956 READINGS IN Rl'RAL ECONOMICS 



disposal of the banks through current-account deposits. Since, 

 therefore, as the banker would say, the merchant is borrowing 

 his own money, he is entitled to a somewhat lower rate than the 

 farmer. In a community mainly agricultural the large amount of 

 interest paid oh time deposits imposes a heavy burden on the 

 banks. In the South and in the newer states of the West, time 

 deposits usually bring 5 per cent and often 6 per cent interest, 

 and as long as such rates must be paid to attract and hold free 

 capital in the community, just so long must the bank's borrowers 

 feel the burden of high interest rates. Finally, since the credit 

 demands of the farmer are not evenly distributed throughout the 

 year, the bank often has idle money which it must invest in 

 short-term commercial paper at a rate lower than that charged 

 the farmer for his loan. This is not, however, as is often stated, 

 discrimination against the farmer, for if the bank did not invest 

 in such paper, he would have to pay a still higher rate for his loan. 



II. PROPOSALS FOR REFORM 



For some years the sentiment has been growing, that agricul- 

 tural-credit facilities in this country are inadequate, that rates 

 are too high and that in general credit institutions discriminate 

 against the farmer, who has to get along with unorganized credit 

 and endure the attendant evils. As remedies, there are suggested 

 the formation of cooperative unions for the supply of personal 

 credit and the creation of land-mortgage banks, the funds of 

 which shall be obtained through the issue of debenture bonds. 

 Certain states have taken the initiative in this reform by the 

 removal of the restrictions on the formation of cooperative credit 

 unions or by holding out special inducements for the creation of 

 mortgage institutions. During the last two years the question of 

 agricultural credit has claimed the attention of the Federal Gov- 

 ernment, which, in cooperation with the Southern Commercial 

 Congress, sent a commission to Europe in the spring of 1913 

 to make a first-hand investigation of agricultural-credit conditions. 



