 1910 there was one farm for every fourteen and five-tenths persons. On the average, therefore, each farm now has to furnish food for more than one more person than in 1900. In 1900, there were five and five-tenths acres of improved farm land per capita of population; by 1910 the per-capita improved acreage had declined to five and two-tenths acres.

These figures make it clear why the exports of food-stuffs in crude condition, and food animals, have decreased from $227,300,000 or 16.59 per cent of the total exports, for the fiscal year of 1900 to $99,900,000, or only 4.6 per cent of the total for the fiscal year of 1912; and why similar imports have increased from $68,700,000 in 1900, to $180,120,000 in 1912. Of course the splendid crops of this year will, for the

time being, alter the tendency of imports of foodstuffs to increase and of exports to decrease, but unfortunately experience indicates that another bumper crop is not likely for several years. Regardless of other influences the increasing disparity between the supply of and demand for foodstuffs, as shown by the foregoing data, would seem almost to furnish an adequate explanation for the fact that on October 1, 1912, Bradstreet's index number of prices made a new high record of $9.4515.

Surprising as it may seem, it is within the last few years that the people of the United States have recognized the danger that lies in the increasing prices of food. The uneasiness with which the rise in the prices of necessities is now regarded is amply justified, for if there is a further considerable advance, a lowering of the standard of living of a great number of the American people, with its certain inimical consequences to the quality of our citizenship, is bound to occur. It is largely the apprehension of this possibility that has impelled the national government, the states, various associations, and individuals, to undertake the promotion of scientific farming, to the end that the output of the farms of this country may be raised to a maximum consistent with economic production and the conservation of the vital qualities of the soil. Educational activity of this sort is excellent and necessary, and should, if possible, be continued with greater enthusiasm. However agriculture is similar to other industries in that knowledge alone is not sufficient for success. Like those engaged in other kinds of business, farmers must have capital, in addition to knowledge and skill, and it is highly important that they obtain the capital they need on terms consistent with their credit.

What is being done to promote better farming, through education and the establishment of land-and-agricultural credit institutions, is due to the great importance of the industry, and not to any lack of intelligence on the part of the

farmers themselves. There is no more reason to assume that farmers are incapable of, or indifferent to, progress than there is to assume that bankers are deficient because they operate under a faulty and inadequate banking system. The farmers of the United States are the intellectual superiors of the farmers in any other country in the world, and, with equal facilities, they will set the pace in scientific agriculture. A superficial knowledge of agricultural conditions in the United States is all that is necessary to understand that the particular pressing need of American farmers is financial machinery whereby the potential credit that they possess in abundance can be made negotiable. There is in this country a serious lack of financial institutions suited to supply farmers with funds. In this respect the United States is the most backward of any of the important nations of the world, and, consequently, it is safe to say that this is the prime reason why this country is so far behind many other countries in the per-acre production of food-stuffs. The average yield of grain in the United States is about fifty per cent less than it is on the continent of Europe, and the average per acre yield of potatoes is not more than thirty per cent of what it is in Germany. The most striking and important difference between farming conditions here and in many European countries, is that there farmers can readily obtain the funds they need, whereas in this country agricultural financing is difficult and costly.

In its capital requirements, farming is not unlike other industries and it is like other industries in that unless these capital requirements are supplied, progress will be slow and dubious. Like the merchant and the manufacturer, the farmer needs funds: first, for the purchase of property and for its permanent improvement; and second, for temporary purposes, such as financing crops. These two general divisions of agricultural capital requirements should be preserved in the nature of loans that are made to secure funds.

Each of these two divisions can and should support its own credit, known respectively as land credit and agricultural credit. For the purpose of buying land and making permanent improvements, farmers should be able to make mortgage loans which have a long time to run, and which they can gradually repay by small yearly installments. Money invested in land or permanent improvements becomes fixed capital, and the proportion of a farmer's income that can be attributed to this sort of capital is so limited that it is illogical and unreasonable to expect the money so invested to be repaid except after a considerable period of years. The maximum length of a farm loan in this country is from three to five years, and, at the end of that time, it may or may not be possible to secure a renewal. As a rule, a farm-mortgage loan here has a very restricted market, and, consequently, the borrower frequently is obliged to pay an unreasonable rate of interest, and to submit to burdensome conditions from which the nature of the security he has to offer entitles him to be exempt.

Until some way is provided by which farm mortgages can be made the basis of a long-time security, with the marketable qualities of a railroad or industrial bond, and which can be sold at a price very nearly determined by the soundness of the security, the farmers of this country will continue to be burdened by the terms they must accept in making mortgage loans. That it is possible to create a security of this sort is shown by the success of the mortgage-loan companies and associations of foreign countries, whose obligations sell on a basis as favorable as that of bonds of the most successful railroad and industrial corporations. The farmers of the United States have as good a claim to cheap money as have railroad and industrial corporations, because farm land constitutes as good security as a railroad or factory. The marvelous and rapid development of the railroads of the country, to a very large extent, is due to the low cost at which they have been able to obtain vast sums of money for purposes