Agricultural Co-operation
ond Co-operative Tn ~
rural bankino-^ ' n
irnsi) AY EVRN'ING, SEPTEMBER 1, 1914
The Credit Foncier - Our
Fanr.srs Need System-
' French System Best-De-
bentures in Demand-The
Com mission's Studies-
Money for Crop Moving-
Borrcwing from Banks.
Pari®.
^WjMIERK la Paris and there la
I £ France. With many the con
fuhc'I Idea persist* that Parla is
all of France that counts for
aaptfcing Hut that la not ao. Parla
la neither all France nor, fortunately
f«w Ibe Republic, Is all France, Paris,
j I'twds may be the head and a rather
apoplectic head It la. which would not
no well were It not for the sound
Of the provinces, kept lean and
■merwlar with toll, and healthy with
tfertft and, in the peculiar French way
aharinence. Aa It la with all nations
the atrength of Prance reats In the
j*«xan;ry upon the soil. They work,
lit** save, and they utilize. Was there
ever a person who could utilize the
miuv-ly useless like the I
am? It Is the peculiar genius of the
Faenrtt people that whatever they do,
they do better than anyone else. And
•  even on the farms they are artists
luily produces a good grade of wine,
' but practically the only Italian wine
that y..t> will see In export trade Is j
tfcat which has been bought by the |
tV«r.rfo. "prep: rod" for* the market, |
anS r  oM, Wbdhar li ■>« straw and
r.kStifi fur lint mak11 ; or grnpos fr r
w.iw tnaMliig, It Is not wlirit the
(ti Ins ti> work with, but his
axrthoda that enable him to cxcell In
production.
It la not Blmnite. when these fncts
are considered, that the French should
ha*. wrung suih wealth out of their
soli It Is not the fertility of the
j Fre«ch land nor the climate so much
I that drives France its agricultural '
woallh as it is the talent of llie French
furroera to make that land produce
the utmost In quantity and quality
wtiloh Is possible. There Is net the
.apply of labor In the United States
te make It possible to copy the French
asetkods of Intensive cultivation which
to profitable only for the most costly
arwpa Such cultivation has Its severe
drawbacks ulnce It divides the earn-
ings among rm.ny workers and though
the profits taken out of a single acre
ef bind In some parts of France arc
lutie short of astounding to American
minds, still none would wish to see
rural America made rural France
, and the women and children placed at
werk In the fields.
j But the methodj employed by the
| French to lure to ;he farmers the vast
•tuna of money necessary to the de-
, v<*«>pment of farms where such In
i t.-aalve cultivation Is to be practiced
a lesson or tho Kreatest value ;o
. Aiefc'ecn larmera. The French pos
«W Ms most h ghly perfected flnan-
j Jlnl r.l > r.o to serve their landowners
I In i.., j I, !, the Cre(1|t p()Ilr|(.r
' * «conomlcally Is this
tiMksiiv' land bank conducted that It
!• abl. to ,«y a profit to its stock hold
•W nmrj.nt to keei Its stock well
above par on margin of profit of
Only 4 rer cent. Less than one half
tf an* hundredth and still a satlsfao-
I lory profl, |s tt v.n. Moreover much
, of Irs business (loans made to munlci
pal'tlesi is conducted on even a small-
sr tn*j«:n.
) Th. Hermans wero the first people
le systematize ihe sale of their farm
mortgnues so that a collective secur
Ity of the value of many farms was
' placed bark of each mortgage Instead
ef the value of s single farm as is done
• veu now In the United Stales. The
, French Credit Foncler la copied in
, principle from the (jcrman system, but
j radical changes In organization ana
practice were made.
Typical Fblmch Farm
u!Am"WIth Load QfHaY"
£1k.
Built by TheJkpmans
IN TfjE,_5E,cc2isrD
UPT
*
CONCARNGAy PEAS ANT Y/OMELN, WkrCHTNCj-TtlE. CATlEGfl
could obtain for themselves. Although
It would perhaps not bo just to direct-
ly contrast Interest rates In Europe
with Interest rates In the. United
States, some Idea of the saving effect-
ed to landowners by the Fr
Km might be a
between the Inte
would have to make upon
the loan would be commensurate with
the Increase in his Income which the
Improvement or enlargement of his
farm would bring him. He would
ays- faco no danger of foreclosure so long
n in the difference | as he made -la small annual payments
at rates today paid j and kept his farm up. He would not
by French farmers. 4.3 per cent., with I be bothered rinding persons every
that paid by American farmers, from three or five years
• In brief the Credit Foncler of
• France la an tssoclatlon or company
« of private stockholders which lends
j money to landowners on mortgage and
j Imki bond* based upon those mort
• to secure the money for the
landowners. Thus no money la loaned
«.n an Individual mortgage In Prance.
h*:« th«  Investor buys Instead a bond
• or debenture of tho land bank. The
I OM*cy paid for this bond Is loaned
| t<  a landowner on a mortgage given
j *+ the land bank. A slightly higher
kitore t roto is charged the landowner
th&fl Ls paid on tho bond and this con
■lituus tho profit of tho bank. As
a.mpie as this practice sounds, the
I benefits which it brings to the French
| landowners are almost Incalculable
whew contrasted with the method of
borrowing on an Individual mortgage
as practised by American farm era.
The market commanded by an indl-
j rldual mortgage l« limited to those
■ persoa* who are able to Judge of the
j valut of the land on which ihe mort
gage is Issued. The market com-
manded by a bond of the Credit
FoncJer la aa broad aa the reputa-
tion of the company. And since the
Credit Foncler has a capital of $40.
00®,000 and haa been successfully op
I erated without losses to bondholders
Since 1151, Its reputation Is Interna-
! tlonal. The wlaor the market obtain-
able for a security the lower the In-
terest rotes which muat be paid upon
It. Thua the Intereat rates at which
the bonda of the Credit Foncler aeli
are far lower than are the rates of any
J private mortgage Moreover the com-
i panr can take Its profit out of the
traoaactlon and still loan the money to
1 farmer* at far lower rates than they
6 to 9 per
Beyond this, the Credit Foncler ex-
arts no commissions on loans. The
money loaned to the farmers Is not
tho company's but tho bond holders'
and as long as the bond runs the
farmer Is welcome to his money. In
eontrast to this the American farmer
on his mortgage can only get his
money for from 3 to 6 years. At the
end of that time he must pay from
2 to 3 per cent, for a renewal and
he Is liable to have his Interest rate
raised or to have his loan foreclosed.
Again the American farmer Is ob-
liged to repay the entire principal of
his loan at the expiration of the term.
The French farmer pays a fixed sum
each year, a part of which payment
goes for Interest on the loan and the
remainder towards paying back the
principal. As^the payment each year
Is the same and as the principal of
the loan Is reduced each year, the in-
terest payments are constartfly de-
creasing also and the farmer In th's
way gradually repays the loan with-
out ever having to make a lump pay-
ment. For Instance, a French farmer
borrowing money for 25 years at 4.3.
pays each year 6.6 per cent. At the
end of the twenty five years he would
be out of debt a*nd his payment for
who wero willing
to renew his loan. He would not have
to pay renewal commissions and he
would be sure that the Interest rate
which he secured at the beginning of
the loan would not bo raised on hltn
the minute that money became scarce.
Finally, and most comforting of all
to the farmer, he would know that
the last year of the loan would carry
him out of debt without his having
to Impover.sh himself paying back
the whole principal of his loan In one
lump.
• • •
Would not American farmers. If
loans on such terms were offered them,
be glad to borrow to Improve their
farms? Would 1* not be profitable for
farmers to buy up the abandoned
farms of the East which only need
Improvement, albeit costly Improve-
ment. to make them as good as any
other land? Would It not be profit-
able for farmers to place under cul-
tivation thv. unused lands of parts of
tho West, which are good lands but
which likewise require costly Improve-
ments to make them productive?
Consider the thousands of acres of
rich and productive land opened up
to farmers by the Irrigation project*
of tho Government. The farmers
never would have attempted to 1m-
TSCPZ. UF rREJNICti
tfeASAMTWOMENAl©
.gRETDNVrLLAQE.
the twenty fifth year would be th* I prove such lands If they had had to
same as that for tho first year. Wltll depend upon funds borrowed on prlv-
th« American farmer, the Interest of i ate m(,rtgages. There are thousands
6 per cent, would have to be paid each 0f other cres of land lying idle today
year and at the end of the loan he | simply because It requires too much
would have to pay tho entire 100 pet i money to put them into condition and
cent. In a lump aum. Now statistics | because the terms under which that
ge America.) j money would have to be borrowed
12 years, are loo burdensome. The American
American | consumer has a direct Interest In this
.ears subject since statistics show that the
pay- j increase in prices of foodstuffs is at
farm
for
that the av
mortgage run
Suppoae then that the
farmer had Ills loan for 12
at 6 per cent. His entire
ments without commissions would | least roughly in proportion to the
amount to 17- per -ent. The entire j supply and demand. The demand of
French farmer to all foodstuffs In the United States Is
'><>r ct'nl *n addition to this the increasing much faster than the supply
American tarmer would have to pa> j Und no matter how much artificial
per cent In renewal j profit the middlemen may be taking
ut of the sales of foodstuffs, an in-
from
charges; would be liable to foreclosure
and would, have to scrape and stint
himself to get together the 100 per
cent to meet the principal.
That is a comparison between the
French mortgage system and the
American, made purposely plain and
without embroidery. The advantages
brought to the French farmers by thla
financial machine which constantly
pumps a stream of money from the
great urban money markets Into the
farms, was readily apparent to the
members of the American Commission
on Agricultural Co-operation. In their
own country the mortgage was a can-
cer on the farm; a debt contracted
only to tide over bad times; one
to be avoided as long as possible and
paid ofT as quickly ~s possible when
It was necessary to resort to It. Hut
In Francs the Commission found the
mortgage looked upon as a means to
assist farmers to a fuller development
of their farma Wherever a farmer
saw a way to spend a sum of money
In bettering his land, fertilising It.
draining It. Irrigating It. adding more
acres to It perhaps, he would borrow
on bis mortgage knowing that the pay-
creased supply that could keep pace
with or pass the demand would lower
prices or at least prevent further In-
creases which otherwise will be bound
to come.
Although the Intensive cultivation
practised In France is out of the ques-
tion aa far as American farmers are
concerned. It would be profitable and
practicable for American farmers to
dewlop their lands to the highest
point of productivity and to employ
in their farming the most Improved
types of farm machinery and the
most scientific methoda In other
words, there Is room for great Im-
provement In the plants or food fac-
tories of the American farmera Those
Improvements will be made If the
farmers can secure the money to do
It upon favorable terms.
Increasing the number of acres un-
der cultivation; Increasing the produc-
tion per acre of the land now under
cultivation; an<* lowering the cost of
production to the farmer: these three
things could be done by extending to
the farmers ideal credit facilities and
these three things would bqIw Uw
problem of the high cost of living at
least in so far as It Is a question of
food production and not a question
either of middleman's control or the
cost of high living.
• • •
There are many reasons for believ-
ing that the Credit Foncler of France
is a better model for an American
Institution than the German Institu-
tions. In the first place the history of
farm mortgages In the United States
has been such that at the outset
would be necessary to have an Institu-
tion back of American land mortgage
bonds of as great strength as possible.
The stronger that institution, the
wider the market obtainable for the
sal© of the bonds and the lower the
rates of Interest at which the money
could be obtained for the farmers
The German mortgage Institutions are
all provincial organizations except
their mortgage banks which are
copied directly from the Credit Fon-
cler. Most of the German mortgage
Institutions are co-operative associa-
tions and It Is not practicable to or-
ganize a co-operative association de-
pendant upon representative manage-
ment over r.n entire country, even over
a country the size of Germany. It
would probably prove even more Im-
practicable In the United States. A
provincial or state market for German
land bonds Is perhaps sufficient but
in the United States where Interest
rates are so generally high and where
the rate varies so greatly between
the states. It would be necessary to
command at last a national and pre-
ferably an International market. This
could only be done by a national mort-
gage bank. Whatever danger there
might be of private monopoly of the
mortgage business could be prevented
at the outset by Government super-
vision and control. The Credit Foncler
Is operated under strict government
control and It Is forbidden to charge
farmers on their loans more than .<>
per cent over the price which It pays
for the money Itself. As a matter .i|
fact, the Credit Foncler only charges
them .4 per cent over their own rate.
Thus the Interests of the farmers are
absolutely protected.
the Bank of France. Of the profits
of the bank, a 5 per cent dividend is
first paid to stockholders and then
from 5 to 20 per cent is carried over
Into reserve until the reserve shall
equal .at least one-half of the capital
The board of directors controls the In-
vestment of the reserve. These severe
restrictions upon the investment of the
funds of the bank, coupled with the
government control exercised. Insures
conservative management and pre-
vents all likelihood of investing the
surplus funds merely to personally
profit the directors as was done at
one time in the big life Insurance
companies of the United States. As
a result tho debentures of the Credit
Foncler enjoy the highest possible rep-
utation, as high or, perhaps, a little
higher, than that enjoyed by the se-
curities of the Go/ernment. It is
this reputation which creates the enor-
mous demand for them and which ac-
counts for the fact <hat an Issue of
$100,000,000 of debentures at the low
Interest rate of 3 per cent In 1912
was oversubscribed eighteen times.
When an attempt is made to establish
a mortgage banking system In the
United States, every effort should be
made to secure as sound a reputation
for the debentures of the bank as has
been .done in France. Government
supervision should be solicited and
the management should be conducted
on as conservative lines as though the
rtputatlon of the Government Itself
was at stake. Only In this way will
a market ever be created for the sa^e
of American mortgage debentures
abroad and the farmers of the United
States should have an opening Into
the cheapest money markets, not only
of the United States, but of the world.
The administrative affairs of the
Credit Foncler are handled by a gov-
ernor. two sub-governors, and a board
of directors. The governor and sub-
governors are all appointed by the
President of France and there must
be at least three high government
officials upon the board of directors.
The entire organization Is placed under
the direct supervision of the French
Ministry of Finance. This shows the
complete control which the govern-
ment exercises over the affairs of the
bank. Moreover the Credit Foncler is
required to Invest one-fourth of Its
capital in French government secur-
ities and one-fourth In buildings of
the society, government securities de-
posited with the Bank of France or
in loans to French colonies. The sur-
plus may be invested In similar way*
or used In the mortgage business of
the bank or for the purchase of high
ffrade commercial paper acceptable to
The problem of establishing a mort-
gage system over so large a territory
as the United States will present many
new problems. It Is probable that
state Institutions will have to be or-
ganized and such state Institutions
might either be copied after the Ger-
man co-operative organizations or af-
ter the German :and banks. If or-
ganized along so^ind and conservative
lines such state Institutions could very
probably command a good market for
their own debentures and the national
land bank would have to be relied
upon only to dlspo: j of such surplus
as It was desirable to place In the
national or International market. The
national organization could be started
and could extend Its benefits to the
farmers of t ery state at first. Then
as slate Institutions were organised
either by the farmers themselves or
by private companies, the national
land bank could retire to the secon-
dary business of buying the debentures
of the state Institutions and guaran
teeing them or reissuing national land
debentures based upon them for sale
In the International market The ques-
tion of whether co-operative or prlv
ately owned land banks should be
formed In the States would probably
take care of Itself. Since the co-op-
erative organisations operate without
a view to making a profit, they could
probably outbid any private company
If their organisation was sound and
they were properly conducted. There-
fore. wherever practicable, the co-
operative form of land bank would
undoubtedly be the one to survtre. On
the other hand. In states where for any
reason the farmers were disinclined
to <orm such ao organisation U>e priv-
ate land banks could be relied upon
or the national land bank could care
for that particular locality.
From the study which the American
Commission Is making of these mort-
gage systems several things are ap-
parent In the first place It will be
necessary to secure comparatively uni-
form legislation in all of the states
controlling these mortgage institutions.
It Is not necessary that the Institutions
of the different states should be alike
in every detail, but the control ex-
ercised over them by the state gov-
ernments. £ 1 the value represented
by their debentures should bethesame.
In other words when an Investor is
tj buy a state mortgage debenture
he should feel equally safe In buy-
ing one of an Institution In Oregon
or In New York or Florida. If this
is not done, the Investors will have
to familiarize themselves with the dif-
ferent debentures of forty-eight states
and indescribable confusion will result
that will destroy the market for the
bonds. The Influence of a national
land bank could help In this question
materially since it could agree to ac-
cept only the debentures of those
states which conformed to certain safe
regulations In the control of their
mortgage Institutions. In thla way
any state which did not have proper
laws would be denied an International
market and would receive some
mighty bad advertising In the bargali
Also some of the state legislation
affecting the rights of mortgagors to
redeem their property a certain length
of time after action has been taken
against them would have to be re-
formed. No land mortgage Institution
can successfully conduct Its business
If It Is to be hampered by such laws.
The Credit Foncler and the Oerman
Landschaften are given the right to
proceed summarily against landowners
who violate their contracta. This does
not In reality work any hardship
against farmers. As things stand now
the American farmer Is liable to fore-
closure at any time that he falls to
renew his mortgage or to meet a pay-
ment of the entire principal. Under
the system proposed, such foreclosure
would be eliminated entirely. A farm-
er would only have to meet his small
annual payments and he would be
safe forever from foreclosure. Only
in the event that he allowed his farm
through neglect or bad management to
ao decline In value that It ceased to
offer adequate security for the loan
could the mortgage bank proceed
against him. It Is only fair to the
company that since this latitude Is
ah°"lHdk th<> 'ttrmer' <h« company
should have the right when it Is nec-
essary to dispossess a mortgagor to
do so without the "law's delays." This
privilege has been given the mortgage
Institutions of all of the European
countries and the farmers have not
suffered but. on the contrary, have
been Infinitely safer In the possession
of their land than are the American
farmera under the system prevailing
In the United States today.
Such 1s the system that has helped
the Frenc 'armers to the extraor-
dinary development of their lands
which Is the secret of the wealth of
France today. The need (or some
such system In the United States Is
evident. It would be of benefit to
the farmers, to the consumers, to the
nation at large. There Is no theory
In the undertaking. All that 1s needed
la adequate legislation, proper organ-
isation. and the popular support of
the American people.
e e e
In tha fall of every year we wit-
ness the spectacle of the west clam
orias far fundi to mors the erupt
TRENCH P.E ASANT^"WbjyiAtfi
"With Donke.y Cart
jvRQM ifcoRT Near. StJ eai*
DIAFtQEXsr
and New York brokers blddlof
against this demand In order to kaep
the wheels moving In Wall flU-eot*
With this double demand aad aa is*
elastic currency, money at once
comes tight and if the banks feappes
to be In a weaker condition thus
usual, which happens often, a paol4
Is apt to result, with a wholaaaj*
suspension of payments such aa oom
curred in the fall of 1907. Leuvln#
aside the question of how nearly
reform of the currency system, wltll
a change In the present system of
bankers' deposits, would remedy thlg
evil, there Is a lesson for farmery
considering the adaptability of a
operative credit system to the United
| States, In this seasonal demand I of
money.
The principal source of capital fof
the rural co-operative societies, would
be the deposits of the members and
non-members of the community
served. However, at first and at
Umes thereafter, the local societies
I would be obliged, to borrow In order
to meet a special demand for funds,
I Agriculture Is by no means ao steady
in Its financial demands as are tha
other Industries. Most of ths money
Is demanded at one or two seasons
of the year, and most of the profits
are realized by farmers at one time.
Thus the local banks at certain sea-
sons of the year would face unusual
demands, and at others would be bur-
dened with an unwiedly surplusagb
of funds from repayments and tem-
porarily Increased deposit* It Is as
necessary to provide for these tem-
porarily Increased demands as it Is
to dispose profitably of the surptu«
sage of money. M
• • •
If we had a co-operative credit w+*
clety In Florida and another In New
York and still another in Kansas
although each of these societies
would In turn suffer from llrst aa
excessive demand and then ao ex-
cess of deposits, no two of theesi
would feel the excessive demand ei>
supply at the same time of yeaur.
Thus the Florida society after tha
products of Its members had bee®
mar! eted could probably, und very
profitably, lend Its surplus funds te
the Kansas or New York societies^
the members of which would not feel
the need of extra funds until soma
time after the Florida farmers h-i4
realized on their crops. Carrying this
idea a step further these three socie-
ties could organize a central bank in
which their surplus funds at certain
seasons of the year could be depos-
ited, and from which they could draw
money when the demand In their *e j-
tlon of the country waa at Its height.
It has been pointed out thai a h -
cal society could expect to burroWf
from an outside bank or from third]
parties more easily and at better)
rates than the individual farmer. Ob-1
viously It would be as much easier;
for such a central bank as has been )
outlined to borrow from the outalda i
In comparison with the local society,
as It would be for tho local society/
In with the Individual. Theae local;
banks could be depended upon to se*
cure all funds needed over and abov*
the deposits secured by tbe toc&A
banks.
In any system established In fite
United States the area of operations
of a central bank would probably be .
a state. For many reasons la Ger-
many there are frequently found two
central banks operating In the same
territory although no two banks serve
the same society. There does not
seem to be any sufficient reason, how-
ever, for such a duplication in a
newly established system. Variations
in type among the local societies doea
not demand separate central Institu-
tion* The Ralffelsen system In Oer-
many. It must be remembered, was
well on Its way before the other so-
cieties began to appear In sufficient
numbers to warrant ths establish*
ment of central Institution* Tha
Oerman Agricultural Central Loan
Bank was established by Ralffelsen
before the Imperial Co-operatlva
Bank had existence and RaUTetsea
accepted as members of his central
Institution only these societies ex-
cepting hts creed throughout.
It la probabl. that In an American
•yatem. th. difference lo type sf tha
local societies would be by stales or
by eectlons if tndeed there must b.
euch difference. There might be for
natance, aocletlea ef low share cap-
ital and unlimited liability la tha
South and Socletlee ef limited ilabu
ity and large share cap tal In other
eeciione of the country |n so largo
country „ch Cfmril| tMLOk
ould probably hav. to be an i„d„. ,
pendent inetltutlon and these |„ ,urft j
"opport an "equalising" t mtrn
central bank, probably I