SETTLEMENT AND COLONIZATION IN GREAT LAKES STATES 47 
The general practice with reference to capital and credit on new 
farms in the cut-over region, as revealed by the survey, may be sum- 
marized as follows: The settlers ordinarily bring enough cash with 
them to support them most of the first year. For the next few years 
they earn most of their living at outside work. Gradually, however, 
the crop and livestock receipts increase to the point where it is no 
longer necessary to work out. All this time the settler is slowly in- 
creasing the net value of his inventory other than the increase which 
is due merely to the rise in the level of land valuation. Much of this 
rise represents labor at land clearing and the natural increase of live- 
stock. But a considerable part of it is borrowed by the settler, so 
that his debt is constantly increasing, at least for five to eight years. 
The basis of security for his loans is the increase in the valuation of 
his land due in turn largely to his land clearing. 
These facts make it clear why land-settlement enterprises in the 
Lakes States had been compelled to rely so largely on the increase 
in the valuation of land after settlement as a basis for exchanging — 
mortgages against the settlers’ indebtedness to the company. This 
had been the principal means of making the company’s capital re- 
volve. It must be remembered, however, that to whatever extent 
the companies had succeeded in getting their capital out by writing 
mortgages against these increased valuations and selling them to 
others, they had merely shifted the “holding of the bag.” The in- 
debtedness still remained. If the values should shrink, as they prob- 
ably have since the date of the field surveys, the new creditors would 
find the margin of security shrinking, with the additional legal dis- 
advantage that they are holders of mortgages instead of land con- 
tracts. 
Increase in valuation due to clearing and to the settlement of the 
community is a normal increase and may be counted upon under 
ordinary conditions in formulating a financial plan of land settle- 
ment, but an increase due to the general rise in the value of raw 
land is a temporary favorable circumstance that may cease to exist 
and can not safely be counted on as the basis of a plan of land settle- 
ment. Indeed, a falling level of prices for land may tend to affect 
somewhat the normal increase in valuation justified by clearing and 
improvement. | 
CREDIT POLICIES 
In actual credit policies there are two major alternatives: (1) To 
sell land only to prospects needing no credit that they can not ob- 
tain for themselves from local banks or elsewhere; (2) to sell to 
prospects of inadequate means and provide them with the necessary 
capital. 
The difficulty with the first alternative is in its application. Very 
few companies can be trusted to see to it that the settler has ade- 
quate means. As a matter of fact, it is a hard policy to apply. 
There are many prospects who, with inadequate means and without 
financial aid, will succeed as settlers. It is still possible to start 
with only a few dollars and win a farm in the cut-over region; but 
it will take a long time, and all of the capital needed to make a be- 
ginning, build the house and start land clearing will have to be 
earned elsewhere. Once the settler has moved onto the holding with 
his family, he will have to work out most of the year to support them. 
