Sec. 15. #Recent provisions for farm loans#.  The Federal Reserve Act made two important changes to improve agricultural credit.[7] Soon afterward some of the states took more vigorous action to provide a special system of agricultural credit, especially New York and Missouri.  In the latter state, on the initiative of a public-spirited citizen of St. Louis, was passed in 1915 a notable act of legislation known as the Gardner State Land Bank Act (effective December 1, 1916, provided a constitutional amendment is adopted in November, 1916).  This authorizes the establishment of a land bank, with power to lend on the security of farming lands, for buying farms and for productive improvements, and to issue bonds to be sold to investors.

Following this general plan the Federal Farm Loan Act became law July 17, 1916.  It authorized the establishment of twelve Federal Land Banks, each with a capital of not less than $750,000 to make loans through national farm loan associations organized somewhat after the model of the building and loan associations.  The bonds issued by these banks are to bear not to exceed 5 per cent interest.  It is hoped that they will have the high credit of municipal bonds so that they may be sold at parity, bearing interest at 4 or 4.5 per cent.  The loan is repaid by the farmers under a regular plan of amortization.  The practical results of these measures are yet to appear.  They are expected to give to loans that are made on the security of farms as wide a market and as high credit as state and municipal bonds now have.  They bid fair to bring the rate of interest on long-time loans to farmers down to 5 per cent or less in the remotest parts of the land.  This will stimulate agricultural improvement, and facilitate the purchase of land by tenants.  Where the interest rate has been the highest it should raise the value of farm lands as it brings them within the circle of a lower-interest-rate economy.  This may hasten the transfer of the lands from less provident to more provident owners, who are willing to take the land at a higher capitalization.  But the system of loans will probably help to develop greater thrift in the younger farming population.

[Footnote 1:  See Vol.  I, chs. 12 and 13 on proportionality and usance.]

[Footnote 2:  See ch. 25, secs. 4 and 5.]

[Footnote 3:  See above, ch. 19, secs. 13, 14, 15.]

[Footnote 4:  See above, sec. 3.]

[Footnote 5:  See ch. 8, sec. 8.]

[Footnote 6:  See Vol.  I, pp. 495-497, on the relation between lower interest rates and productive processes.]

[Footnote 7:  See ch. 9, sec. 7 on time deposits, and sec. 9 on farm loans.]

CHAPTER 27

THE RAILROAD PROBLEM