AGRICULTURAL FINANCE 33 



remainder, 5 had personalities or connections other than farming which made it 

 impossible to classify them, and the other 14 were undesirable risks. 



On further classifying those with a satisfactory credit rating, 5 appeared to 

 be seeking either a too rapid or an unjustified expansion ; 8 were just getting started 

 or had started an expansion which they needed to consolidate before going further; 

 14 could get credit and either were arranging for it or were reluctant to borrow; 

 and 3 needed some education on how to get good credit. 



Those who were undesirable credit risks included 3 Farm Security Administra- 

 tion borrowers; one who was applying for a F. S. A. loan; 3 Personal Finance 

 Company borrowers. The rest were poor managers or had low grade farms. 



In no case was it felt that after approaching the proper agency would any of 

 these farmers hav^ been refused credit for a reasonable farm loan. Some felt that 

 they could expand more or faster than a loaning agency would advance funds, but 

 an examination of the businesses would seem to warrant refusal of a loan. Some 

 of those who could borrow only from the Farm Security Administration at a 

 reasonable rate of interest might have rebelled at supervision. However, it is a 

 credit principle that the greater the risk the greater must be the supervision of 

 the loan. Those who warranted F. S. A. loans needed supervision. 



Another aspect of the adequacy of credit is the actual cost to the borrower. 

 This calls for interpretation, since no reliable figures on actual cost'" were 

 obtained. It is estimated that about half of those who borrowed money were 

 paying more than was necessary. High cost of credit was least widespread in 

 the field of real estate mortgages. The main reason for much of this high cost 

 credit was an inherent willingness to pay for convenience. Installment buying, 

 with purchasing and financing residing in one person, along with open-book credit 

 accounted for most of the high cost loans. However, opportunity exists to all to 

 obtain all the necessary credit at reasonable rates. On the other hand, unless a 

 much more stringent Government program of regulation and examination of all 

 credit extended is instituted, high cost credit will continue to exist. 



One aspect of the adequacy of credit which also needs attention is the ultimate 

 goal of that credit. Thus far sufficient volume and low cost have received all the 

 attention. If this becomes the only goal the result may be too much credit, which 

 jeopardizes all borrowers. In Quershi's book, "Agricultural Credit," Joseph 

 Johnston makes the following comment in the introduction: 



The fundamental defect of American agricultural credit policy in the post- 

 War years was that it was an effort to finance the continued production of a 

 volume of agricultural goods which, owing to various causes, could not possibly 

 achieve complete consumption in markets at home or abroad. If America had 

 pursued a commercial policy less exclusive of European industrial products in 

 the years following 1928, it is possible that we should have heard less of the 

 "uneconomic surpluses" of American wheat and cotton in the years following 

 1930. 



A similar principle might be applied to Massachusetts agriculture. In times 

 when there is an abnormal surplus of milk in some markets, it might be well to 

 consider curtailment of production through curtailing credit. In periods of war 

 or of food scarcity, the continuation of many people in agriculture through ample 



^"The reasons for not obtaining cost figures were: (1) Credit cost is not just a matter of interest 

 rates on money. The total cost of credit may include incidental expenses, such as inspection fees, 

 insurance policies, registration fees, search fees, and higher prices because of a credit sale. Other 

 things which increase credit costs above stated interest rates are loan discounting, installment 

 repayment where interest is charged on the full amount for the entire period, penalty charges for 

 late payments, loan renewal charges, etc. (2) Closely connected with the fact that incidentals 

 increase credit cost is the farmer's inability to remember and in some cases his complete unaware- 

 ness of credit costs which he is bearing. 



