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HOW EUROPEAN AGRICULTURE IS FINANCED 
 
 Bl Pbofbssoe H. C. PRICE 
 
 Reprinted from the Popular Science Monthly, March, 1913. 
 
§| Cornell University 
 9 Library 
 
 The original of this book is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924013766377 
 
[Reprinted from The Popular Science Monthly, March, 1913.] 
 
 HOW EUROPEAN AGRICULTURE IS FINANCED 
 
 By Phofissob H. C. PRICE 
 
 THB OHIO STATE UNIVBKSITY 
 
 THE American farmer is ahead of the European in many things, 
 particularly in the use of labor-saving machinery. But in the 
 application of business principles in their financial operations, the 
 European farmers have perfected systems that are in advance of any- 
 thing yet attempted in America. This has been largely brought about 
 by the force of circumstances necessitating an economic transformation. 
 During the last century the competition of new countries with immense 
 areas of virgin soil flooded the European markets with agricultural 
 products and forced the European farmers to reorganize their business 
 methods. 
 
 As a result they have organized to make available abundant credit 
 at low rates of interest and on favorable terms of repayment. By credit, 
 it is not meant that the farmer gets everything he buys on time without 
 paying anything on it, and that he is in debt on every hand, but just 
 the reverse. It means he has money available at all times, so that he 
 may pay cash for everything he buys, thus getting the benefit of the 
 lowest cash prices and discounts. His credit is at the bank and not at 
 the store, and through the bank he gets the loans that he needs at rates 
 of interest just as low and in many cases lower than secured by other 
 industrial enterprises, no difference how large or how much business 
 they do. But to accomplish this the farmers have had to take a hand 
 in the banking business themselves. They have organized on a coop- 
 erative basis to secure the credit they need and to supervise its distribu- 
 tion rather than leaving it to private interests to supply the same. 
 By so doing they have reduced rates of interest, lengthened the time 
 for which loans are made, provided for the repayment of loans by 
 annual installments, and they keep the money in the rural districts and 
 prevent its accumulation in the large cities. 
 
 Sources of Capital 
 The sources from which the capital is drawn that is thus made 
 available to the use of the farmers may be classified under three heads : 
 (1) subvention from the government, (2) savings deposits of the 
 farmers and rural population, (3) from the sale of bonds secured by 
 mortgages on farm land. 
 
253 THE POPULAR SCIENCE MONTHLY 
 
 The relation of the governments in furnishing agricultural credit 
 has varied greatly. In France the rural banks have been established 
 for the most part on funds advanced by the government without in- 
 terest. This policy was begun in 1894 and in 1910 the working capital 
 at the disposal of the rural banks which had state aid amounted to 
 71 million francs (between 14 and 15 million dollars), of which 40 
 million francs had been advanced by the government. In Austria the 
 provincial governments have actively assisted in the establishment of 
 rural banks to furnish credit for farmers and have advanced loans 
 without interest to them. In Germany the government has indirectly 
 aided the rural banks by establishing central banks founded on capital 
 advanced by the government, in most cases at 3 per cent, interest. The 
 central banks in turn furnish credit to the rural banks and the rural 
 banks to the farmer. The Prussian Central Bank at Berlin now has 
 a capital of 75,000,000 marks from the Prussian government. How- 
 ever, its business is not confined to agricultural banks, but is open to 
 all kinds of industrial cooperative associations. It receives deposits 
 and makes loans to the cooperative banks throughout the kingdom of 
 Prussia, and serves as a compensating medium between the different 
 cooperative institutions. Por example, if a rural bank has large 
 deposits and a surplus of funds, it deposits them in a central bank to 
 be loaned to some other bank in need of funds. 
 
 The desirability of government subvention is a disputed point, and 
 in Germany which has the best developed system of agricultural credit 
 in the world, many are opposed to it as being entirely unnecessary and 
 think that a better system can be developed without it. 
 
 The second source of capital, savings and deposits of the farmers 
 and rural population, is the most important. It has the advantage of 
 developing the habit of saving among all classes in the country and it 
 keeps the money in the rural districts in which it is earned. In Ger- 
 many alone there are over 16,000 rural savings and loan banks with 
 one and one half million members and deposits of over $250,000,000. 
 Instead of being deposited in savings banks to be loaned out in the 
 cities, as is the case in America, or deposited in postoffice savings banks 
 to be loaned to city banks, the money is kept in the rural districts and 
 loaned out at a rate of interest that the farmer can use it to advantage. 
 
 The third source of capital, obtained by the sale of bonds secured 
 by mortgages on farm lands, was the first form of cooperative agricul- 
 tural credit established in Europe and was begun in Germany in 1770. 
 Its most rapid development, however, has been within the last thirty 
 years, and at the present time the German farmers have over $1,000,- 
 000,000 borrowed in this way, none of it costing them more than 4 per 
 cent, interest and in some cases it is as low as 3 p'er cent. 
 
EUROPEAN AGRICULTURE 254 
 
 Agricultural Credit in the Province of Saxony 
 The agricultural credit institutions of the province of Saxony in 
 the kingdom of Prussia are as highly developed as in any place in 
 Europe and are typical of the German system. The province of 
 Saxony lies in central Germany, contains an area of 9,750 square miles 
 and in 1910 had a population of 3,088,000, equal to 315.7 per square 
 mile. The largest cities in the province are Halle and Magdeburg with 
 180,000 and 280,000 population, respectively. It is the heart of the 
 sugar-beet district of Germany and the richest agricultural section of 
 the entire empire. It contains 97,000 farms of over five acres in size. 
 The estimated worth of the land per acre is $300 (for the whole of 
 Germany it is $150 per acre) . It is a typical agricultural province, in 
 which the most intensive systems of agriculture have been developed, 
 necessitating the investment of a large working capital per acre, which 
 has been made available through the development of agricultural credit 
 institutions. 
 
 These may be divided into two classes: (1) the institutions furnish- 
 ing real credit, that is, loans secured on farm mortgages made through 
 the public land mortgage bank — the so-called Landschafi of the prov- 
 ince of Saxony, (2) institutions for furnishing personal credit, that is, 
 working capital on short time loans and on personal security which is 
 provided through the farmers' cooperative banks. 
 
 The Land Mortgage Association 
 The German Land Mortgage Association (Landschaft) was first 
 established in 1770 by the nobility of eastern Germany, with the ap- 
 proval of Frederick the Great, for the purpose of securing loans on 
 their farm real estates. Instead of borrowing individually they or- 
 ganized an association and issued a common mortgage bond against 
 all of the real estate owned by the members of the association. 
 Furthermore, the management of the association was under the direct 
 control of the government and the officers were quasi-public officials. 
 Other similar institutions were soon established, but confined their 
 members to the nobility and large landowners. However, the results 
 secured were so satisfactory, the rates of interest so low and terms of 
 the loans so favorable that the plan extended and the farmers of the 
 middle classes organized in a similar manner. 
 
 The province of Saxony, in which the farmers of the middle class 
 predominate, did not organize a land mortgage association until 1864. 
 A few years later came the war between France and Prussia (stopping 
 industrial development) so that in reality the association did not make 
 real progress before 1880. To-day the total mortgage indebtedness of 
 the province is 830,000,000 marks, and over 220,000,000 marks of 
 these loans have been made through the Provincial Land Mortgage 
 
2 5 s THE POPULAR SCIENCE MONTHLY 
 
 Association. The proportion of the loans made through the associa- 
 tion is constantly increasing and within the last six months they have 
 increased 10,000,000 marks, but the time probably will never come 
 when all of the outstanding mortgage loans will be made through the 
 land mortgage associations, as in many cases mortgages are given by 
 members of families in settlements of estates, loans are made within 
 families and through other private interests, so that in no ease is it 
 likely that over two thirds of the mortgage indebtedness of a province 
 will be made through a public credit institution. 
 
 The Business of the Land Mortgage Association 
 The Land Mortgage Association of the province of Saxony, which is 
 typical of all other similar institutions in Germany, is a cooperative 
 union of the landowners of this province for the purpose of securing 
 loans for its members on their land by issuing bonds (Pfandbrief en) 
 against the same. The association is not a stock company. No profits 
 are declared to individuals, but go to the reserve funds of the associa- 
 tion. Any one may become a member who is a landowner in the prov- 
 ince and pays a land tax of at least 90 marks per year, which means 
 owning from 10 to 25 acres of land, depending upon its value. 
 
 The articles of the incorporation for the association were approved 
 by the Prussian government and the oversight of the business is under 
 the direction of the Minister of Agriculture of the kingdom of Prussia. 
 The association is independent to conduct its own affairs and to elect 
 its own officers, but the election of the higher officers must be approved 
 by the government. A farmer wanting to borrow through the as- 
 sociation makes his application. After examination of the title of 
 his farm and finding it satisfactory he has the privilege of borrowing 
 to two thirds the assessed value of his farm for taxation by giving first 
 mortgage to the association for' the amount he borrows. The associa- 
 tion does not have the money on hand to make the loan, but secures the 
 :same, not by selling the mortgage, but by issuing what is known as a 
 Pfandbrief or mortgage bond of equal amount to the mortgage and 
 celling the bond. There are several features of the Pfandbrief that are 
 •characteristic. First, it is not secured alone by the mortgage of the 
 farmer for whom it was issued but by all the mortgages and property 
 of the land mortgage association. Second, it is transferable without 
 endorsement at any time and is an impersonal security payable to 
 bearer. Third, it is not a bond in the sense that it runs for a definite 
 length of time, for there is no fixed time at which it matures. Fourth, 
 the holder does not haye the right to demand payment of the face of 
 the bond — that is, to call in the loan — but the issuer — the land mort- 
 gage association — has the privilege of paying it at any time. For 
 example, the bond may be called in and paid six months after it is 
 
EUROPEAN AGRICULTURE 256 
 
 issued or fifty years, at the pleasure of the land mortgage association. 
 But under no conditions is the amount of bonds outstanding per- 
 mitted to exceed the amount of mortgages held by the land mortgage 
 association. 
 
 The business of the land mortgage associations has been done so 
 conservatively that their bonds are regarded as the very best of security 
 and are favorite investments for trust funds, savings banks and any 
 capital seeking a perfectly safe investment negotiable at all times. In 
 fact, these bonds sell next to government bonds, and in case of war, or 
 even threatened war, they sell better. The government may be over- 
 thrown or compelled to suspend payment of interest, but the farm real 
 estate that secures the bonds can not lose its value. 
 
 The rate of interest the bonds bear is 3 per cent., 3^ or 4 per cent., 
 at the option of the farmer securing the loan, but the price at which 
 they sell depends upon the condition of the money market. At the 
 present time (July 1, 1912) 3 per cent, province of Saxony Pfand- 
 briefen are selling at 81.00, 3J per cent, at 90 and 4 per cent, at 99.80, 
 while the 4 per cent, national bonds of Germany are selling at 100. 
 In case a farmer borrowing $1,000 chooses a 3 per cent, interest rate 
 and the 3 per cent, bond are only selling for 81.00, he gets only 
 $810 and pays $30 per year interest, that is, 3 per cent, on the face of 
 the bonds, and gives his note and mortgage for $1,000. But on the 
 other hand, if 4 per cent, bonds are selling at par and he chooses a 
 4 per cent, loan, he gets his $1,000 in cash for his Pfandbrief and 
 pays $40 per year interest and gives his mortgage and note for $1,000. 
 It is always regarded as the best policy for the borrower to choose the 
 class of bonds selling nearest par, unless they are selling above par, in 
 which case the farmer securing the loan gets a premium over and above 
 the amount of his liability and it is to his advantage to take such loans. 
 When the bonds go above par they are called in and paid off by the 
 farmers refunding their debts at lower rates of interest. Here comes the 
 advantage that the farmers reserve for themselves in the privilege of 
 paying off the bonds at will. Just such a thing happened when in 
 the seventies the rate of interest advanced to 5 per cent., due to the 
 scarcity of money and the enormous demand for it in building railroads 
 on the continent and ten years later the rates of interest sank until 
 3 per cent, bonds sold close to par and the farmers rapidly paid off 
 their loans made at the high rate of interest by using new bonds at 
 the lower rate of interest and selling them to pay off the old ones. 
 
 ' Centkal Land Mortgage Association 
 
 In order to widen the market for the Pfandbrief en a central land 
 mortgage association was established in Berlin in 1873. By this means 
 it was thought to make them an international security and to give them 
 
257 THE POPULAR SCIENCE MONTHLY 
 
 a larger market. The bonds of the central association are secured by 
 all the mortgages of the provincial associations belonging to the central 
 association. The results attained through the central association, how- 
 ever, have not fulfilled expectations. The Pfandbriefen in no consid- 
 erable extent have found their way into the international money mar- 
 kets. The offering of them in such large quantities on the Berlin 
 Bourse reduced the price below what they could be sold for in home 
 markets through the local banks. Furthermore, there is a sentiment 
 among investors buying bonds that as long as the provincial bond is 
 equally as secure as the central they prefer to invest in Pfandbriefen 
 of their own province. In the province of Saxony, with its 220,000,000 
 marks of Pfandbriefen outstanding, the director of the Landschaft 
 estimates that 75 to 80 per cent, of the total amount invested in them 
 is capital of the province of Saxony. So far as security was concerned, 
 nothing was to be gained by consolidation into a central association, 
 since the provincial association bonds are as secure as bonds can be 
 made. 
 
 Of the total amount of bonds in circulation at the present time only 
 about 10 per cent, of them are central association bonds. The latest 
 statistics show that the provincial and central association of Prussia 
 have the following amounts of outstanding bonds. 
 
 Land Mortgage Association of Prussia 
 
 Association Founded Outstanding "Bonds 
 
 East Prussia 1788 426,152,350 M. 
 
 West Prussia 1787 123,074,405 M. 
 
 New West Prussia 1861 186,278,210 M. 
 
 Berlin 1868 449,563,500 M. 
 
 Pomerania 1781 252,007,525 M. 
 
 New Pomerania '. . . 1871 19,006,900 M. 
 
 Posen 1857 301,525,300 M. 
 
 Silesia 1770 608,634,180 M. 
 
 Saxony 1864 126,675,600 M. 
 
 Celle 1790 15,579,100 M. 
 
 Hanover 1825 24,706,650 M. 
 
 Bremen 1826 10,360,425 M. 
 
 Westphalia 1877 74,554,300 M. 
 
 Central 1873 433,255,000 M. 
 
 Total 370937:93,545 _ M. 
 
 Mark equals 23.8 cents. 
 
 Amortization of Loans 
 
 One of the most valuable features of the loans made through the 
 land mortgage associations from the standpoint of the farmer is the 
 gradual amortization through annual payments made with the interest. 
 This is obligatory on the part of the borrower and usually is £ per cent, 
 to | per cent, of the face value of the loan. In the land mortgage 
 
 VOL. LXXXII. — 18. 
 
EUROPEAN AGRICULTURE 258 
 
 association of the province of Saxony the amortization is f per cent, 
 per year. On a loan made at 4 per cent, is added the f per cent, 
 amortization and \ per cent, to cover the operating expenses of the 
 association, making a total of 5 per cent., and by paying this amount 
 annually for between forty to forty-five years the loan will be paid off. 
 The farmer in the meantime also has the privilege of paying it all or 
 in part at any time. After the loan has been made the rate of interest 
 can not be raised or the loan called in, so if the farmer has secured his 
 loan at a low rate of interest he can carry it until it has been amortized 
 by his annual payments. The Saxon farmers who in the nineties 
 borrowed at 3 per cent, and got par for their bonds are relishing this 
 feature now that the rate of interest has advanced to 4 per cent. 
 
 However, many of the better farmers make no attempt to pay off 
 their loans any faster than is required through the annual amortization 
 payment, finding that they can get their credit cheaper in this way 
 than any other and can make more interest on the money used in their 
 business than they have to pay for it. The association also has the 
 provision that when 10 per cent, of the original loan has been paid an 
 additional loan can be made and in this way a farmer ean continue to 
 carry indefinitely practically the same amount of loan on his property 
 if he finds it advantageous to do so. The average length of time loans 
 run in Saxony is about twenty-five years. 
 
 By this method the farmer gets all the advantages of the money 
 market if money is tight — the rate of interest goes up and the price 
 of the Pfandbriefen go down when money is abundant and interest 
 rates low the price of Pfandbriefen go up. The farmer through his 
 bank watches the money market and takes advantage of the low points 
 in interest rates to secure his loan, and once made he is safe from hav- 
 ing his loan called in or his interest rate raised. 
 
 Decentralizing the Business 
 A practical point in the operation of such a business is to make it 
 as convenient as possible for the farmer to do business with the land 
 mortgage association. The province of Saxony is a territory nearly 
 100 miles square and the association is located in Halle, a relatively 
 large city. For all of the farmers to come to the central association to 
 negotiate their loans would be impracticable and would diminish the 
 business very much. This problem has been solved by dividing the 
 province into districts 10 to 15 miles square and in each district is a 
 local officer of the association elected by the members in their annual 
 meeting. This officer assists the members in getting their loans, sends 
 in their applications, gives information concerning the association and 
 looks after the business in his district. When property is appraised 
 for loans, he is chairman of the committee making the appraisement. 
 
259 THE POPULAR SCIENCE MONTHLY 
 
 When interest is not paid or a member is neglecting his farm, the local 
 deputy, as he is called, serves as the medium between the association 
 and the delinquent member. In this way the advantages and economy 
 of a centralized organization and at the same time the benefits of a de- 
 centralized association — that is, one close to the individual farmer — 
 are secured. 
 
 Personal Credit 
 
 "While the land mortgage association is sufficient to provide the 
 long-time credit that is needed by the landowner, it does not suffice 
 to furnish the short-time loans that are needed to supply working 
 capital, to buy seeds, fertilizers, livestock to be fattened, to pay for 
 labor to grow crops and such operations as require capital for six to 
 nine months. To the farm renter or any farmer who does not own 
 land, the land mortgage association has nothing to offer. 
 
 To meet this need the rural banks have been established. The work 
 of this class of banks had its beginning particularly with William 
 Eaiffeissen among the peasant farmers of western Germany about the 
 middle of the last century. Eaiffeissen saw the dire straits of the 
 small farmers who were without credit and at the mercy of the usurer. 
 He began by establishing cooperative associations to do their own bank- 
 ing, and there were four fundamental principles that he insisted upon 
 that have been retained in the true Eaiffeissen banks of the present 
 time. First, unlimited liability of the members. This was necessary 
 in the beginning in order to get any credit at all. All the members 
 were practically without means and the question of limited or unlimited 
 liability was of little moment to them. 
 
 Second. A restricted area of operation for the bank. This was 
 confined to the district in which the members were all personally 
 acquainted with one another. In European farming it is customary, 
 especially for the peasants, to live together in small villages and not 
 on single farms as in America, so that the boundaries for the operation 
 of the bank were generally confined to a single village. 
 
 Third. No dividends to members. A low rate of interest, usually 
 4 per cent., was paid on the capital stock each member had invested in 
 the bank, but all profits made over that amount were set aside in a 
 reserve fund. 
 
 Fourth. No salaried officers were employed in the banks except the 
 bookkeeper. The management of the bank was made a matter of 
 honor, the work to be done without any mercenary compensation. 
 The business was done in the most democratic manner possible. Every 
 member was given a voice and made to feel he was personally respon- 
 sible for the success of the business. Loans were made for specific 
 purposes, for example, to drain a field. The committee considered the 
 
EUROPEAN AGRICULTURE 260 
 
 advisability of the proposed expenditure in making the loan, the mem- 
 bers of the bank all knew the plan of the member and were interested 
 in his success, because in case the member failed and was unable to 
 repay his loan to the bank they would all be losers. 
 
 Eaiffeissen did another thing that is of utmost importance in rural 
 banking. He adjusted the loans of the bank to meet the needs of agri- 
 culture. The farmer needs a longer time loan than the merchant or 
 manufacturer. City loans for three and four months do not fit the 
 business of farming. "With the farmer 6 to 9 months is the shortest 
 time for which he needs a loan. The time from planting a crop till it 
 is harvested and ready to market is at least six months. The city mer- 
 chant will turn over his money four or five times during the year but 
 the farmer only once, so that the rural banks must make the loans for 
 longer periods than is customary in the city. In case of crop failure in 
 bad seasons loans must be allowed for still longer periods and in Eaif- 
 feissen banks these provisions were made. 
 
 From their beginning in the Ehineland the Eaiffeissen banks have 
 spread not only over all rural Germany, but almost all rural Europe. 
 They have been modified to meet local conditions but with it all have 
 kept in view the purpose of serving the needs of the farmer. 
 
 In studying the agricultural banking or credit system of a country 
 the condition of the individual farmer must be taken into consideration. 
 A system applicable to peasant farmers with small holdings, such as 
 are found in many parts of Europe, is not likely to offer much of value 
 for American farmers. But in a section in which the average wealth 
 and stand of the farmers is on the same level as in America, a system 
 that is proving successful may afford some good lessons. 
 
 Eueal Bakes in the Province of Saxony 
 Such a section is to be found in the province of Saxony where the 
 rural banks are splendidly organized and doing a business of $100,- 
 000,000 per year. 
 
 The first striking difference between these rural banks and the orig- 
 inal Eaiffeissen banks is that they are organized on a limited liability 
 basis. The farmers of Saxony for the most part are well to do, but they 
 vary greatly in their financial worth. The man whose property is worth 
 a hundred thousand marks is not willing to become a member of a rural 
 bank or a cooperative association of any kind with members who are 
 worth only five thousand marks and agree to an unlimited liability for 
 its members. Consequently the Saxon banks are organized limiting the 
 liability of the members in proportion to the interest they have in- 
 vested in the bank. The fundamental object of the rural banks is to 
 furnish credit to their members for working capital at the lowest rates 
 of interest possible and not to make a profit on their business. In the 
 
26i THE POPULAR SCIENCE MONTHLY 
 
 province of Saxony there are 660 rural banks. These are small village 
 savings banks with an average membership of about 100 farmers. They 
 are the units of the farmers' cooperative organizations of the province. 
 At Halle there are three central cooperative organizations, with all of 
 which the local banks stand in relation and are members: (1) The Cen- 
 tral Cooperative Bank, which does nothing but a banking business and 
 whose members are cooperative associations instead of individuals. 
 (2) The Central Cooperative Association for the purchase and sale of 
 agricultural products. This, like the central bank, has for members 
 associations instead of persons and does a wholesale business in buying 
 and selling agricultural products. (3) The Union of Cooperative So- 
 cieties, which oversees the management of the local societies, audits 
 their books, furnishes uniform systems of bookkeeping and looks after 
 the organizing of new societies and does the propaganda work in pro- 
 moting agricultural cooperative work in the province. 
 
 In order to become a member of the Central Bank at Halle the local 
 association or bank must take a share in it which is 300 marks. The 
 number of shares that the local bank or association hold is in propor- 
 tion to the amount of business it does. By virtue of holding shares 
 in the central association it is entitled to make loans from it. The 
 farmer goes to his local bank, of which he is a member and to whom he 
 is known, and makes his application for a loan. The bank in turn ap- 
 plies to the Central Association with which it has credit and secures 
 the money and it costs the farmer £ per cent, more interest than the 
 local society pays the Central in order to cover the local costs of the 
 society. The average interest rate charged by the Central Bank in 1909 
 was 3.92 per cent., in 1910 it was 4.34 per cent, and in 1911 was 4.39 
 per cent. The rate of interest paid for deposits is 3 to 3£ per cent., 
 depending upon the current interest rate. 
 
 Credit is the first requisite of successful cooperation. When a coun- 
 try has a well-established system of agricultural credits it is almost cer- 
 tain to be thoroughly organized on a cooperative basis in other lines. 
 This is the case in the province of Saxony, particularly in the purchase 
 of agricultural supplies, such as fertilizers, feeding stuffs, coal,, seeds 
 and agricultural machinery. 
 
 The local banks serve the farmers both as the societies through 
 which the purchases are made and furnish the credit for making the 
 purchases. In this way there is a saving in the cost of doing the busi- 
 ness and the bank knows how the money is spent. 
 
 Moral Effect of Cooperation 
 The development of the cooperative credit systems among the farm- 
 ers of Europe has had an important influence on their social life. 
 Aside from the independence gained in their business affairs by being 
 
EUROPEAN AGRICULTURE 262 
 
 freed from the money-lenders which for the most part were usurers, 
 they have been united in a community of interest that has widened their 
 circle of acquaintance, given them a sympathetic interest in each 
 other's welfare and has largely displaced the jealously so commonly ex- 
 isting in rural communities. 
 
 Among the peasant classes where the Eaiffeissen savings and loan 
 banks were established with unlimited liability of the members, min- 
 isters have frequently testified that they have been as important factors 
 in the moral life of the people as the church itself. Intemperance and 
 immorality is not permitted among the members. If a farmer takes to 
 intemperate drinking his loan is called in by the bank. If he is neg- 
 lecting the work on his farm the loan is called in. So that every 
 farmer feels he is under the constant watch of the other members and 
 since they are united together in a cooperative association, where if one 
 man fails the others must pay his losses, they are all interested in each 
 other and anxious to see every one succeed. 
 
 The application of the cooperative principle of " one for all and all 
 for one" serves as an incentive to the individual farmer and inspires 
 him to do his best. 
 
 Need in the United States 
 
 The farmers of the United States as yet have not appreciated the 
 value of organizing to improve their credit. In the southern states the 
 cotton crop must be marketed as soon as harvested to meet outstanding 
 loans that the farmers have made at exorbitant rates of interest. The 
 grain dealers throughout the central states know that they will be 
 flooded with wheat and corn just before tax-paying time by farmers who 
 are compelled to sell in order to raise money to pay taxes. Intensive 
 systems of farming that must be adopted to adjust American agricul- 
 ture to present needs means a larger working capital for the farmer, he 
 must use more labor, more commercial fertilizers, better seed and he 
 must drain his land. The European farmer gets twice as large a crop 
 yield per acre as the American farmer because he spends twice as much 
 capital in producing it. He cultivates better, fertilizes better and he 
 takes better care of his land. 
 
 Interest rates in general are lower in the United States than they 
 are in Germany and yet the German farmer is able to secure his credit 
 through his cooperative organizations at two thirds the rate of interest 
 ordinarily paid by the American farmer. In addition the loans are 
 made on much more favorable terms and the times and methods of re- 
 payment are adjusted to suit the business of the farmers. 
 
 The advantages of the farmers organizing to sell their credit for 
 what it is worth are not all on the part of the farmer. But for the 
 capitalist seeking a safe investment for his money they offer a security 
 
263 THE POPULAR SCIENCE MONTHLY 
 
 that can be bought at any time and is always negotiable. Such organi- 
 zations serve as an economic saving between borrower and lender. The 
 man in America at the present time who wishes to invest his money in 
 farm mortgages must seek out such loans personally or through an 
 agent. The punctuality with which the interest will be paid and the 
 loan when it falls due will depend upon the personality of the farmer. 
 But such is not the case when the loans are made through a land mort- 
 gage association and the investor instead of lending direct to the farmer 
 buys the bonds of the association; he then knows that his interest will 
 be paid as punctually as on a government bond ; that his security has a 
 market value and can be sold for cash any day through his bank. The 
 establishment of the land mortgage association and selling its bonds on 
 the open market opens up a field for investment that is now practically 
 closed to a large class of investors. 
 
 One thing to be emphasized in regard to the success of the European 
 systems is the fact that it has been largely due to the direct oversight , 
 that the governments have had over them. Without this government 
 relationship they could not have commanded the confidence of the public 
 that they have. It is hopeless to expect an equal degree of success for 
 similar institutions in America unless they are also organized under 
 government control, at least to the extent that the public will have 
 absolute confidence in their solvency.