THE FEDERAL RESERVE SYSTEM AND AGRICULTURE 183 



Again, " cheap money means dear land," just as "dear money" 

 has' meant " cheap land" in the West. The Act will therefore tend 

 to raise land values. If therefore the Act was designed to help the 

 landless man and the tenant get a farm with cheap money, and the 

 farm land becomes high in price because of the Act, it clearly 

 defeats its own end. But such is the paradox of cheap money. 



As originally passed, the Act permitted one borrower to bor- 

 row but ten thousand dollars. With such a small sum, a prosperous 

 farmer could not, of course, buy out many weak neighbors. But 

 already the " large farmers" are asking to have the loan limit 

 changed to $25,000. This change would facilitate the concentra- 

 tion of land ownership in the hands of those who are prosperous 

 and successful as landowners. In fact one is tempted to ask the 

 brutal question: Is it possible or desirable to prevent, by legisla- 

 tion, the workings of the law of the survival of the fittest? 



The Life Insurance Companies. The four chief sources of loans 

 on farm mortgages, before the establishment of the Federal Land 

 Banks, were life insurance companies, banks, mortgage companies, 

 and private lenders. The Farm Loan Act forced the insurance 

 companies to meet a new form of competition, namely, lower 

 interest rates and long-term, amortization-plan loans. The insur- 

 ance companies promptly met this competition, and even, in some 

 cases, offered better terms than the Federal Land Banks could. 

 The insurance companies offered two distinct advantages: (1) 

 loans secured direct from the company without joining any asso- 

 ciation; (2) money loanable on second mortgages as well as first 

 mortgages. The public has the benefit of testing the two systems, 

 side by side. 



The Federal Reserve System and Agriculture. The long 

 campaign for reforms in our commercial banking system finally 

 produced our Federal Reserve Bank Act. This act, with its later 

 amendments, provided for an elastic currency based on commercial 

 assets, and for the pooling and mobilizing of bank reserves. All 

 national banks must and all State banks may join the Federal 

 Reserve system. Under this act, for the first time, national banks 

 are permitted to loan money on farm mortgages. However, what 

 is doubtless far more important to agriculture is the provision 

 for short-time agricultural credit. Ordinary commercial borrowers 

 limit their loans to a period of three months. Whereas the farmer 

 is permitted to borrow for six months. Under this act there is 

 now developing that form of commercial paper known as the 

 Trade Acceptance. 



