XIII 

 INTEREST ON FARM LOANS 



Introduction 



We have already noted (chapter v) the part played by capital- 

 goods in the productive process. The demand for capital with which 

 to equip American agriculture has grown constantly and with tre- 

 mendous rapidity, owing first to the enormous geographical expansion 

 of our agricultural domain and secondly to recent improvements in 

 the technique of the industry. What supply this demand shall equate 

 itself with depends, as Professor Ely points out, upon the willingness 

 of the people to forego the consumption of all that they produce and 

 save some portion of their income for further production. It was 

 pointed out in the chapter on consumption that rural populations 

 have, in general, shown no lack of foresight or willingness to make the 

 sacrifices necessary to such capital accumulations. But it is equally 

 evident that the capital accumulated by the agricultural population 

 needs to be supplemented by loan funds saved from the wages and 

 profits of city employment. Probably the marginal saver is the 

 factory hand who is just persuaded by skilful solicitation to put a 

 dollar or two from each week's pay into the savings bank or pay it 

 as the weekly premium on an industrial life insurance policy. 



But we must not forget that the price of capital use is like all 

 prices in that it has two aspects, one the producer's price and the 

 other the price that the consumer pays. If the factory laborer was 

 induced to make his saving for a reward of 3 per cent and the 

 ultimate user of that dollar pays at the rate of 9 per cent, it is 

 evident that a high middleman's charge has intervened and that 

 actual abstinence is being rewarded only with a "thirty-five cent 

 dollar." Section B of this chapter should be read in connection 

 with the chapter which follows, for it is in this question of the 

 middleman cost of loans that many of the difficulties in our rural 

 credits problem arise. 



Likewise we should bear in mind that suppliers and demanders of 

 loans do not meet and compete in one great single money market, but 

 that the circumstances of their bargaining are more or less separated 



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