104 AGRICULTURAL DISCONTENT 



reality justified by its earning power, even in the years of prosperity. 

 Perhaps an occasional superior farmer might make his farm pay a reason- 

 able percentage on the investment, but the ordinary farmer did well to 

 realize as much as 3 per cent. As a matter of fact, to the great distress of 

 the small-town bankers and the farmers who had borrowed from them, 

 the Federal Reserve Board did reverse the policy of credit expansion that 

 had been standard during the war. In its sixth annual report the board 

 stated its new policy: "The expansion of credit set in motion by the war 

 must be checked. Credit must be brought under effective control and its 

 flow once more regulated and governed with careful regard to the eco- 

 nomic welfare of the country and the needs of its producing industries." 3 



Possibly the farmers might have staved off the worst effects of the 

 depression a little longer by additional borrowing, but with this alternative 

 denied them and with the cost of production up and prices down, great 

 numbers of them were obliged to dispose of their land. The high boom 

 prices of real estate came tumbling down. Many who were obliged to sell 

 realized only enough to pay their debts and came out of the ordeal as 

 tenants on the farms they once had owned. Others lost their farms through 

 bankruptcy proceedings. Those who were able to hold on to their land 

 found its value alarmingly diminished. Suppose, for example, a man had 

 purchased a farm for $20,000 during the last year of the boom, with a 

 mortgage of $10,000 on it. By 1928 his farm would have shrunk in value 

 to about $14,000, while the mortgage would probably have remained the 

 same. Thus the farmer's equity would have declined from $10,000 to 

 $4,000. And how could a $4,000 investment support a $10,000 mortgage? 36 



Naturally the collapse of land values fell with devastating effect upon 

 the small-town bankers who had put up the money to back the real estate 

 boom. Too many of these bankers had lent without discrimination, and 

 the so-called "frozen assets" on which they blamed their troubles were 

 in reality practically worthless. Often they had lent to individuals whom 

 they knew to be doubtful risks, and some of them had even ignored sound 

 banking policy by lending altogether too much money to a few favored 

 customers. The epidemic of bank failures began as early as 1920 and con- 

 tinued throughout the decade. The lowest number of such failures came 



35. Ibid., pp. 30-31. 



36. Blaek, Agricultural Reform, p. 17; Woodruff, Farm Mortgage Loans, p. 56. 



