952 READINGS IN RURAL ECONOMICS 



Personal Indebtedness 



There has been no general investigation into the amount of 

 personal indebtedness of the American farmer. Holmes estimates 

 the total rural indebtedness to be $5,000,000,000, of which 

 $2,795,000,000 is real-estate credit and the rest is personal credit 

 distributed as follows: chattel mortgages, $700,000,000; liens 

 on crops other than cotton, $450,000,000; cotton crop liens, 

 $390,000,000; unsecured debts to local merchants, $250,000,000; 

 and other unsecured debts, $410,000,000. 



With regard to its source personal credit may be classified as : 

 (a) merchant's credit, including store credit, dealer's credit and 

 factor's credit ; (b) bank credit. 



The practice among storekeepers of selling to farmers goods 

 to be paid for after the harvest is almost as universal as agricul- 

 ture itself. It is less prevalent in regions of diversified farming, 

 where the farmer, from the sale of eggs, poultry, milk, etc., has 

 a weekly income available for ordinary household expenses. But 

 where this is not the case, store credit flourishes even if banking 

 facilities are good. This is due partly to the convenience of the 

 system, partly to the failure of farmers to realize that in paying 

 the "credit prices" of the storekeeper they are paying him a rate 

 of interest higher than they would have to pay the bank and 

 partly to the fact that the storekeeper can give credit to farmers 

 who would be unable to obtain it from the bank. The amount 

 of this ordinary store credit cannot be estimated ; although on 

 the whole it has declined in this country, it is still enormous. 



There exists, however, in the South, a far more important form 

 of store credit. The local merchant not only gives credit for the 

 ordinary family supplies but in reality finances the growing crop 

 contracting to make a definite loan to be taken in commodities. 

 If the farmer is an owner or a responsible tenant, the merchant 

 makes the loan directly and may take a mortgage on the crop. 

 He may even prescribe the kind of crop to be grown, lay down 

 general rules for its cultivation, supervise it in every stage of its 

 growth and insist on its sale to him when harvested. But other- 

 wise the loan is made through the landlord, who assumes the 



