954 READINGS IN RURAL ECONOMICS 



and have involved themselves and the manufacturers in ruin. 

 But though there is still room for improvement, the past ten years 

 have witnessed a revolution. While still willing to sell on time, 

 manufacturers have put their business on a higher plane. Their 

 rates of interest are the same as those of the local bank, and they 

 exercise greater care than formerly in granting credit and are 

 able to sell on time at practically cash prices. 



In factor's credit the loan is made not in supplies but in cash, 

 though the purpose for which it is to be used is rigidly prescribed. 

 In the South the cotton factor advances the farmer the money 

 for financing his crop, and the farmer contracts to plant a certain 

 number of acres of a certain crop, cotton for example, and to 

 sell his crop to the factor. In the North a live stock commission 

 firm advances money to the farmer for the purchase of live stock, 

 which he contracts to sell through the firm. This live stock is 

 usually lean cattle, but often it is breeding stock, and in this case 

 the debt may extend over a number of years and be gradually 

 paid off with the returns from the stock or herd. Such credit is 

 needed on account of the scarcity of local capital and because 

 in some cases the loan is of such a nature that the bank cannot 

 make it. Owing to the factor's special knowledge of the purpose 

 for which the loan is made and his ability to watch its applica- 

 tion, he can make the loan at less risk and at a lower rate than 

 the bank. 



The extent to which bank credit is used by American farmers 

 varies widely according to the economic development of the com- 

 munity. Where agricultural methods are well established and 

 climatic conditions are such as to preclude the probability of crop 

 failure the farmer enjoys practically the same credit advantages 

 as the merchant. This is due to the peculiarly favorable condi- 

 tions of American agriculture. Farms are comparatively large, 

 and therefore the loans are of sufficient size to make it worth 

 while for the banks to grant the accommodation. The farmers 

 and the bankers belong to the same social class ; indeed, the 

 bank is not uncommonly owned and operated by the farmers 

 themselves. Finally, our system of free banking has permitted 

 the establishment of banks wherever they could be made to pay. 



