436 IOWA DEPARTMENT OF AGRICULTURE 



of my little talk tonight, the financing of the farmer. You cannot have all 

 these things I have been talking about without money, can you? You 

 cannot even buy a Ford automobile without money. You cannot build up 

 a system of sane marketing unless you have a system of credit peculiarly 

 adapted to the peculiar needs of agriculture. Listen! We have got two 

 systems of financing in this country at this time, — one the Federal Re- 

 serve System, devoting itself to commerce almost entirely, and the other 

 system which undertakes to care for the long-term credit needs of agri- 

 culture, the Farm Loan Act. 



The banking system, before it was supplanted by the Federal Reserve 

 Act, carried within its provisions no recognition of the needs of agri- 

 culture for a different kind of credit to that of commerce. The Federal 

 Reserve Act did, and does, in section 13 carry such a recognition of that 

 difference. The banking psychology, and the banking machinery, of the 

 United States has been built up to meet the needs of commerce. That 

 is, a piece of machinery which handles a short period-maturing paper. 

 Why? If you will take any first-class retail merchant down here in Des 

 Moines, you will find that he practically turns over his capital investment 

 once every sixty or ninety days, and therefore he needs his paper to ma- 

 ture every sixty or ninety days. And therefore a banking system built up 

 to meet the needs of commerce recognizes and is predicated upon a paper 

 maturing in sixty days, and that is what we have in the Federal Reserve 

 System. 



The banker himself, through long years of training, is averse to tying 

 up his capital in long-term paper, and for the very good reason that if a 

 banker tied up his capital stock and his surplus of $50,000 in farm mort- 

 gages maturing in five years, his bank would go into bankruptcy before 

 the first mortgage matured, unless he tried to run it without paying any- 

 body any salaries. The banker makes his money for his stockholders by 

 the quick turn-over of the bank's liquid assets, and he doesn't want, and 

 it is not good banking, to tie up his money in long-time paper. 



Now, section 13 did this. I was in on that game; I was one of a half 

 dozen men who drew that section, because I thought I had some little 

 appreciation of agriculture, and I think it has been of immense benefit 

 to the farmers, but it has not worked out just as I expected it would. 

 Section 13 says that a farmer's note, when secured by a warehouse re- 

 ceipt, with maturity of six months, may be rediscounted through the Fed- 

 eral Reserve System. That was a recognition for the first time in a na- 

 tional banking act that there was a fundamental difference between the 

 credit-needs of agriculture and the credit-needs of commerce; but the 

 diflaculty there, my friends, is this: 



First: Your period of maturity is not long enough. The turn-over pe- 

 riod of a farmer's capital investment is 365 days in the year; it is a 

 period of twelve months, and he therefore should have a paper with a 

 maturity-day certainly not less than twelve months. 



The other fundamental difficulty, my friends, is that your farmer's note 

 cannot be rediscounted through the Federal Reserve System except it is 

 agreeable to the local banker. He is the first fellow who takes the first 

 step. Let's not demagogue about this, my friends; we have no reason to 



