From the 
 Jjhrary of 
 
 "Ray V. J:effler
 
 uiNivtHbi I Y u^ CALIFORNIA SAN DIEGO 
 
 3 1822 00754 7243 
 
 Central University Library 
 
 University of California, San Diego 
 Note: This item is subject to recall after two weeks. 
 
 ^ Date Due 
 
 APR ^" iJ"^ 
 
 
 JUL^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 • 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 CI 39 (1/91) UCSDLib. 
 
 ^05/ 
 U5 
 
 Ml 3
 
 1
 
 ''Co-operation, not strife, 
 Is the divine law of life.
 
 THE PLAN 
 
 Of the bill is epitomized as follows: 
 
 1. FEDERAL RURAL CREDITS BOARD 
 
 a bureau in the Treasury Department, con- 
 sists of Secretary of the Treasury and four 
 appointees. These men also constitute 
 
 2. FEDERAL RURAL CREDITS COMPANY 
 
 It takes over War Finance Corporation, 
 $500,000,000 capital, to be reduced to $250,- 
 000,000. This Company subscribes the 
 initial capital for 
 
 3. ONE FEDERAL DEBENTURE BANK IN 
 EACH STATE 
 
 at the rate of $1,000 for each $1,000,000 of 
 value of farm property. The state invests 
 a like sum in the debentures this bank 
 issues secured by agricultural, live stock, 
 commodity and real estate paper, which it 
 
 4. DISCOUNTS FOR NATIONAL OR STATE 
 BANKS, CO-OPERATIVE AGRICUL- 
 TURAL ASSOCIATIONS, FEDERAL CO- 
 OPERATIVE BANKS OR CATTLE LOAN 
 COMPANIES 
 
 that become its members. Such paper and 
 the debentures secured thereby, may run 
 for six; months to three years, or five years 
 if secured on real estate. 
 
 5. ALL DEBENTURES ARE GUARANTEED 
 
 principal and interest by Federal Rural 
 Credits Company, but each debenture bank 
 is free of any joint and several liability. 
 
 6. FEDERAL RESERVE SYSTEM'S 
 
 powers for rediscounting farm paper are
 
 somewhat broadened under safe restric- 
 tions. Export credits are provided for 
 emergencies. Veterans receive prefer- 
 ence. 
 
 7. THUS THE NEW RURAL CREDITS PLAN 
 
 transforms the temporary War Finance 
 Corporation into a permanent institution, 
 with a branch in each state, through which 
 all existing banks and co-operative associa- 
 tions, with others that may be organized, 
 will safely mobilize part of their assets, 
 credits and machinery for the service of 
 agricultural production and orderly mar- 
 keting, to the mutual welfare of all con- 
 cerned and for the benefit equally of food 
 producers and food consumers. 
 
 8. WITHOUT INTERFERING WITH OR 
 MIXING INTO 
 
 the Federal Reserve for current credits or 
 the Federal Farm Loan System for long 
 term mortgages, this plan for rural credits 
 is sound, simple, inexpensive, adequate, in 
 harmony with American customs, and in 
 the interest of all the people all the time. 
 It does not require any new appropriation 
 by Congress, and provides that the deben- 
 ture bank in each state may repay its fed- 
 eral advance and come into the sole owner- 
 ship of its own members. 
 
 9. LARGE REVENUES TO THE UNITED 
 STATES 
 
 from the new rural credits system, as 
 profits above 6 or 8%, go to the govern- 
 ment as franchise tax.
 
 RURAL CREDITS SYSTEM 
 
 For the United States 
 
 Prepared at the request of the Rural Credits Committee 
 of the Farm Bloc of the United States Senate 
 
 By HERBERT MYRICK 
 
 Author of The Federal Farm Loan Syitem, 1916; Co-operative Finance, 1912; 
 
 The author'* Standard Bill for Farm Finance under State Law, 1908, or «ome of its features 
 
 have been embodied in the statutes of 22 states 
 
 How to Co-operate, 1 89 1 
 
 Books on practical farming, stories from real life, poems, philosophy, addresses 
 
 Director Federal Land Bank of Springfield 
 ' Also president Dakota Farmer of Aberdeen, S. D., Northwest Farmstead of 
 Minneapolis, Current Events of Columbus; president and editor- 
 in-chief Farm and Home of Chicago and Springfield, 
 editor-in-chief New England Homestead 
 
 INCLUDING FULL TEXT FOR PROPOSED FEDERAL 
 RURAL CREDITS ACT 
 
 CHICAGO & SPRINGFIELD, MASS. 
 
 PHELPS PUBLISHING COMPANY 
 1922
 
 Copyright 1922 
 By Herbert Myrick 
 All Rights Reserved
 
 "Aw. g»t off'n hit [tail,. Uncle Sanf! 
 
 The Big Three 
 
 The text quotes fully from the author's previous books. 
 What his "Co-operative Finance" said in 1912 is even 
 more true today: 
 
 "The lack in farm finance reveals underlying economic- 
 conditions that drive people from country to cities. Those 
 economists and statesmen who have sought financial prin- 
 ciples rather than panaceas, are beginning to realize the 
 truth compressed into the axiom known as "Myrick's law": 
 
 "Other factors being equal, agriculture will 
 nrogress in the ratio that farmers employ 
 
 Cash, Credits and Co-operation
 
 Table of Contents 
 
 Frontispiece 
 
 The Plan 3, 4 
 
 Title Page 5 
 
 Costs, Credits, Cooperation 7 
 
 The Mandate 9 
 
 The Vision 10-14 
 
 Chapter 1— The Problem 15-20 
 
 2— Principles of Rural Credits . . 21-35 
 3— Why Federal Rural Credits 
 
 Board 36-43 
 4 — Federal Rural Credits Com- 
 pany 44-63 
 
 5 — Federal Debenture Banks . . . 64-85 
 6 — Cooperative Association .... 86-98 
 
 7 — Miscellaneous Features 99-116 
 
 8 — Federal Cooperative Banks 117-128 
 9 — Amendments to Federal 
 
 Reserve 129-144 
 
 10 — Appendix — A bill for rural 
 
 credits in full 144-231 
 
 11— Index 232-239
 
 THE MANDATE 
 
 Aberdeen, Minneapolis, Chicago, New York, 
 
 Springfield, 16 June 1922 
 
 To the Committee on Rural Credits of the Farm Bloc of 
 the United States Senate — Hon. Arthur Capper (R) of 
 Kansas chairman, Hon. Charles L. McNary (R) of Ore- 
 gon, Hon. Edwin F. Ladd (R) of North Dakota, Hon. 
 Wesley L. Jones (R) of Washington, Hon. Claude A. 
 Swanson (D) of Virginia, Hon. John B. Kendrick (D) 
 of Wyoming, Hon. Pat Harrison (D) of Mississippi. 
 
 Gentlemen: — At the conference in the Senate 
 District of Columbia Committee Room at the 
 Capitol from 4 to 6 P. M. June 7, 1922, after dis- 
 cussing with the writer the various rural credits 
 bills which had been introduced, together with 
 many other phases of the problem, you agreed in 
 requesting me to draft a new bill. You said, in 
 effect : 
 
 "Let this measure provide for a com- 
 prehensive system of rural credits, safe 
 and sound, practical and elastic, dealing 
 adequately with all regions under their 
 varying conditions. Embody in the new 
 draft any and all points in the existing 
 bills which you consider essential. Add 
 thereto or work in therewith such new 
 features as your knowledge and expe- 
 rience may justify. The result will be 
 helpful to the committee and the Con- 
 gress in its efforts to create promptly 
 an adequate rural credit system." 
 Pursuant to this mandate the bill follows, 
 preceded by a report or discussion of its prin- 
 ciples, method and detail. 
 
 Respectfully, 
 
 THE AUTHOR
 
 THE VISION 
 
 THE only permanent thing is change ! Every- 
 where and always, progression or retro- 
 gression; nothing is fixed. Ever the con- 
 tention of positive and negative forces — evolu- 
 tion. 
 
 "Advance results from struggle. Triumph 
 over obstacles is the only worth-while victor>^ 
 Honest endeavor is the vital principle, rather than 
 achievement, however glorious. 
 
 "All Nature, all human history, attest these 
 truths. Civilization is the human object lesson 
 in evolution. Economic justice is the basis for 
 social justice, and the degree to which both pre- 
 vail measures the progress of civilization. 
 
 "God's ways are beyond man's comprehen- 
 sion. Man's effort often is so befogged by the 
 smoke of battle as to obstruct the vision of his 
 progress. We see the dust, the cloud, we do not 
 get the clear bird's-eye view of the whole situation. 
 But go to the top of an exceeding high mountain 
 on a cloudless day and how distinct appears all 
 that previously was obscure! 
 
 "So now we discern, amid the warfare of 
 aggressive Individualism, ruthless Capitalism and 
 extreme Socialism, the strong figure of CO- 
 
 10
 
 OPERATION advancing to the front. His majestic 
 mien, his masterful bearing, his confidence-impart- 
 ing atmosphere, withal his modesty and sympathy 
 and humanity, inspire in every man and woman 
 the conviction that Co-operation is the great leader 
 who will conduct them to the promised land. But 
 the people quickly learn from this leader that they 
 can never reach the goal except through their 
 own individual efforts, supplemented by associated 
 effort in doing those things which can be done 
 better by people working together rather than 
 separately. 
 
 "Just as you dimly feel the latent powers in- 
 herent within yourself that are seeking expres- 
 sion, so are there powers inherent but latent in 
 the mass which are seeking an outlet. Just as 
 these powers in the individual grow by use, edu- 
 cation and experience, until he may accomplish 
 the seemingly impossible, so do the powers of 
 co-operation develop by use, training and wisdom. 
 
 "When you know how, it is so easy to do any- 
 thing, whether individually or collectively! The 
 inefficient methods of the past give way to the 
 efficient processes of the future. Past theories 
 become obsolete in the light of modern experience. 
 Old issues naturally wither and die in the bright 
 
 11
 
 sunshine of the new era. What before was com- 
 plicated, now becomes simple." 
 
 The foregoing introduction, quoted from the 
 author's book. Co-operative Finance, written and 
 published in 1912, possesses a new significance 
 today. The Pujo investigation, defeat of the Al- 
 drich bill, creation of the Federal Reserve and of 
 the Federal Farm Loan System, have been fol- 
 lowed by a chain of events that have fully demon- 
 strated the wisdom of the policies dealt with in 
 those two great Acts. 
 
 Experience has revealed the strong and weak 
 features of both Acts. In spite of their weak- 
 nesses, the Reserve law and the Farm Loan system 
 for first mortgages have proven of incalculable 
 value during the war period that tested to the 
 uttermost all human institutions. 
 
 Now that the United States has become the 
 world's leading creditor, instead of the debtor 
 nation America was prior to 1914, many entirely 
 new conditions present themselves. To cope with 
 present and future developments, it is imperative 
 that the United States forthwith complete its 
 financial structure by adequate provision for 
 rural credits, and for second mortgages on 
 
 12
 
 farms owned, occupied and operated by experi- 
 enced and reliable farmers, also for financing 
 the real estate employed by co-operative asso- 
 ciations. 
 
 In this and all other economic effort toward 
 prosperity — material, social, spiritual — for all the 
 people all the time, the dominant note is human 
 welfare. Even more true for today and for the 
 future are my words of ten years ago : 
 
 "Equality of opportunity for each individual, 
 co-operation among the weak as a safeguard 
 against abuse of power by the strong, encourage- 
 ment to honest endeavor among people of all ages 
 and conditions, inspiration to achievement — the 
 new finance must recognize these as among the 
 essentials of the new era." 
 
 But hard work, struggle, industry, thrift, effi- 
 ciency, common sense, gumption, grit, "sand," 
 persistence — ^these eternal economic-social factors 
 each of us must cultivate even more in the future 
 than in the past. 
 
 Yet the spiritual, moral and ethical attributes 
 may be employed to more directly promote ma- 
 terial progress. To apply the ideals of service — 
 to our fellows, our community, our state, our na- 
 tion — will add to both the success and joy of life. 
 
 13
 
 To integrity of purpose, unite willingness to enter- 
 tain others' views or opposing reasons. Accom- 
 pany personal power with human poise, sincerity 
 with love. Let us do the best we can each day, 
 and the future will take care of itself, for as my 
 mother* wrote on her deathbed : 
 
 "Honest endeavor is ne'er thrown away, 
 God gathers the failures day by day, 
 And weaves them into His perfect plan. 
 In ways that are not for us to scan." 
 
 ♦ Lucy Caroline Whittemore Myrick, 1832-1879 
 
 CO-OPERATION 
 
 UNITED TO ASSIST, NOT 
 COMBINED TO INJURE^ 
 
 14
 
 CHAPTER ONE 
 THE PROBLEM 
 
 TWO of the three grand divisions of 
 finance in the United States already 
 are well provided for — 
 
 (1) The Federal Reserve system, supple- 
 menting our commercial banks under na- 
 tional and state law, goes far in providing 
 adequately for current commercial credits 
 running for periods of thirty to ninety days, 
 and for six months agricultural paper. 
 
 (2) The Federal Farm Loan system aims 
 to accommodate the demand for permanent 
 capital for farm land ownership, by financ- 
 ing mortgages on farms over periods of 
 from ten years to 33 years at reasonable 
 rates of interest. 
 
 The Third Division of finance is now to 
 be provided for. By this is meant a com- 
 prehensive system of rural credits for the 
 purpose of financing the farmer's need for 
 funds during periods of from six months to 
 
 15
 
 RURAL CREDITS SYSTEM 
 
 three years on the security of such personal 
 property and character as he may be able to 
 furnish. 
 
 With an investment of 78 billions of dol- 
 lars in his business, the American farmer 
 has produced an average of 18 billions in 
 value of annual product of late years. This 
 enormous turn-over requires an enormous 
 amount of capital and credit, for periods of 
 six months to three years, but no adequate 
 provision exists for providing these rural 
 credits such as has been and is now afford- 
 ed to other industries whose turn-over i^ 
 much quicker. 
 
 Short Term Mortgages also are needed in 
 rural credits. This need is in two forms : 
 (a) The experienced farmer who is 
 worthy of having a farmstead of his own, 
 too often is forced to be a tenant or a hired 
 man, because, even though he may have ac- 
 quired some stock and tools or a little cap- 
 ital, he has not funds sufficient to pay down 
 in cash all that the desired farm may cost 
 in excess of what he can borrow thereon, 
 through the federal farm loan system se- 
 cured by underlying first mortgage. But if 
 
 16
 
 THE PROBLEM 
 
 he can borrow 25% more for say five years, 
 on a mortgage second to the federal first, 
 this aid may be just enough to give him a 
 start toward owning his own farm, 
 (b) Likewise a first mortgage for not to 
 exceed five years upon the real estate 
 owned and used by a co-operative associa- 
 tion in its business of supplying its farmer 
 members with what they need to buy and of 
 helping them in disposing of what they 
 have for sale, will do much to promote 
 the— 
 
 More Orderly Marketing of agricultural 
 products by the producers thereof, as well 
 as the more orderly marketing to farmers 
 of the manufactured commodities they re- 
 quire. 
 
 In spite of the fact that the American 
 farmer has shown for years that he is 
 **good" and almost invariably pays his bills 
 100 cents on the dollar with interest, even 
 though forced at times to be rather slow, 
 he has been too often and too generally 
 denied facilities for the cash, credits and 
 co-operation his business requires. 
 
 Paying the highest retail prices for what 
 
 17
 
 RURAL CREDITS SYSTEM 
 
 he buys, usually receiving only the lowest 
 wholesale prices for what he sells, less all 
 the toll extorted by middlemen and trans- 
 portation, with everything he possesses in- 
 escapable from the tax assessor, it is a won- 
 derful tribute to the enterprise of the Amer- 
 ican farmer and to the stability of Ameri- 
 can agriculture that both have attained to 
 their present development. 
 
 The Great Deflation of 1920-1922 em- 
 phasizes the gi'ave deficiency in our fiscal 
 system due to the absence of an adequate 
 method of rural credits. To be sure, cap- 
 ital and labor in other industries did not es- 
 cape the collapse either here or in other 
 parts of the world, but agriculture was hit 
 first and hardest and has been slowest to re- 
 cover. 
 
 The Agricultural Inquiry conducted so 
 comprehensively 1921-22 by the able joint 
 committee of the United States Senate and 
 House presented a report that deals thor- 
 oughly with the need for rural credits 
 and outlines an admirable bill for this pur- 
 pose — Senate 3051 by Mr. Lenroot, known 
 
 18
 
 THE PROBLEM 
 
 in the House as the Anderson bill. Too 
 much praise cannot be given to that com- 
 mittee for the excellence of its treatment of 
 a matter involving so many complexities 
 and magnitudes. 
 
 Several other excellent bills also have 
 been introduced into the Senate aiming at 
 the same result but varying in detail. These 
 measures include — S 3639 by Mr. Cap- 
 per, S 3390 and 3578 by Mr. Simmons, S 
 3499 by Mr. Norbeck. 
 
 By the Mandate on a previous page the 
 author was invited to use these various 
 measures as a basis upon which to frame a 
 bill that might be helpful to the Congress in 
 its efforts promptly to create an adequate 
 means of dealing with the whole situation. 
 
 The Rural Credits Bill Herewith sub- 
 mitted aims to provide a method that shall 
 meet all the needs which have been so fully 
 revealed. 
 
 In form and phraseology, while em- 
 bodying certain essentials in the meas- 
 ures above referred to, the new draft fol- 
 lows the Federal Farm Loan Act in some 
 
 19
 
 RURAL CREDITS SYSTEM 
 
 other respects. Especially is this true as to 
 certain administrative and technical details 
 which have been so well perfected by ex- 
 perience under that Act or which have been 
 sustained by state and federal courts. 
 
 The specific purposes of the Rural Cred- 
 its bill, which is printed in full in the appen- 
 dix of this book, are epitomized in its title : 
 
 "To provide cre'dit facilities for the or- 
 derly marketing of agricultural products, 
 and for the preservation and development 
 of agriculture and of the livestock industry 
 of the United States ; to extend and stabilize 
 the market for United States bonds and 
 other securities ; to provide fiscal agents for 
 the United States; to amend the Federal 
 Reserve Act; to provide for Federal Co- 
 operative Banks, and for other purposes. 
 
 20
 
 CHAPTER TWO 
 PRINCIPLES OF RURAL CREDITS 
 
 WHILE the order, note or other obliga- 
 tion of an experienced farmer of 
 good character almost invariably 
 has proven to be "good," heretofore it has 
 been open to these objections: 
 
 1. Nearly a year is required for the pro- 
 duction of staple crops, still longer for the 
 production of live stock, whereas the man- 
 ufacturer may produce his commodities in 
 a few days or weeks, while the merchant 
 converts them into cash with even greater 
 celerity. 
 
 2. Thus the farmer secures the money 
 with which to pay his debts only once a year 
 in the case of staple crops, though more fre- 
 quently if he has some specialty like truck 
 crops, dairy or poultry, but at best his turn- 
 over is slow and his credits long. 
 
 3. For these reasons the tendency of 
 commercial banking necessarily has been 
 to favor manufacturer and middleman, 
 
 21
 
 RURAL CREDITS SYSTEM 
 
 merchant and speculator with their quick 
 turn-overs, to the detriment or inconven- 
 ience of the agriculturist with his slower 
 turn-over. 
 
 4. Nor is the commercial banker to be 
 blamed for this, because from 80 to 90% of 
 his funds consists of deposits with him of 
 other people's money who are likely to 
 draw upon it at any minute, so that the 
 bank must always have sufficient cash on 
 hand or assets instantly or quickly avail- 
 able to meet the demands of its depositors. 
 
 Objections Overcome. The Rural Cred- 
 its bill herewith proposes to obviate all of 
 the foregoing objections, to mobilize the 
 basis of short term credits which farmers 
 possess, and so to mobilize the credit instru- 
 ments themselves that they shall be free not 
 only from the objections cited, but from 
 others which might be mentioned. 
 
 The purpose is to accomplish this by a 
 method which shall encourage the bor- 
 rower to get out of debt, prove more attrac- 
 tive to the investor, encourage thrift, foster 
 the profitable investment of savings in farm 
 
 22
 
 PRINCIPLES OF RURAL CREDITS 
 
 development, and thus create a veritable 
 endless chain of prosperity. 
 
 The economic methods required to ac- 
 complish these purposes of rural credits 
 also will have far reaching social and civic 
 influence, by reason of the co-operative 
 principles embodied in the bill submitted 
 in the appendix. 
 
 Co-operation Required. For farmers to 
 unite in local societies for the better financ- 
 ing of their needs as well as for orderly sell- 
 ing and buying, implies more of mutual 
 confidence and less of mutual suspicion. 
 Such co-operation means united effort 
 among individuals; and joint service, vol- 
 untarily performed and necessarily per- 
 sisted in, reacts beneficially upon the indi- 
 vidual. It tends to bring out those social, 
 ethical and spiritual attributes which add 
 so much to the joy, the glory and the useful- 
 ness of life. The co-operative spirit may be 
 better sensed than described — like love, it 
 can be felt rather than expressed ! 
 
 The fact that the plan of the proposed 
 reconstruction of rural credits is based 
 
 23
 
 RURAL CRE^DITS SYSTEM 
 
 largely upon the coming together of five or 
 more individuals, in a united group, is one 
 of the underlying principles that has made 
 the federal farm loan act so successful in 
 its operations. This principle was epito- 
 mized years ago by the author as follows: 
 "The True Way Out of the evils that 
 afflict both producers and consumers is 
 through an agency which already exists. It 
 is right at hand. Its ways are the methods 
 of peace. This agency requires no favored 
 legislation, no political revolution, no social 
 overthrow. It builds up instead of tearing 
 down. Yet its success has been abundantly 
 demonstrated under the most adverse cir- 
 cumstances. It is as permanent as a human 
 institution may be. It supplies its own cap- 
 ital, insures its own prosperity, and in- 
 creases in practical beneficence with age. 
 Thoroughly Christian in nature and appli- 
 cation, no phase of belief can take excep- 
 tions to it. Nor does it antagonize the re- 
 forms in politics and government and taxa- 
 tion, in land or finance or transportation, 
 that are now so prominent in the public 
 mind. 
 
 24
 
 PRINCIPLES OF RURAL CREDITS 
 
 ^'In one sense independent of all these, 
 in another view it is indispensable to any 
 reform that is to be of lasting benefit to the 
 whole community. Yet it is intensely prac- 
 tical, perfectly adapted to country, town, or 
 city, within the reach of all grades of peo- 
 ple, and thoroughly suited to the varied 
 needs and capacities of producers and con- 
 sumers in all the great vocations of life. 
 Moreover, it interferes with no reasonable 
 effort to ameliorate the conditions of so- 
 ciety, but extends to such the hand of fel- 
 lowship. Above all, it in no possible way 
 antagonizes any farmers' secret orders or 
 open organizations, and in no manner inter- 
 feres with trade unions or labor associa- 
 tions. Yet it is an agency through which all 
 such orders, organizations, unions and as- 
 sociations may immensely stimulate and 
 perpetuate their usefulness. 
 
 "The true way out is summed up in the 
 one word — Co-operation." 
 
 The Advantages of Co-operation as ex- 
 pressed in my earlier book, apply with pe- 
 culiar force to the mobilization of rural 
 credits : 
 
 25
 
 RURAL CREDITS SYSTEM 
 
 1. The greatest advantage of co-operation is 
 that it enables "the common people" — as Abraham 
 Lincoln used the term — to help themselves. 
 
 2. It promotes thrift, sobriety, morality, neigh- 
 borliness, kindness, courtesy, intelligence, self- 
 thinking and good citizenship. 
 
 3. It can adapt itself to secure its advantages to 
 "all sorts and conditions of men, including men 
 of various nationalities." 
 
 4. It interferes with no private rights or indi- 
 vidual opinions. 
 
 5. It substitutes the beneficence of co-operation 
 for the warfare of competition. 
 
 6. It pays labor fairly, adds to savings and 
 yields a reasonable hire to capital. 
 
 7. It enables the people to govern and divide 
 their earnings, instead of having capital rule in- 
 dustry and absorb the profits thereof. 
 
 8. It converts the love of money and the power 
 of the "almighty dollar" into the greatest of 
 human agencies for the amelioration of society. 
 
 9. It "begins in mutual help, with a view to end 
 in a common competence." 
 
 10. It avoids the fallacy of "equal division of 
 unequal earnings," but rewards according to merit. 
 
 11. It means "concert for the diffusion of 
 wealth." 
 
 12. It is not philanthropy, neither is it mendi- 
 cant, servile or offensive, yet possesses the spirit 
 of charity without sacrifice of practical utility. 
 
 26
 
 PRINCIPLES OF RURAL CREDITS 
 
 13. "It touches no man's fortunes; it seeks no 
 plunder; it causes no disturbance in society; it 
 gives no trouble to statesmen; it need enter no 
 secret associations, it needs no trades-unions to 
 protect its interests ; it contemplates no violence ; 
 it subverts no order; it envies no dignity; it ex-- 
 pects no gift nor asks any favor ; it keeps no terms 
 with the idle and it will break no faith with the 
 industrious." 
 
 14. It uses circumstances to advance its prin- 
 ciples, instead of wasting energy to advance its 
 principles against circumstances. 
 
 15. It insures against mistakes by educating co- 
 operators to a clear idea of what they are doing, 
 uniting such thought with action. 
 
 16. It gives men and women a knowledge of busi- 
 ness they could not otherwise obtain. 
 
 17. It enables people to get out of debt and to 
 keep out of debt, and correspondingly alleviates 
 other forms of distress. 
 
 18. It creates a field for individual energy and 
 security for its reward, while avoiding the war- 
 fare of competition. 
 
 19. It is really the only way in which the masses 
 can advance. 
 
 20. It promotes sound sense, good temper and 
 good will. 
 
 21. It reduces expenses, bringing producer and 
 consumer together, giving the former a fair 
 profit, while furnishing the latter at a reasonable 
 
 27
 
 RURAL CREDITS SYSTEM 
 
 price articles which are honest in quantity and 
 quality. 
 
 22. It is equity in business, and it makes equity 
 pay. 
 
 23. It is a definite, practical thing, all of whose 
 principles can be brought into view and under- 
 stood at once. 
 
 24. It recognizes capital as an expense, whose 
 hire is to be paid, but after this (like other ex- 
 penses) is met "labor by brain or hand is the sole 
 claimant of profits." 
 
 25. It delivers the public from the middlemen, 
 capitalists and monopolists who would make the 
 laborer work for the least and the consumer pay 
 the utmost. 
 
 26. It makes saving attractive, easy and inevi- 
 table, without self-denial or effort on the part of 
 the individual. And finally to quote more fully 
 and literally its distinguished apostle (Holyoake), 
 "Co-operation was born of the feeling that at best 
 unmitigated competition was but organized war, 
 and though war had its great conquests, its bards, 
 its proud associations and heroic memories, there 
 was murder in its march; and humanity and 
 genius were things to blush for, if progress could 
 not be accomplished by some nobler means ; what 
 an enduring truce is to war, co-operation is to the 
 never-ceasing conflict between Labor and Capital 
 — it is the Peace of Industry." 
 
 28
 
 PRINCIPLES OF RURAL CREDITS 
 
 Good Management Vital. While asso- 
 ciated effort through the co-operative prin- 
 ciple must be one Basis of rural credits, the 
 bill proposed aims at utmost efficiency in 
 management. It is intensely practical. It 
 is based on sound business principles. It 
 makes it possible for people to do collec- 
 tively those things which they can do better 
 than individually. At the same time, it of- 
 fers every stimulus to individual initiative, 
 self interest, personal responsibility and 
 moral accountability. 
 
 Rural Credits are Not to be offered to 
 those who know nothing about agriculture. 
 
 "The new system does not seek to place 
 on the land those whose ignorance of farm- 
 ing is surpassed only by their lack of cap- 
 ital. If such people really have a hanker- 
 ing for the farm let them hire out for a sea- 
 son or a year to some good farmer where 
 they may acquire, at the employing farm- 
 ers expense, the experience they must have 
 before they can expect to succeed on a farm 
 of their own. 
 
 "At the same time the employee's wife, 
 
 29
 
 RURAL CREDITS SYSTEM 
 
 by her work in the farmer's hoiisehold, will 
 learn what she needs to know to be a help- 
 meet instead of merely a help-eat when she 
 and her husband acquire a homestead of 
 their own." 
 
 Borrowers Must Have Some Capital. 
 
 Neither does the bill propose to set up in 
 business even the practical farmer and his 
 family who may have had some experience 
 in agriculture but who possess no capital 
 whatever. Such people should acquire 
 some means by saving their wages earned 
 by working for others, or by farming on 
 shares or other form of tenantry. 
 
 Starting with only their hands and head, 
 but by practicing such thrift, probably more 
 than two million farmers now living in the 
 United States have acquired farmsteads of 
 their own, and a majority of them today are 
 out of debt. 
 
 But the Real Farmer who has borrowed 
 half the fair value of his farm upon long 
 time and at very easy rates on a first mort- 
 gage from the Federal Land Bank, may 
 with safety be further assisted by a second 
 
 30
 
 PRINCIPLES OF RURAL CREDITS 
 
 mortgage through the Rural Credits Sys- 
 tem, for a period of say five years and for 
 an amount not exceeding 25 percent of the 
 farm's value. He can either pay the re- 
 mainder of the purchase price out of his 
 own savings, or preferably by giving ac- 
 commodation notes to the seller, thus re- 
 serving the balance of his own cash for 
 working capital with which to equip and 
 operate the farm. 
 
 The Co-operative Association of which 
 this man and all other farmers in a given 
 vicinity may be members also is to specially 
 benefit from the new Rural Credits System. 
 Its purpose may be to assemble, grade, 
 pack, distribute and market its members' 
 products in an orderly manner. Or it may 
 act as their collective agent in securing for 
 and distributing to the members such mer- 
 chandise, equipment, machinery, feed, fer- 
 tilizer or other supplies as the members 
 may require. 
 
 Orderly Marketing to farmers is equally 
 as important as orderly marketing by farm- 
 ers. 
 
 31
 
 RURAL CREDITS SYSTEM 
 
 By Joining the Debenture Bank for its 
 
 state, any incorporated agricultural co-op- 
 erative association becomes entitled to re- 
 discount through that bank the agricultural 
 loans, live stock paper, commodity paper or 
 real estate paper (as deiined by the Act) of 
 any member of the association. The bank 
 obtains the money for this purpose by sell- 
 ing its debentui'es secured by such collat- 
 eral or by borrowing from the central insti- 
 tution at Washington known as Federal 
 Rural Credits Company. 
 
 Mutual Benefits. Not only may the 
 farmer obtain capital through his *'co-op" 
 right in his own locality, but membership 
 therein brings him in closer touch with his 
 neighbors and with all the other members. 
 As each shareholder in this little local in- 
 corporated association is liable for double 
 the amount of his investment at par in the 
 shares thereof, one and all the members are 
 interested in the success of each. This is 
 all the more true because each member has 
 only one vote regardless of the number of 
 shares or amount of stock in the local held 
 by him.
 
 PRINCIPLES OF RURAL CREDITS 
 
 This very desirable co-operation is ac- 
 complished safely, for each member avoids 
 anything in the nature of joint or several 
 obligation, his personal liability being 
 strictly limited and fixed. 
 
 Obviously the Locals have frequent meet- 
 ings of their members to interchange views 
 and experiences. This brings farmers into 
 as close touch with the problems of buying 
 their supplies and marketing their products 
 as with the problems of practical farming 
 that occur on their respective farms, and all 
 under similar conditions. The local also is 
 a center for disseminating to its members 
 information from other sources whenever 
 it may be beneficial. 
 
 The Solid Base of this plan for rural 
 credits is founded primarily upon helping 
 the individual farmer to help himself by 
 means that are sound, economically and so- 
 cially, grounded in self-interest and fos- 
 tered by co-operation. 
 
 All Other Business Benefits by the result- 
 ing increase in agricultural prosperity. 
 Manufacturer and jobber, dealer and mer- 
 
 33
 
 RURAL CREDITS SYSTEM 
 
 chant, bank or trust company, town and 
 country, share liberally in the farmers' 
 progress. 
 
 All these other interests, and the general 
 public therefore should welcome the new 
 system which means so much to the public. 
 
 The Penalty Section of this bill provides 
 large fines or imprisonment or both for 
 almost any or all offences that may be com- 
 mitted against the proposed law. It is pro- 
 vided that the secret service may be em- 
 ployed to detect, arrest and deliver into cus- 
 tody any person violating the statute. 
 
 Should Congress enact the bill as out- 
 lined, any attempt to impose upon the sys- 
 tem, or to secure loans unfairly or to issue 
 debentures without adequate security will 
 be visited with condign punishment. The 
 proposed law guards against all forms of 
 abuse, under penalties for violation such 
 as to deter evil doers. 
 
 So Attractive to Investors, banks and 
 other institutions will be the credit instru- 
 ments arising out of the new system, that 
 
 34
 
 PRINCIPLES OF RURAL CREDITS 
 
 such paper will be marketable in the high- 
 est degree. 
 
 Indeed debentiires in small denomina- 
 tions will be bought freely by people whose 
 little funds now ''slip through their fing- 
 ers'\ The large denominations will be pop- 
 ular among the well-to-do for short term in- 
 vestment — six months to three or five years 
 — of the funds of wealthy individuals, 
 banks, other corporations and insurance 
 companies. 
 
 What social and civic benefits may not be 
 furthered when all people thus actually 
 own an interest, by virtue of their invest- 
 ment in Federal debentures, in the simpli- 
 fied production, economic distribution and 
 orderly marketing of the food they con- 
 sume ! 
 
 35
 
 CHAPTER THREE 
 
 WHY FEDERAL RURAL CREDITS 
 BOARD 
 
 THE magnitude of Rural Credits will 
 increase and decrease, when proper 
 facilities of the kind are provided, in 
 much the same way that current credits ex- 
 pand and contract under the Federal Re- 
 serve System. By this is not meant infla- 
 tion among farmers, or any undue expan- 
 sion of borrowings, but rather a larger use 
 of checks, notes, drafts, acceptances and 
 other credit instruments. 
 
 Farmers being provided with these 
 means of exchange, instead of having to 
 employ cash or barter to the extent pre- 
 viously in vogue, the financial operations of 
 agriculture will largely increase as the 
 better facilities for the interchange of cred- 
 its and for orderly marketing become avail- 
 able. 
 
 Consequently the rural credits business 
 of the country inevitably will become so 
 
 36
 
 WHY FEDERAL RURAL CREDITS BOARD 
 
 vast and fluctuating — from three to six bil- 
 lions a year — in volume as to require all of 
 the time, thought and abilities of a federal 
 supervising authority. 
 
 Its Work Will Be Different from that of 
 Federal Reserve Board, which has to do 
 with current credits and with the credit in- 
 struments used in the transactions of cur- 
 rent commerce. 
 
 Its work also will be almost entirely dif- 
 ferent from the duties of the Federal Farm 
 Loan Board, which has oversight of the 
 long term mortgage business under the 
 farm loan act. 
 
 No Interference with or mixing into the 
 Federal Reserve for current credits, or the 
 Federal Farm Loan System for long term 
 mortgages can be tolerated if American 
 finance is to be sound under every and all 
 conditions. 
 
 Nothing must be injected into the Fed- 
 eral Reserve that may impair its activities, 
 its efficiency or the liquidity of its funds. 
 
 On the other hand, nothing must be al- 
 lowed to impair the underlying security of 
 
 37
 
 RURAL CREDITS SYSTEM 
 
 the Federal Farm Loan System or of its 
 low-rate long-term bonds secured by under- 
 lying first mortgages on farms. 
 
 Public confidence in both of those sys- 
 tems is their greatest asset. Nothing should 
 be allowed to impair that confidence. 
 
 The Federal Rural Credits Board there- 
 fore is proposed as a separate and distinct 
 bureau in the Treasury Department to have 
 general control over and supervision of the 
 whole system of rural credits, so far as the 
 same may be under national law or so far as 
 the same under state law co-ordinates with 
 and shares in the benefits of the national 
 system. 
 
 This board shall consist of the Secretary 
 of the Treasury and four appointees by the 
 President, by and with the advice and con- 
 sent of the Senate. Not more than two shall 
 be from one political party, each shall be a 
 resident in and fairly representative of a 
 different geographical region, and each 
 shall be experienced in agriculture and 
 finance. One shall be the superintendent of 
 the Rural Credits System and their salaries 
 shall be $12,000. 
 
 38
 
 WHY FEDERAL RURAL CREDITS BOARD 
 
 Not Really a New Bureau is contemplat- 
 ed, however, for these men also constitute 
 Federal Rural Credits Company which 
 takes over War Finance Corporation as 
 fully described in our next chapter and in 
 the proposed bill. 
 
 This plan even avoids any new appropria- 
 tion by Congress, but utilizes and makes far 
 more efficient whatever personnel, equip- 
 ment, capital, organization and experience 
 may be afforded by War Finance Cor- 
 poration now to be disbanded. 
 
 The members of Federal Rural Credits 
 Board therefore will act in a dual capacity 
 — (a) as administrators of the details of the 
 whole system, and (b) as directors of Fed- 
 eral Rural Credits Company which per- 
 forms certain corporate acts. 
 
 Hence the salaries and expenses of the 
 board and of custodians, appraisers and ex- 
 aminers it appoints shall be paid by the 
 United States, but all other expenses of the 
 System, being directly or indirectly in the 
 interest of the Company, shall be paid by 
 the Company as an operating expense. 
 
 Broad Powers are conferred upon the 
 
 39
 
 RURAL CREDITS SYSTEM 
 
 Board throughout the bill. It may organize 
 and charter Federal Debenture Banks and 
 appoint a Custodian in each to have charge 
 of the collateral which secures the deben- 
 tures issued by such banks. It may examine 
 them and has power to remove officers 
 found incompetent. 
 
 The Board also may charter the local co- 
 operatives as described in Chapter Six. It 
 may have them examined, as well as the live 
 stock loan companies it approves. 
 
 Rates of Interest and Discount, also all 
 fees and other charges, are to be estab- 
 lished, reviewed or altered by Federal 
 Rural Credits Board, the bill providing that 
 they shall be unifor]:n so far as practical. 
 
 Extraordinary precautions will be found 
 in the bill whose purpose is to put a stop to 
 the bonuses, commissions and any or all 
 forms of graft by which farmers in particu- 
 lar have been unmercifully plucked, robbed 
 and defrauded for these many years. Those 
 abuses were often a necessary concomit- 
 ant of the lack of any adequate method of 
 farm finance. The bill proposes a system 
 whose simplicity, adequacy and economy 
 
 40
 
 WHY FEDERAL RURAL CREDITS BOARD 
 
 are such that these old forms of graft will 
 just naturally go into the discard. 
 
 Federal Debentures are to be prescribed 
 by the Board as to form, terms and inter- 
 est. It supervises their issue, rate of inter- 
 est, sale, redemption and cancellation with 
 the same care that is provided in the farm 
 loan act for Federal farm loan bonds. 
 
 These instruments are called debentures 
 to prevent any possibility of their being 
 confused in the public mind with United 
 States bonds or Federal farm loan bonds. 
 
 The term "debentures" also is proper- 
 ly applied to instruments, the security for 
 which is held in a collateral trust by the 
 federal Custodian of each debenture bank. 
 The safety, availability and desirability of 
 Federal debentures as emphasized in Chap- 
 ter Five manifestly will make them popular 
 and marketable. 
 
 The Other Duties and powers which the 
 bill confers upon Rural Credits Board can 
 be best grasped by a careful reading of the 
 entire bill which forms the Appendix of this 
 book. 
 
 41
 
 CHAPTER FOUR 
 
 FEDERAL RURAL CREDITS COM- 
 PANY 
 
 BESIDES serving as supervisors of the 
 System, as described in the preceding 
 chapter, the bill also incorporates the 
 five members of Federal Rural Credits 
 Board as "a body corporate and politic in 
 deed and in law," to have succession until 
 dissolved by Congress under the name of 
 "Federal Rural Credits Company." 
 
 Here it should be reiterated that this is 
 done merely to create a corporation which 
 may actually transact business as a legal 
 entity, separate and distinct from the ad- 
 ministrative features as such of the Rural 
 Credits Board. 
 
 While its name is new, as a matter of fact 
 the Company is not new. 
 
 As Successor to War Finance Corpora- 
 tion, Federal Rural Credits Company takes 
 over and shall be vested with all the assets,
 
 RURAL CREDITS SYSTEM 
 
 liabilities, powers, rights and privileges of 
 that corporation. The latter's organization 
 and personnel as a going concern will be 
 available to the company, so far as the 
 same are required. 
 
 The change does not even call for an ap- 
 propriation. On the contrary — 
 
 The Capital Is to be Reduced from the 
 present $500,000,000 to half that sum, as 
 soon as the liquidation of War Finance 
 Corporation will permit, thus returning 
 $250,000,000 to the Treasury. 
 
 The capital of Rural Credits Company 
 shall never be less than $250,000,000, and it 
 may accumulate a surplus to an amount of 
 an additional $100,000,000. 
 
 Large Revenues will Accrue to the Unit- 
 ed States as all earnings of Federal Rural 
 Credits Company, in excess of the author- 
 ized surplus, go to the federal treasury as a 
 franchise tax. 
 
 In addition to such revenue, all the earn- 
 ings of each Federal Debenture bank over 
 and above certain specifications, also go to 
 the Treasury as a franchise tax. 
 
 44
 
 FEDERAL RURAL CREDITS COMPANY 
 
 That is to say, Uncle Sam gets whatever 
 profits the Rural Credits System may make 
 as such, in excess of a moderate dividend 
 upon capital, after the accumulation of a 
 reasonable surplus. In addition to this, as 
 will be seen in Chapter Five, the Treasury 
 eventually will have returned to it all of the 
 money advanced by the Company as initial 
 capital to the respective debenture banks. 
 
 The Initial Capital of one Federal Deben- 
 ture Bank in each state is to be provided by 
 Federal Rural Credits Company at the rate 
 of $1,000 for each million dollars of all farm 
 property within the state for which said 
 bank is established, as shown by the Four- 
 teenth census, with the exceptions below 
 mentioned. 
 
 The basis thus established is equivalent 
 to one dollar of initial capital to each de- 
 benture bank for each $1000 represented 
 by the total value of all farm property. 
 
 Including the adjustment for the lesser 
 agricultural states, the accompanying map 
 shows in round numbers the initial capital 
 available for each State's debenture bank. 
 
 45
 
 RURAL CREDITS SYSTEM 
 
 The precise figures appear in the table on 
 pages 48-49. 
 
 It will be seen that, when one debenture 
 bank shall have been established in every 
 state, a total of $80,528,117 will have been 
 invested in the shares thereof by Federal 
 Rural Credits Company. This would then 
 leave the latter $169,471,883 of free work- 
 ing capital out of its minimum capital of 
 $250,000,000. 
 
 The Reason for This Amount of capital 
 on the part of the Company is not only that 
 it may advance the initial capital to the de- 
 benture bank of each state, but also that it 
 may have an ample amount of free funds 
 with which to make loans to debenture 
 banks or other institutions provided by this 
 Act, or to buy their securities, including 
 federal debentures. 
 
 It is quite likely that the mere presence 
 of this amount of free working capital, and 
 the market it insures for the various securi- 
 ties that may be uttered in this intermediate 
 system of credits, will so stabilize such se- 
 curities that banks generally will be pleased 
 to accept the same as collateral. 
 
 46
 
 FEDERAL RURAL CREDITS COMPANY 
 
 Precisely similar results have occurred in 
 the experience of War Finance Corpora- 
 tion. Where it offered to make liberal ad- 
 vances to co-operative association, that fact 
 so strengthened their credit that existing 
 banks sought their business, and the 
 amount of cash that actually had to be put 
 up by the Corporation in some cases was 
 quite limited. 
 
 Another reason why the company should 
 have liberal working funds available is for 
 use in extending export credits during 
 periods of abnormal surplus, as well as for 
 use in any other emergencies that may arise. 
 
 The Return to the central company of its 
 advance of initial capital to the debenture 
 bank in each state will come about in the 
 fullness of time, as the bill provides and as 
 is discussed in the next chapter. As this 
 return is accomplished, however, the rural 
 credits system will attain proportions so 
 large that such increase in the funds of the 
 central organization may not more than 
 keep pace with the country's needs. 
 
 The near future is to witness an expan- 
 sion of agriculture, and a development of 
 
 47
 
 RURAL CREDITS SYSTEM 
 
 Debenture Bank in Each State 
 
 TABLE SHOWING INITIAL CAPITAL AND PROPOSED INVEST- 
 MENT BY EACH STATE IN DEBENTURES 
 
 These two amounts forming total funds available for starting the 
 
 federal debenture bank in each state. 
 Column 1 — Total internal revenue receipts from income and profits 
 
 taxes and miscellaneous taxes for year ended June 31, 1921, in round 
 
 millions of dollars. 
 Column 2 — Value of all farm property in 1920 as shown by the four- 
 teenth census of the United States. 
 Column 3 — Names of regions and states. 
 Column 4 — Initial capital of federal debenture bank of each state put 
 
 up by Federal Rural Credits Company. 
 Colimin B — Amount proposed to be invested by each state in debentures 
 
 Issued by the federal debenture bank therein. 
 Column 6 — Adds columns four and five to show total funds available 
 
 for the federal debenture bank in each state as it begins business. 
 1— 
 
 Taxes 
 
 
 
 
 
 
 Mil- 
 
 2— Value 
 
 8 — Names 4 — Initial 5 
 
 — Invested by 
 
 6— Total 
 
 lions 
 
 Farm Property 
 
 of States 
 
 Capital 
 
 Each State 
 
 Funds 
 
 $4,595 
 
 $77,924,100,338 
 
 U S total $77,924,100 $77,924,100 $155,848,200 
 
 408 
 
 1,173,019,594 
 
 New Eng. 
 
 1,173,019 
 
 1,173.019 
 
 2,346,038 
 
 1,757 
 
 3,949,684,183 
 
 Mid. Atlan. 
 
 3.949,684 
 
 8,949.684 
 
 7,899.308 
 
 1,098 
 
 17,245,862,593 
 
 E. N. Cen. 
 
 17.245.362 
 
 17.245.362 
 
 34.490,724 
 
 313 
 
 27,991,434,545 
 
 W. N. Cen. 
 
 27,991.434 
 
 27.991.434 
 
 55.982.868 
 
 414 
 
 6,132.917,760 
 
 So. Atlan. 
 
 6.132.917 
 
 6.132.917 
 
 12,265.834 
 
 112 
 
 4.419,466,237 
 
 E. S. Cen. 
 
 4,419.466 
 
 4,419,466 
 
 8,838.932 
 
 157 
 
 7,622,066,027 
 
 W. S. Cen. 
 
 7,622.066 
 
 7.622.066 
 
 15,244,132 
 
 55 
 
 4,083,137,959 
 
 Mountain 
 
 4,083,137 
 
 4.083.137 
 
 8,160.274 
 
 247 
 
 5,307,011,460 
 
 Pacific 
 New England 
 
 5,307,011 
 
 5,307,011 
 
 10.614.022 
 
 18 
 
 270.526,733 
 
 Maine 
 
 270,526 
 
 270.526 
 
 541.052 
 
 10 
 
 118.656.115 
 
 New Hamp. 
 
 118.656 
 
 118.656 
 
 237.312 
 
 6 
 
 222,736,620 
 
 Vermont 
 
 222.736 
 
 222.786 
 
 445,472 
 
 260 
 
 800,471,743 
 
 Massachusetts 
 
 300.471 
 
 300.471 
 
 600,942 
 
 42 
 
 33.636.766 
 
 Rhode Island 
 
 33.636 
 
 38.636 
 
 67,272 
 
 72 
 
 226.991,617 
 
 Connecticut 
 Middle Atlantic 
 
 226,991 
 
 226,991 
 
 453,982 
 
 1,125 
 
 1,908,483,201 
 
 New York 
 
 1,908,483 
 
 1.908,483 
 
 3,816,966 
 
 143 
 
 311,847,948 
 
 New Jersey 
 
 311,847 
 
 311.847 
 
 623,694 
 
 489 
 
 1,729.353,034 
 
 Pennsylvania 
 
 1,729,353 
 
 1,729,353 
 
 3.458,706 
 
 
 
 East North Central 
 
 
 
 285 
 
 3.095,666.336 
 
 Ohio 
 
 3,095,666 
 
 3.095.666 
 
 6.191.332 
 
 889 
 
 6,666,767,235 
 
 Illinois 
 
 6.666.767 
 
 6.666.767 
 
 13,333.534 
 
 78 
 
 3,042,311,247 
 
 Indiana 
 
 8,042.311 
 
 3.042.311 
 
 6,084.622 
 
 272 
 
 1,763,334,778 
 
 Michigan 
 
 1.763,334 
 
 1.763.334 
 
 3.526,668 
 
 74 
 
 2,677,282,997 
 
 Wisconsin 
 
 2.677.282 
 
 2.677,282 
 
 5,354,564 
 
 
 
 We.st North Central 
 
 
 
 78 
 
 8,787,420,118 
 
 Minnesota 
 
 3,787,420 
 
 3.787,420 
 
 7,574,840 
 
 38 
 
 8,524,870,956 
 
 Iowa 
 
 8.524,870 
 
 8,524,870 
 
 17,049,740 
 
 48
 
 DEBENTURE BANK IN EACH STATE 
 
 1— 
 
 Taxes 
 
 
 
 
 
 
 Mil- 
 
 2— Value 
 
 3 — Regions i 
 
 —Initial 5 
 
 — Invested by 
 
 6— Total 
 
 lions 
 
 Farm Property 
 
 and States 
 
 Capital 
 
 Each State 
 
 Funds 
 
 126 
 
 3,591.068.085 
 
 Missouri 
 
 8,591,068 
 
 8.591.068 
 
 7,182,136 
 
 3 
 
 1.759,742.995 
 
 No. Dakota 
 
 1,759,742 
 
 1.759.742 
 
 3,519,484 
 
 6 
 
 2,823,870,212 
 
 So. Dakota 
 
 2,823.870 
 
 2.823.870 
 
 5,647,740 
 
 24 
 
 4,201.655,992 
 
 Nebraska 
 
 4,201,655 
 
 4.201,655 
 
 8,403,310 
 
 89 
 
 3,302,806.187 
 
 Kansas 
 South Atlantic 
 
 3,302,806 
 
 3,302,806 
 
 6,605,612 
 
 12 
 
 80.137.614 
 
 Delaware 
 
 80,137 
 
 80,137 
 
 160,274 
 
 72 
 
 463,638,120 
 
 Maryland 
 
 463,638 
 
 463.638 
 
 927,276 
 
 19 
 
 5,957.987 
 
 Dist. of Col. 
 
 5,927 
 
 5.927 
 
 11,854 
 
 62 
 
 1,196,555,772 
 
 Virgina 
 
 1,196,555 
 
 1.196.555 
 
 2,393,110 
 
 42 
 
 496,439,617 
 
 W. Virginia 
 
 496,439 
 
 496,439 
 
 992,878 
 
 125 
 
 1,250,166.995 
 
 No. Carolina 
 
 1,250,166 
 
 1.250.166 
 
 2,500,382 
 
 29 
 
 953,064.742 
 
 So. Carolina 
 
 953,064 
 
 953.064 
 
 1,906,128 
 
 37 
 
 1.356,685.196 
 
 Georgia 
 
 1,356,685 
 
 1.356,685 
 
 2,713,370 
 
 16 
 
 330,301.717 
 
 Florida 
 
 330,301 
 
 330,301 
 
 660,602 
 
 
 
 East South Central 
 
 
 
 61 
 
 1.511.901,077 
 
 Kentucky 
 
 1,511.901 
 
 1,511,901 
 
 3.023,802 
 
 34 
 
 1,251,964,585 
 
 Tennessee 
 
 1.261.964 
 
 1,251,964 
 
 2,503,928 
 
 18 
 
 690.848.720 
 
 Alabama 
 
 690,848 
 
 690,848 
 
 1,381,696 
 
 9 
 
 964.751,855 
 
 Mississippi 
 
 964,751 
 
 964,751 
 
 1,929,502 
 
 
 
 West South Central 
 
 
 
 11 
 
 924,395,483 
 
 Arkansas 
 
 924.395 
 
 924,395 
 
 1,848,790 
 
 40 
 
 589,826,679 
 
 Louisiana 
 
 589,826 
 
 589,826 
 
 1,179,652 
 
 28 
 
 1,660,423.544 
 
 Oklahoma 
 
 1,660,423 
 
 1,660,423 
 
 3.320.846 
 
 78 
 
 4.447,420.321 
 
 Texas 
 Mountain 
 
 4,447,420 
 
 4,447,420 
 
 8.894.840 
 
 6 
 
 985.961.308 
 
 Montana 
 
 985,961 
 
 985.961 
 
 1.971,922 
 
 6 
 
 716,137,910 
 
 Idaho 
 
 716,137 
 
 716,137 
 
 1,432,274 
 
 8 
 
 334,410,590 
 
 Wyoming 
 
 334.410 
 
 334,410 
 
 668,820 
 
 34 
 
 1,076,794,749 
 
 Colorado 
 
 1,076,794 
 
 1,076,794 
 
 2,153,588 
 
 2 
 
 325,185,999 
 
 New Mexico 
 
 325,185 
 
 325,185 
 
 650,370 
 
 4 
 
 233,592,989 
 
 Arizona 
 
 233,592 
 
 233,592 
 
 467,184 
 
 11 
 
 311,274,728 
 
 Utah 
 
 311,274 
 
 311,274 
 
 622,548 
 
 1 
 
 99,779,666 
 
 Nevada 
 Pacific 
 
 99,779 
 
 99.779 
 
 199.558 
 
 37 
 
 1,057.429,848 
 
 Washington 
 
 1,057,429 
 
 1,057,429 
 
 2,114,858 
 
 28 
 
 818,559,751 
 
 Oregon 
 
 818.559 
 
 818,559 
 
 1,637,118 
 
 182 
 
 3.431.021,861 
 
 California 
 
 3.431,021 
 
 3,431,021 
 
 6,862,042 
 
 The bill provides that in states where the total value of farm 
 property is under $500,000,000. the initial capital advanced shall be 
 $500,000 except that in states where the value of farm property is 
 less than $100,000,000, the initial capital so advanced shall be $100,000. 
 Thus $100,000 will be advanced to Nevada. Delaware and Rhode 
 Island, while $500,000 will be the advance to Maine. New Hampshire, 
 Vermont, Massachusetts, Connecticut, New Jersey, West Virginia, and 
 Florida. 
 
 49
 
 RURAL CREDITS SYSTEM 
 
 all productive industry, throughout the 
 United States which will require large and 
 generous as well as safe and conservative 
 means for adequately financing it. 
 
 The Basis Used for Apportioning the in- 
 itial capital seems to be the fairest that can 
 be devised. It is true that the Fourteenth 
 census shows a highly inflated value for all 
 farm property, and that such inflation is 
 greatest in certain western states. 
 
 It is true also that such inflation was rel- 
 atively less at the South, least of all in 
 the Middle and Eastern States. 
 
 Hence it is that by this apportionment 
 New England receives a relatively small 
 sum, although she pays a vastly larger vol- 
 ume of federal internal revenue taxes than 
 any of the western states that receive two 
 or three, and in the case of Iowa over four 
 times, as much initial capital. The discrim- 
 ination against the Empire state is even 
 larger. Further comparisons may be made 
 by means of the tax revenue shown in the 
 first column of the tabular exhibit page 48. 
 
 This Injustice to the East is remedied in 
 
 50
 
 FEDERAL RURAL CREDITS COMPANY 
 
 part, however, by the exception in paragraph 
 4 of Section 6 of the bill — that in any state 
 wherein the total value of all farm property 
 is under $500,000,000, the company shall 
 invest $500,000 in the initial capital of the 
 land bank. This provision applies to Maine, 
 New Hampshire, Vermont, Massachusetts, 
 Connecticut, New Jersey, West Virginia, 
 and Florida. 
 
 Several important western states, that 
 certainly need more capital for their deben- 
 ture bank, also come under this provision. 
 These are Wyoming, New Mexico, Arizona 
 and Utah. 
 
 The paragraph referred to also provides 
 that $100,000 shall be put up for the deben- 
 ture bank's initial capital by the Company 
 in states having less than $100,000,000 of 
 farm property — Nevada, Delaware and 
 Rhode Island. 
 
 It will be seen that taking all the states 
 into consideration, the apportionment 
 works out as nearly equitable as possible, 
 and also provides sufficient capital for the 
 objects desired. 
 
 51
 
 RURAL CREDITS SYSTEM 
 
 A Question has been Raised whether the 
 smaller states will have sufficient busi- 
 ness to require one debenture bank. 
 Rhode Island and Connecticut have been 
 mentioned as states so small as not to re- 
 quire the benefits of this system. 
 
 Yet the agriculture of even Little Rhody 
 is of vital importance to the teeming popu- 
 lation of that small state. Those people 
 must be fed and clothed in order to labor 
 in her manufactures as well as to enable her 
 to yield $42,000,000 in direct annual rev- 
 enues to the federal government — a much 
 larger sum than is paid by several of the 
 great agricultural states. 
 
 Certainly a temporary advance of only 
 $100,000 for the initial capital of Rhode 
 Island's federal debenture bank is the least 
 recognition that can be made of the impor- 
 tance of her position in agriculture, indus- 
 try and revenue producing power. 
 
 The same argument applies with even 
 greater force to a few of the other eastern 
 and southern states that come in under this 
 exception. 
 
 As to Wyoming, New Mexico, Arizona 
 
 52
 
 FEDERAL RURAL CREDITS COMPANY 
 
 and Utah with their great but relatively un- 
 developed agricultural possibilities, cer- 
 tainly $500,000 as the temporary advance 
 of initial capital for the debenture bank in 
 each of these states is barely commensurate 
 with their needs. 
 
 The Great Revenue Producing States of 
 
 Massachusetts, New York, Pennsylvania, 
 Ohio, Michigan and Illinois justly feel that 
 they have been grossly discriminated 
 against by War Finance Corporation. While 
 its half billion of capital indirectly came so 
 largely from these States, its loans to farm- 
 ers in some of these States have been rela- 
 tively little or nil. 
 
 "The nearly 7,000 loans it has author- 
 ized to banks in the agricultural sec- 
 tions aggregated about $161,000,000; the 
 loans authorized to live stock loan compa- 
 nies and banks upon the security of live 
 stock totaled more than $84,000,000; and 
 those authorized to co-operative marketing 
 associations amounted to approximately 
 $64,000,000." Probably not 5 per cent of this 
 vast total, exceeding $300,000,000, was 
 
 53
 
 RURAL CREDITS SYSTEM 
 
 loaned to or for the benefit of farmers in 
 the revenue producing states named. 
 
 No Criticism Is Intended of the conduct 
 of War Finance Corporation by the fore- 
 going remarks. Its work was an emergency 
 measure. Its advances were made with the 
 utmost speed, consistent with reasonable 
 safety, in localities where the thawing out 
 of frozen credits was expected to be most 
 advantageous to the agricultural industry. 
 
 Even in those sections farmers who failed 
 to receive advances or were denied loans by 
 their banks or associations from War 
 Finance Corporation, were as bitterly dis- 
 appointed as were farmers in other states 
 and regions where not even the phantom of 
 these funds was ever revealed. 
 
 The Work Done by War Finance Corpo- 
 ration from the time its resumed operations 
 4 January, 1921, to and including 10 June, 
 1922, shows that in that period it authorized 
 loans aggregating "$247,197,357to banking 
 and financing institutions, including live 
 stock loan companies, for agricultural and 
 live stock purposes. Of this sum, $227,000,- 
 
 54
 
 FEDERAL RURAL CREDITS COMPANY 
 
 633 had actually been paid out on that date, 
 and $4,965,408 represents applications 
 which were approved by the Corporation 
 but subsequently withdrawn by the appli- 
 cants for various reasons. The remainder, 
 approximately $15,000,000, was in the 
 course of being paid out. 
 
 "In the case of loans to co-operative mar- 
 keting associations, the situation is some- 
 what different. These organizations esti- 
 mate their probable needs during a certain 
 period and make application to the Corpo- 
 ration for an amount which, in their opin- 
 ion, will cover these needs. Each applica- 
 tion is considered by the Board and, if ap- 
 proved, the Board agrees to make advances 
 up to a specified amount, within a specified 
 period, as the money is needed, as the 
 proper documents are submitted to the 
 Federal Reserve bank, and as all require- 
 ments are met. 
 
 "In practically every case, the agreement 
 by the Corporation to make an advance to a 
 co-operative marketing association has 
 made it possible for the association to se- 
 cure considerable funds through banking 
 
 55
 
 RURAL CREDITS SYSTEM 
 
 channels which otherwise they would not 
 have been able to obtain. This is clearly 
 illustrated by the fact that, while the Cor- 
 poration agreed to lend more than $64,000,- 
 000 to co-operative marketing associations 
 in all parts of the country, to assist them in 
 the orderly marketing of their products, in 
 most cases only a small part — approximate- 
 ly $18,200,000— of the credit authorized has 
 actually been used. 
 
 "At one time a co-operative association 
 in California applied to the Corporation for 
 an advance of $2,500,000. The association 
 had made an effort to secure the funds it 
 needed from banking institutions without 
 success. The board suggested that they 
 take half the amount from the Corporation 
 and then see what the banks would do. 
 Shortly after the transaction was an- 
 nounced a banker got in touch with the rep- 
 resentatives of the association and asked 
 them to take all the money they required 
 from his institution. In other words, the 
 agreement on the part of the Corporation 
 to make an advance has an important psy- 
 
 56
 
 FEDERAL RURAL CREDITS COMPANY 
 
 chological effect entirelj^ aside from the 
 actual amount of money loaned. 
 
 The repayments received by the Corpora- 
 tion on account of all loans, that is, loans 
 made both before and after the resumption 
 of operations in January, 1921, amount to 
 $152,733,520. Of this amount, $36,055,352 
 represents repayment on account of loans 
 made under the war powers of the Corpora- 
 tion, $74,359,430 on account of loans for ex- 
 port purposes, and $42,322,738 on account 
 of loans for agricultural and live stock pur- 
 poses under the Agricultural Credits act." 
 
 A Permanent System for Rural Credits 
 obviously demands that capital be made 
 available to a degree based upon, if not 
 commensurate with the total investment in 
 agriculture and the volume of business 
 growing out thereof. 
 
 For instance, to adequately deal with the 
 rural credits problem of Illinois, a state 
 with nearly seven billions of value repre- 
 sented in all its farm property, requires 
 about seven millions for the initial capital 
 of the Federal Debenture Bank which is to 
 
 57
 
 RURAL CREDITS SYSTEM 
 
 finance the agriculture of that great state, 
 other than current commercial credits and 
 long term farm mortgage credits. 
 
 On the other hand, Delaware with only 
 80 millions of farm property can make a 
 fair start in rural credits service to her 
 farmers with an initial capital of only 
 $100,000 for the Federal Debenture Bank 
 of Delaware. The corresponding condi- 
 tions in each of the other states are clearly 
 set forth in the table on page 48. 
 
 The Duties of the Company are to employ 
 its free capital in the purchase of deben- 
 tures based upon agricultural loans, live 
 stock paper, commodity paper or real estate 
 obligations, as defined in the Act, in such a 
 way as to benefit the market for these secu- 
 rities and facilitate to the utmost the rural 
 credit needs of the different regions of the 
 United States. It also may loan its funds 
 to institutions under the act for similar 
 purposes. 
 
 Its powers in this respect are broad, yet 
 wisely restricted. They enable it to be of 
 large service, with a minimum of risk and
 
 FEDERAL RURAL CREDITS COMPANY 
 
 with a maximum of benefit to agriculture 
 in particular and to the nation as a whole. 
 
 An Abnormal Surplus of any staple agri- 
 cultural product in the United States may 
 be dealt with by the company under the spe- 
 cial provisions of Section 7. 
 
 It provides that, in such emergency the 
 Company may make advances for not ex- 
 ceeding one year "to enable producers of or 
 dealers in such products to carry them un- 
 til they can be manufactured, processed, ex- 
 ported, or sold for export in an orderly 
 manner." 
 
 This is an extraordinary provision for 
 meeting extraordinary conditions. It is one 
 of the chief features by which the Norbeck 
 bill varies from the others. It is based upon 
 much careful thought by competent men of 
 large experience in our domestic and for- 
 eign trade and has the approval of the co- 
 operative association which has had a long 
 and successful experience in orderly mar- 
 keting. 
 
 The existence of this power is one assur- 
 ance against its ever having to be used. Yet 
 if an emergency becomes so serious as to 
 
 59
 
 RURAL CREDITS SYSTEM 
 
 require v/isely constructive and reasonably 
 generous dealings to tide over a crisis in 
 our export trade, section seven provides 
 therefor, even to the extent of conserva- 
 tively limited use of the Federal Reserve 
 System. 
 
 Had section seven been in effect early in 
 1921, operations thereunder could have 
 done much to prevent the fearful collapse 
 in corn values, an incident that worked fi- 
 nancial havoc throughout many states. That 
 situation could have been ameliorated, un- 
 der section seven, with relatively small risk 
 and at much benefit to the whole country. 
 
 To Organize this System of intermediate 
 credits, whereby may be mobilized and 
 rendered available the character, security 
 and collateral of the great agricultural pro- 
 ducing masses, is vastly more important 
 than the amount of capital stock that may 
 be paid up. 
 
 An effective organization is the all im- 
 portant factor to be recognized Criticise 
 the details of the plan, if you please, but do 
 not overlook this its vital strength. 
 
 60
 
 FEDERAL RURAL CREDITS COMPANY 
 
 On the other hand, an ample reservoir of 
 capital as provided by the central company 
 at Washington, with its additional redis- 
 count powers for emergencies, will go far 
 to insure the absolute success of this plan 
 for intermediate credits. 
 
 Indeed it may be that, except in times of 
 strain, the amount of federal debentures 
 which may have to be issued by the bank in 
 any state will be relatively limited. But the 
 insurance is there, should it ever be re- 
 quired. 
 
 61
 
 WAR FINANCE CORPORATION 
 
 OPERATIONS OF THE WAR FINANCE CORPORATION FROM 
 JANUARY 4, 1921, TO AND INCLUDING JUNE 10, 1921 
 
 I. Advances to assist in financing exports under Sections 21, 22, and 
 
 24 (Par. 2) approved from January 4, 1921, to June 10, 1922, inclu- 
 sive (1). 
 
 Grain $ 5,209,810.69 
 
 Tobacco 3.596,369.77 
 
 Cotton 33,572,373.21 
 
 Canned fruits 500,000.00 
 
 Meat products 1,000,000.00 
 
 Condensed milk 1,000,000.00 
 
 Textile products 250,000.00 
 
 Sheet steel 180,000.00 
 
 Copper 145,600.00 
 
 Sugar-mUl machinery 470,966.36 
 
 Agricultural machinery 600,000.00 
 
 Railroad equipment 2,925,000.00 
 
 Lumber 1,000,000.00 
 
 (2) Total $50,350,120.03 
 
 (1) Section 21 was added to the original War Finance Corporation 
 Act by the Act of March 3, 1919, and Sections 22 and 24 by the 
 Agricultural Credits Act of August 24, 1921. 
 
 (2) Does not include advances aggregating $27,387,816.10 originally 
 applied for and approved under Section 21 for export purposes, and 
 subsequently withdrawn by the applicants and resubmitted and ap- 
 proved as advances for agricultural purposes under Section 24. 
 
 (2) Of the total amonni. $57,673,650.26 represents advances approved 
 subsequent to August 24, 1921. 
 
 II. Advances to banking and financing institutions and cooperative 
 associations for "agricultural and live stock purposes" under Section 
 24 (Par. 1) approved from August 24, 1921, to June 10, 1922, incln- 
 sive (3). 
 
 (a) By Commodities 
 
 Cotton $ 23.504,200.52 
 
 Grain 21,290.189.31 
 
 Live stock 85,085,168.30 
 
 Sugar beets 9,996,000.00 
 
 Sugar cane 350.000.00 
 
 Rice 2,750,000.00 
 
 Canned fruits 300.000.00 
 
 Dried fruits 1.250.000.00 
 
 Peanuts 1.142,334.00 
 
 Tobacco 10,000,000.00 
 
 Hay 260,000.00 
 
 Gen. ag'l purposes 150,661,915.84 
 
 (5) Total $306,589,807.97 
 
 62
 
 (b) By States 
 
 (1) To Banking: and Financing Institutions. 
 
 Alabama $ 802,703.30 Nevada 504,500.00 
 
 Arizona 4,333,000.00 New Mexico 7,999,127.69 
 
 Arkansas 553,500.00 New York 600,000.00 
 
 California 2,684.671.28 North Carolina 8,633,500.00 
 
 Colorado 10,587,172.33 North Dakota 20,749,761.21 
 
 Florida 782.000.00 Ohio 1,433,806.00 
 
 Georgia 6,585,934.88 Oklahoma 3,902,498.68 
 
 Idaho 5.692,237.12 Oregon 5,855,190.64 
 
 Illinois 6,625,873.14 South Carolina 10,407.259.25 
 
 Indiana 1,385,950.00 South Dakota 15,278,684.50 
 
 Iowa 23,972,277.65 Tennessee 3.608.202.11 
 
 Kansas 5.085,206.63 Texas 22,618,799.12 
 
 P"^ucky 1"-^^^^^ Utah 11,766,676.00 
 
 ^^r^i^^^ ^'^n^'nnnnn Virginia 2,005,700.00 
 
 Michigan 105,000.00 _. , . . onr, nnr^ on 
 
 Minnesota 12.623,109.26 Washington . ^^°•I^^^° 
 
 Mississippi 1,517,838.19 Wisconsin 5,792,000.00 
 
 Missouri 8,056,812.43 Wyoming 8.466.483.18 
 
 Montana 11,026,402.50 
 
 Nebraska 12,123.967.15 (4) Total $247,197,357.87 
 
 (b) By States 
 
 (2) To Cooperative Association.a. 
 
 Alabama $ 100,000.00 
 
 Arizona 1.200,000.00 
 
 Arkansas 1,250,000.00 
 
 California 3,050,000.00 
 
 Georgia 350.000.00 
 
 Idaho 962,355.66 
 
 Kentucky 10,000,000.00 
 
 Minnesota 15,000,000.00 
 
 Mississippi 5.060,060.29 
 
 Oklahoma 6.000.000.00 
 
 Texas 10.047,566.50 
 
 Virginia 1.044.634.00 
 
 Washington 5,327,833.65 
 
 (5) Total '.$59,392,450.10 
 
 (3) Section 24 was added to the original War Finance Corporation 
 Act by the Agricultural Credits Act of August 24, 1921. 
 
 (4) Includes application totaling $4,965,408.60 which were approved 
 by the Corporation, but subsequently withdrawn by the applicant. 
 
 (5) This sum includes advances aggregating $27,387,816.10 orginally 
 applied for and approved for export purposes (under Section 21) 
 and subsequently withdrawn by the applicants and resubmitted and 
 approved as advances for agricultural purposes under the Agricultural 
 Credits Act of August 24, 1921, (Section 24). 
 
 III. Summary of advances for export and agricultural purposes. 
 
 To cooperative associations $ 64,654,634.00 
 
 To banking and financing institutions 283,219,585.11 
 
 To exporters 9,065,708.89 
 
 Total $356,939,928.00 
 
 63
 
 CHAPTER FIVE 
 FEDERAL DEBENTURE BANKS 
 
 THE nature, variety and magnitude of 
 the credit instruments and transac- 
 tions arising out of an adequate sys- 
 tem of rural credits, will be such as impera- 
 tively to require intimate acquaintanceship 
 therewith on the part of a supervising in- 
 stitution within the State and covering the 
 whole State. 
 
 Only in this manner may assurance be 
 made doubly sure that the paper offered by 
 farmers and others as collateral for the is- 
 sue of debentures shall in every way com- 
 ply with the letter and spirit of the Act pro- 
 posed. 
 
 This statement will be approved gener- 
 ally by country bankers and others expe- 
 rienced in the agricultural phases of 
 finance. One institution in each State which 
 is to pass upon the securities offered will 
 possess the knowledge of conditions in each 
 
 65
 
 RURAL CREDITS SYSTEM 
 
 locality so essential to intelligent judgment 
 of values and of credits. 
 
 Each States Owes a Duty, also, to the 
 basic industry of agriculture within its 
 borders. This is as true of the so-called 
 manufacturing or industrial States as of 
 those in which agriculture is the predomi- 
 nant industry. 
 
 Heretofore, some States of the latter 
 type have been only too willing to accept 
 Federal aid, without doing their part to de- 
 serve it. Since any form of aid from the 
 Treasury to the respective States implies 
 that the Federal taxes derived from the 
 wealthier States shall be expended in over- 
 generous proportions in States of less reve- 
 nue-producing power, it is all the more ap- 
 parent that States of the former type will 
 become restive over any form of federal co- 
 operation which fails to take cognizance of 
 this disparity. 
 
 The Least Any State Should Do, there- 
 fore, to insure the success of an adequate 
 rural credit system, are these two things: 
 
 (a) It should put up one dollar of state 
 funds for this purpose against each dollar 
 
 66
 
 FEDERAL DEBENTURE BANKS 
 
 supplied directly or indirectly from the fed- 
 eral treasury. 
 
 (b) It should decree that the debentures 
 issued by its Federal Debenture bank, and 
 any paper uttered by or indorsed by Fed- 
 eral Rural Credits Company, shall be a 
 legal investment for all trustees, fiducia- 
 ries, courts, banks, trust companies, saving 
 institutions, insurance companies and any 
 or all other corporations or institutions in- 
 corporated under the laws of or doing busi- 
 ness within the state. 
 
 Matching Federal By State Money, for 
 purposes conducted wholly under federal 
 authority, is becoming increasingly unpop- 
 ular among the States that pay the largest 
 taxes to the federal government, both ac- 
 tually and relatively. This feeling is so 
 strong in New York, for instance, that her 
 legislature refused to accept her quota un- 
 der the so-called maternity act, but proceed- 
 ed to establish a work of that character 
 solely under the auspices of the State and 
 wholly at its expense. That is to say. New 
 York feels so deeply on this subject that the 
 federal taxes she pays not only furnish 
 
 67
 
 RURAL CREDITS SYSTEM 
 
 much of the so-called maternity fund for 
 other states, but in addition to that, New 
 York puts up her own funds for her own 
 work in behalf of what have come to be 
 known as "better babies!" 
 
 Were it not for the fact that the Rural 
 Credits Company succeeds to the assets of 
 War Finance Corporation, and proposes 
 also to return to the federal treasury half 
 of that corporation's capital of $500,000,- 
 000, it would be difficult to secure favorable 
 action in either House or Senate upon this 
 feature of the proposed bill. 
 
 The Question of State Rights, curiously 
 enough, is now being urged by such states 
 as Michigan, Illinois, Pennsylvania, New 
 York and Massachusetts ! 
 
 The chart at the opening of this chapter 
 emphasizes why these great revenue pro- 
 ducing states are so restive. That chart 
 should be carefully studied with reference 
 to this phase of the subject. Also see the 
 tables on pages 48-49. 
 
 This condition of affairs must be recog- 
 nized in the effort to build up any plan of 
 rural credits. Back of it lies the principle 
 
 6&
 
 FEDERAL DEBENTURE BANKS 
 
 of independence, of individual initiative, of 
 self-help, which if properly recognized and 
 intelligently employed may become founda- 
 tions of imperishable strength for a rural 
 credits system. 
 
 This Is Why the author presses with all 
 earnestness the suggestions that there be 
 one Federal Debenture Bank in each state, 
 that the initial capital thereof be furnished 
 out of the funds of Federal Rural Credits 
 Company, and that the state's participation 
 in the establishment of such a bank take the 
 form of a pledge to invest in its debentures 
 at par an amount equal to the initial capital. 
 
 That is to say, to repeat the illustration of 
 the "Prairie" state used in the previous 
 chapter, if Illinois comes into the Federal 
 Rural Credits System the initial capital for 
 the Federal Debenture Bank of that state 
 will be $6,666,767, while the state itself by 
 the act of the legislature would agree to 
 keep invested an equal sum in the deben- 
 tures of such bank. This would provide 
 $13,353,534 in funds for the Federal Deben- 
 ture Bank of Illinois — none too much for 
 an agriculture having seven billions of 
 
 69
 
 RURAL CREDITS SYSTEM 
 
 capital invested, not to mention the vast in- 
 terests of her people in related industries. 
 
 The State Gets an Advantage, even on 
 this basis, in that the government repre- 
 sented by Federal Rural Credits Company- 
 assumes practically all the risk by putting 
 up all the initial capital, the state's invest- 
 ment in debentures coming ahead of and be- 
 ing a lien upon the assets prior to the capi- 
 tal stock. 
 
 In other words, any state may come into 
 the new Rural Credits System by taking a 
 first lien on the assets of its debenture bank 
 to the amount of its investment, besides 
 having the same further guaranteed 100 
 per cent in the form of the initial capital 
 supplied from Washington, while the de- 
 bentures themselves are guaranteed prin- 
 cipal and interest. 
 
 The table on pages 48-49 gives the statis- 
 tics for each state in great detail, as to ini- 
 tial capital, amount of investment by each 
 state, and total funds that may thus become 
 available. 
 
 The State always is to have adequate rep- 
 resentation on the directorate of its deben- 
 
 70
 
 FEDERAL DEBENTURE BANKS 
 
 ture bank, to still further safeguard the 
 State's investment in the debentures 
 thereof. 
 
 The Members of Each Debenture Bank 
 
 consist of existing banking institutions 
 within the State, whether under national 
 or state laws, who become members by in- 
 vesting in its shares in the same proportion 
 that they buy shares of their Federal Re- 
 serve Bank. 
 
 Federal co-operative agricultural asso- 
 ciations must invest 10 per cent of their 
 capital in the debenture bank of their state, 
 while co-operatives otherwise incorporated 
 also may become members. 
 
 Both types of membership are to be fully 
 represented on the directorate of the de- 
 benture bank. 
 
 Eliminate Washington — Net earnings of 
 a debenture bank, over and above the divi- 
 dends and accumulations permitted, should 
 be sufficient gradually to buy in and be sub- 
 stituted for the shares of initial capital held 
 in Washington. 
 
 As Washington's interest is reduced, her 
 
 71
 
 RURAL CREDITS SYSTEM 
 
 representation on the directorate is reduced 
 likewise until, when the member capital 
 and earnings have retired all of the Wash- 
 ington interest, the Federal Debenture 
 Bank becomes owned wholly by its mem- 
 bers within its State. Then only its Custo- 
 dian remains as a Federal director, al- 
 though at that time and thereafter the bank 
 of course continues to be an integral part of 
 the whole rural credits system, and subject 
 to the oversight of Federal Rural Credits 
 Board, thus insuring continued co-opera- 
 tion with the debenture bank in each of the 
 other states. 
 
 No Joint and Several Liability is imposed 
 upon any debenture bank. Each is respon- 
 sible for its own obligations. Each tub 
 stands on its own bottom. 
 
 This is an important principle. In one 
 sense, it is a concession to state rights; in 
 another sense, it is an inducement for the 
 people in any state to retire as soon as may 
 be all of the shares in its debenture bank 
 held by Washington. 
 
 Many of the States never would submit 
 to having their debenture bank jointly and 
 
 72
 
 FEDERAL DEBENTURE BANKS 
 
 severally liable for the debts of similar in- 
 stitutions in other states. So to do might 
 burden the strong banks with the poverty 
 of the weak banks. It might tempt one in- 
 stitution into extremes of hazard which it 
 would not be willing to assume if it felt 
 that it alone was responsible. 
 
 The Federal Debenture Bank of Iowa, for 
 instance, would willingly and could safely 
 go far in helping out a crisis such as befell 
 her corn belt farmers in the autumn of 1921, 
 when the price of that great staple was ar- 
 bitrarily, unfairly, unjustly, uneconomi- 
 cally and wrongfully depressed and deflat- 
 ed to the point of ruin. But the Iowa bank 
 would not wish to be responsible directly or 
 indirectly, in part or in whole, or jointly or 
 severally liable, for the obligations of say 
 the Texas bank, which at the very same 
 juncture might be tempted to go "long" on 
 cotton paper if it knew that its responsibil- 
 ity therefor could be shunted off on to the 
 other debenture banks. 
 
 Yet an Outright Guarantee of both prin- 
 cipal and interest of all the debentures is- 
 sued by any or all of the debenture banks is 
 
 73
 
 RURAL CREDITS SYSTEM 
 
 highly desirable. It will add greatly to their 
 attractiveness to investors and banking in- 
 stitutions. It will make them more fluid — 
 more salable, more available, more popular. 
 
 One feature of the bill herewith original 
 with the author is such a guarantee from 
 Federal Rural Credits Company itself. This 
 will put back of every debenture issued, in 
 addition to all the security represented 
 thereby, all the net assets of that great 
 Company. 
 
 Before it will authorize an issue of de- 
 bentures which it must thus guarantee 
 principal and interest without reservation. 
 Federal Rural Credits Company obviously 
 will use meticulous care to see that every 
 detail of and all the securities for such an 
 issue are A 1. Thus investors will be still 
 further assured of the reliability in every 
 way of each and every federal debenture. 
 
 However, this does Not Involve any de- 
 benture bank in joint and several liability. 
 The Washington company might be wiped 
 out of existence, if such a thing is imagi- 
 nable, without necessarily impairing the 
 
 74
 
 FEDERAL DEBENTURE BANKS 
 
 financial integrity of conservatively man- 
 aged debenture banks. 
 
 Such a guarantee of principal and inter- 
 est also works out as a further inducement 
 for the people in any state to retire prompt- 
 ly the federal capital in their debenture 
 bank. 
 
 This plan may or may not make the de- 
 bentures of every bank equally salable at 
 equal quotations in various markets, but it 
 will promote that desirable result. 
 
 Some of the Pending Bills would enforce 
 joint and several liability upon all deben- 
 ture banks, for the reason that the same 
 policy is applied to all the federal land 
 banks. However, there is a material differ- 
 ence in the securities and hazards of the 
 two systems. 
 
 The federal land bank has to do only with 
 underlying first mortgage bonds to an 
 amount that averages considerably less 
 than 50 per cent of the fair value of the 
 property. Its contracts are over a long term 
 of years, mostly within a range of 20 to 33 
 years, thus still further minimizing any 
 possible hazard. 
 
 75
 
 RURAL CREDITS SYSTEM 
 
 The Rural Credits System, on the con- 
 trary, is based on paper running from six 
 months to three years, or upon real estate 
 obligations running five years and secured 
 by second mortgages on federal first farms, 
 or on first mortgages upon the real estate 
 owned, occupied and used by co-operative 
 associations. 
 
 To be Made Legal Investment for Trust 
 Funds, at least within the State in which 
 the debenture bank is located, is so advan- 
 tageous to investors within the state as well 
 as beneficial to borrowers that no legisla- 
 ture can reasonably object to this policy. In 
 view of all the safeguards to both principal 
 and income of federal debentures, they cer- 
 tainly are entitled to the recognition of 
 trust funds. 
 
 Probably, too, the net return to the inves- 
 tor on these debentures will average some- 
 what higher than upon other investments 
 which in reality are no better secured if as 
 well. The truth of this statement will be 
 appreciated by many a trustee who during 
 1919-21 saw well seasoned securities of the 
 first water shrink dangerously in value. 
 
 76
 
 FEDERAL DEBENTURE BANKS 
 
 The Powers of a Federal Debenture Bank 
 
 are so specifically defined in the bill as to 
 commend themselves to the sound judg- 
 ment of statesmen and bankers, economists 
 and financiers as well as of the general pub- 
 lic, including farmers, dealers and manu- 
 facturers. All these details of the bill need 
 only to be read with discriminating care to 
 carry conviction. 
 
 It may not only buy government securi- 
 ties, federal farm loan bonds and federal 
 debentures, but the bank may buy or sell 
 agricultural loans, live stock paper, com- 
 modity paper or real estate mortgage obli- 
 gations. Upon such securities and or cash, 
 the bank may issue its own debentures, but 
 only upon a conservative margin of safety. 
 
 The Margins Required, as described in 
 section 17 are 20 per cent for agricultural 
 loans, 15 per cent for live stock paper, 10 
 per cent for commodity paper and 5 per 
 cent for real estate obligations. In addition 
 to this margin, it must be remembered that 
 all such paper will carry the indorsement of 
 the co-operative association or bank by 
 
 77
 
 RURAL CREDITS SYSTEM 
 
 which it was discounted with the debenture 
 bank. 
 
 The local institutions will in the first in- 
 stance make these loans of the four classes 
 proposed only with an adequately safe mar- 
 gin. Furthermore, the paper runs for only 
 six months to three years, when it must be 
 paid off in full or be heavily reduced before 
 renewal. 
 
 Therefore, security is well provided for 
 all along the line from the original borrow- 
 er to the final investor. 
 
 Other provisions of the bill govern and 
 control all the technical details pertaining 
 to the debentures so as to deserve the confi- 
 dence with which these securities will be 
 greeted when they first appear on the mar- 
 ket — a confidence that is as certain to be 
 strengthened as it is certain that people 
 must be fed in order to live. 
 
 The Strict Limit of the amount of deben- 
 tures which may be issued by any one Fed- 
 eral debenture bank is a further safeguard 
 to the investor. No such bank may issue 
 debentures in excess of ten times the 
 amount of its capital and surplus. 
 
 78
 
 FEDERAL DEBENTURE BANKS 
 
 The security it may accept for such de- 
 bentures is not only carefully prescribed 
 and a generous margin thereon required, 
 but paragraph 4 of section 13 also limits the 
 amount of the securities which the bank 
 may accept from any number. 
 
 Far be It from Me to assume that my pro- 
 posals for these debenture banks are in 
 every way perfect, but I consider these 
 banks absolutely essential to the system de- 
 sired. 
 
 Co-operative associations, live stock loan 
 companies and local banks — state, national 
 or federal — are the foundation stones, de- 
 benture banks are the superstructure, while 
 the keystone to the arch of rural credits is 
 the Federal Rural Credits Company, all 
 closely supervised by Federal Rural Credits 
 Board. 
 
 Objection May Be Made to the state as 
 such investing its funds in the debenture 
 bank even of its own state. But it will be 
 seen that such a bank is a quasi public in- 
 stitution. And every dollar invested by the 
 state in its debentures will be expended 
 
 79
 
 RURAL CREDITS SYSTEM 
 
 wholly within the state to build up its agri- 
 cultural and related industries. 
 
 Yet the state is not asked to assume any 
 risk by investing in the capital of a deben- 
 ture bank. This point is made very clear 
 in the paragraphs above emphasizing the 
 advantage the state gets in buying deben- 
 tures instead of shares. 
 
 Another purpose of specifying such an 
 advantage, was to overcome all the objec- 
 tions, on the grounds of selfishness, expedi- 
 ency or constitutionality, to the state invest- 
 ment of funds in debentures. 
 
 Stronger reasons and better arguments 
 can be advanced for such an investment of 
 funds by the state than for many of the 
 things in which a state's monies are in- 
 vested or for which the state's income is ex- 
 pended. A few years ago, Minnesota was 
 investing its surplus in the low rate bonds of 
 Louisiana, while Minnesota farmers were 
 put to it to get high rate mortgage money! 
 
 It may be unconstitutional in certain 
 states for the state treasurer to make such 
 an investment. Of this there is grave doubt, 
 however. In one or two cases where the 
 
 80
 
 FEDERAL DEBENTURE BANKS 
 
 point has been raised, a careful weighing 
 of the provisions of the state's constitution 
 seems to indicate that only an act of the 
 Legislature would be required to enable 
 and authorize state funds to be invested 
 in the debentures of the federal debenture 
 bank for that state. 
 
 Should it be Determined that an amend- 
 ment is necessary to any state constitution 
 to warrant such action in almost any such 
 state the necessary majority of the electo- 
 rate could be depended upon to authorize 
 an amendment of this character. 
 
 The importance of state co-operation 
 along the lines indicated is so great as to 
 justify all reasonable efforts to bring it 
 about. All the more true is this by the 
 method proposed wherein the members of 
 each debenture bank eventually will own it 
 outright after having replaced all of the ini- 
 tial capital. 
 
 It has been suggested, however, that pos- 
 sibly a clause might be inserted in the bill 
 to provide that, if the constitution of any 
 state made its direct co-operation imprac- 
 
 81
 
 RURAL CREDITS SYSTEM 
 
 ticable, the debentures first issued to an 
 amount equal to the initial capital might be 
 underwritten or subscribed for by persons 
 or corporations within the state. Where 
 there's a will, a way can be found out of 
 this difficulty should it arise. 
 
 Real Estate Obligations deserve special 
 discussion, because of certain prejudices 
 that exist in financial minds, also on the 
 part of the public, against even first mort- 
 gages on certain forms of business real es- 
 tate, still more so against second mort- 
 gages on farms. 
 
 Here again the inadequacy of previous 
 methods of financing such real estate obli- 
 gations, plus the machinations of middle- 
 men, have operated unfairly to the detri- 
 ment of this form of security. 
 
 I maintain that under the methods to be 
 perfected by the Rural Credits System, a 
 debenture bank may loan a conservative 
 amount against a first mortgage on real es- 
 tate for the agricultural business or agri- 
 cultural purposes of incorporated co-opera- 
 tive associations. Especially will this be 
 true since no such mortgage may be for a 
 
 82
 
 FEDERAL DEBENTURE BANKS 
 
 longer term than five years, nor for more 
 than $20,000, nor in excess of 50 per cent of 
 the bank's own appraisal, and the bank is to 
 hold 5 per cent of its face amount as a re- 
 serve against the loan. 
 
 These loans will be made only on property 
 like elevators, creameries, warehouses on 
 track and similar facilities, always useful 
 for commercial purposes and for those deal- 
 ing in the necessities of life. The properties 
 will be scattered, the risk small, insurance 
 in excess of the loans. In practice, borrow- 
 ers will be obliged gradually to reduce their 
 loans instead of carrying them in full to the 
 five-year maturity. 
 
 Farm Mortgages Second to a federal first 
 also possess a basic value greater than here- 
 tofore has been recognized generally. The 
 amount that any federal land bank will lend 
 on a farm owned, occupied and worked by 
 the borower averages probably less than 40 
 per cent of what the farm would ordinarily 
 sell for under reasonably norm.al condi- 
 tions. The burden of interest is light, and 
 experience now for some years, including 
 the period of the most terrible collapse in 
 
 83
 
 RURAL CREDITS SYSTEM 
 
 values in American agriculture, prove that 
 the amount of arrearages of interest is al- 
 most negligible. 
 
 Furthermore, the borrower must reduce 
 the principal of his obligation by about one- 
 half of 1 per cent every six months, thus 
 steadily increasing the equity against the 
 loan. 
 
 For these reasons the likelihood of fail- 
 ure or foreclosure of a first mortgage held 
 by a federal land bank is extremely remote. 
 
 Consequently it is true that a mortgage 
 second to such a federal first may be quite 
 as good as the ordinary first mortgage here- 
 tofore, with its relatively onerous terms 
 and comparatively large amount. 
 
 Provided such second mortgage does not 
 exceed 25 per cent of the federal land bank's 
 appraisal valuation and 10 per cent thereof 
 is held by the debenture bank as a reserve 
 against it, a reasonable number of these 
 second mortgages will form good stuff for 
 any debenture bank to own, the more so as 
 it is provided that no such second mortgage 
 may exceed $5,000 in amount, and the in- 
 
 84 
 
 I
 
 FEDERAL DEBENTURE BANKS 
 
 terest rate thereon obviously will be rather 
 attractive. 
 
 In practice, also, borrowers on seconds 
 will be able as well as required gradually to 
 reduce their loans, thus further insuring 
 the equity. 
 
 These first and second mortgages with 
 not over five years to run are collateral for 
 the five-year debentures. My knowledge of 
 agriculture and my judgment as to farm 
 finance over a period of many years, con- 
 vinces me that long before the proposed 
 Rural Credit System is ten years old, its 
 five-year debentures secured by these real 
 estate obligations may command as good or 
 better markets than shorter term rural 
 credit instruments. 
 
 85
 
 CHAPTER SIX 
 
 COOPERATIVE ASSOCIATIONS 
 
 HILE the American farmer is ex- 
 tremely individualistic and inde- 
 pendent, stern necessity of late 
 years has forced him to realize the power 
 of associated effort. The success of the co- 
 operative local units of the Federal Farm 
 Loan System (national farm loan associa- 
 tions) and the substantial development of 
 co-operative marketing among farmers, 
 make them today more ready than ever for 
 united effort. 
 
 The Fear of Joint Liability has kept 
 many farmers from co-operating with their 
 neighbors. ''While relatively few farmers 
 heretofore have kept books of account, 
 nearly all farmers know at all times about 
 where they stand financially., This is one 
 reason why they shun everything in the na- 
 ture of several and joint obligation for the 
 debts of others. So many farmers have suf- 
 fered loss by personal endorsement of 
 
 86
 
 CO-OPERATIVE ASSOCIATIONS 
 
 others' paper, or by becoming personally 
 responsible for the obligations of unincor- 
 porated effort, that now thej^ dread any- 
 thing of the kind, just as a burned child 
 dreads the fire." 
 
 Another Reason for this conviction is the 
 farmer's high sense of financial responsi- 
 bility. In banker's parlance, he may be 
 slow, but almost inevitably the farmer is 
 good for anything he contracts for. Indeed, 
 this is one secret of the present vast and 
 constantly increasing agricultural trade. 
 Because the responsible farmer has such a 
 high sense of personal and financial inte- 
 grity, is another reason why he is loath to 
 incur anything in the nature of unlimited 
 liability. 
 
 Many a farmer has joined with his neigh- 
 bors in informal effort at buying together 
 or selling together, only to find that some 
 one member or a very few irresponsibles 
 fail to carry their share, which he pays as 
 a moral debt, though he has no legal obliga- 
 tion to do so. 
 
 This speaks well for the credit of the re- 
 
 87
 
 RURAL CREDITS SYSTEM 
 
 sponsible farmer at the same time that it 
 suggests business efficiency in dealing with 
 the relatively few irresponsibles, and en- 
 forces the need of practical means of help- 
 ing farmers to help themselves. 
 
 Brilliant Success has been achieved, on 
 the other hand, by farmers' co-operative 
 marketing associations, farmers' elevators, 
 co-operative creameries, mutual fire insur- 
 ance companies, livestock shipping associa- 
 tions and other co-operative enterprises in 
 which each member's liability is strictly 
 limited yet which enjoy all the benefits of 
 associated effort through efficient manage- 
 ment. 
 
 When farmers join a Federal incorpor- 
 ation they know that their liability is 
 strictly limited to twice the amount of 
 money they pay for their shares. Each and 
 all know that every member has paid in his 
 money on the same basis. They realize that 
 the success of such an incorporated corpor- 
 ation upon the co-operative plan depends 
 upon the extent to which it is patronized 
 by its members, as well as upon the busi- 
 ness ability with which it is conducted. 
 
 88
 
 CO-OPERATIVE ASSOCIATIONS 
 
 Recognition of These Essentials inspires 
 ■ the confidence that breeds success. By start- 
 ing on this basis and adhering to it, any 
 form of associated effort rests on a firm 
 foundation, for it cannot be reiterated too 
 often that co-operation is *'not a new plan 
 of transacting business, but rather a differ- 
 ent method of dividing the fruits of indus- 
 try. The same principles that govern busi- 
 ness success in acquiring profit on capital,'* 
 apply to the acquirement of savings to co- 
 operating creditors and to the insurance of 
 fair returns to investors in federal deben- 
 tures. 
 
 Industry, application, perseverance, good 
 judgment, expert knowledge, sound admin- 
 istration, economy, honesty, wise choice of 
 risks, insistence upon regular payments, 
 enforcement of contracts, all are as much 
 required in the cooperatives to be chartered 
 under the Federal Rural Credits act, as they 
 are needed for the successful conduct of 
 each national and state bank which is under 
 the federal reserve system. 
 
 The Individual Farmer is quick to recog- 
 nize these truths. That is why the bill sub- 
 
 89
 
 RURAL CREDITS SYSTEM 
 
 mitted strictly limits the farmer's liability 
 in any federal incorporated co-operative 
 agricultural association, or in a federal co- 
 operative bank, to double the amount of 
 the par value of his shares therein, as 
 always has been the case with national 
 banks. 
 
 Thus to Double the Backing of such an 
 institution adds much to its strength while 
 strictly and safely limiting each member's 
 liability. 
 
 Any farmers' paper accepted for redis- 
 count by such an association or by any bank 
 may be depended upon to be relatively 
 **good." The indorsement thereon of the 
 local institution that rediscounts it, is 
 backed up by the assets thereof and by 
 double the responsibility of all its members. 
 
 Add to this the collateral which accom- 
 panies such paper, and it will be seen at 
 once why the debentures issued upon such 
 security are certain to be popular for the 
 investment of funds over periods of from 
 six months to three or five years, especially 
 as the same are amply margined under Sec- 
 tion 17. 
 
 90
 
 CO-OPERATIVE ASSOCIATIONS 
 
 Because the new system is to be thus 
 firmly and fully backed up by the confi- 
 dence, co-operation and collateral of the 
 individual farmer, as well as of his co-oper- 
 ative enterprises, it will be seen that the 
 method outlined in the proposed bill is in- 
 sured prompt and permanent success. 
 
 Co-operative Associations. Next to the 
 individual farmer, the Rural Credits Sys- 
 tem proposed is based fundamentally upon 
 local units composed of five or more farm 
 producers. The Act (Section 23) requires 
 them to operate upon the co-operative prin- 
 ciple, by which is meant — to quote the pre- 
 cise definition in Section 1 — ''co-owner- 
 ship and operation in which each member 
 has only one vote regardless of his share 
 holdings and capital is limited to reason- 
 able interest, profits in excess thereof being 
 apportionable in dividends among those 
 who create the profit." 
 
 Such a group may obtain a federal char- 
 ter, but if incorporated under state law may 
 also share in the benefits of the new system. 
 In common language, it will be called a 
 
 91
 
 RURAL CREDITS SYSTEM 
 
 "local association," or still more briefly, a 
 "local co-op." 
 
 It May Be Conducted for "agricultural 
 purposes," defined as including "the culti- 
 vation of lands, planting, harvest, assem- 
 bling, grading, distribution and marketing 
 of crops, and the purchase, breeding, feed- 
 ing and marketing of live stock." 
 
 Also it may operate "agricultural busi- 
 ness," which the bill defines as including 
 "the ownership and operation of real es- 
 tate and commodities required for agricul- 
 tural purposes, including plants co-opera- 
 tively owned by producers for the manufac- 
 ture or preparation for market of dairy 
 products and other agricultural products, 
 and as further defined in paragraph 7 of 
 section 1. 
 
 Each Share Has a Par Value of five dol- 
 lars, and each member has only one vote 
 regardless of the number of shares owned. 
 Shareholders shall be held individually re- 
 sponsible for all contracts, debts and en- 
 gagements of such association, each to the 
 amount of his stock therein at the par value 
 
 92
 
 CO-OPERATIVE ASSOCIATIONS 
 
 thereof in addition to the amount invested 
 in such stock. 
 
 In other words, a member's liability is 
 strictly confined to twice his investment in 
 the shares, the same as has always been true 
 of stock in national banks. 
 
 Its Powers. If created under the pro- 
 posed Act, a federal co-operative agricul- 
 tural association must become a member of 
 the Federal Debenture bank for its state, as 
 specified in Paragraph 24 of Section 8 of 
 the bill. 
 
 In addition to its other functions, the 
 local co-op is authorized ''to purchase, sell, 
 discount, issue and to negotiate live stock 
 paper, agricultural loans, commodity paper 
 and real estate obligations as defined by 
 this Act, or federal farm loan bonds or 
 United States bonds and United States cer- 
 tificates of indebtedness". It may rediscount 
 such paper with its Federal Debenture 
 Bank, and under certain circumstances such 
 paper with its indorsement acquired by any 
 national or state bank may be rediscounted 
 with the Federal Reserve. 
 
 However, the privileges of such paper in 
 
 93
 
 RURAL CREDITS SYSTEM 
 
 the federal reserve are carefully safeguard- 
 ed as described in Chapter Nine of this 
 book and in Title III of the bill so as to 
 guard against pumping into the Federal Re- 
 serve System any material quantity of 
 paper having a maturity in excess of six or 
 twelve months. 
 
 How Organized. The blank form to be 
 signed by farmers who wished to form a 
 Federal co-operative agricultural associa- 
 tion probably will be obtainable from the 
 Federal Debenture bank of its state or from 
 Federal Rural Credits Board at Washing- 
 ton, D. C. 
 
 The only limit to the number of farmers 
 who may apply for a charter is that they 
 shall be not less than five. Other things 
 being equal, the larger the number of farm- 
 ers who join in making the application, the 
 better. 
 
 When the application has been approved 
 by Federal Rural Credits Board, it will 
 issue a charter to the local, and the latter 
 may then proceed with its business, subject 
 to rules and regulations made by said 
 Board. 
 
 94
 
 CO-OPERATIVE ASSOCIATIONS 
 
 The Capital Required to start with is not 
 less than $1000 paid up in cash. This cap- 
 ital may be increased as the business de- 
 velops. 
 
 There is nothing to prevent the local 
 from borrowing additional funds wherever 
 it may obtain the same. If the co-op is 
 doing only a little business, a little capital 
 will suffice. If it needs $10,000, or $100,- 
 000 of permanent capital to successfully 
 conduct its operations, it is free to increase 
 to any extent required. 
 
 No Charge May Be Made by the local to 
 any member for a loan or any form of fi- 
 nancial accommodation in excess of the 
 rates and amounts prescribed by Federal 
 Rural Credits Board. 
 
 The bill provides most stringent penal- 
 ties for any infraction of this rule. 
 
 Throughout the bill every possible means 
 are provided to insure individuals and in- 
 stitutions within the System from having to 
 pay any form of undue, unfair, unearned or 
 illegal fee, bonus, commission or perquisite. 
 It is proposed to forestall and cut out the 
 
 95
 
 RURAL CREDITS SYSTEM 
 
 whole scheme of graft to which farmer bor- 
 rowers for years have been subjected. All 
 such forms of plucking must stop. 
 
 No Limitation is imposed upon the terri- 
 tory with which a co-op incorporated under 
 the Act may do business. There is nothing 
 to prevent two or more groups being char- 
 tered in the same locality or region. No re- 
 striction or combination is possible in the 
 nature of a trust for the restraint of trade in 
 either buying or selling. 
 
 The Honor of Serving upon the director- 
 ate of a co-operative association has come 
 to be highly esteemed. This honor will be 
 all the greater in a co-op chartered under 
 the proposed federal statute. 
 
 It is expected that no salary or perquisite 
 of any kind shall be paid to any of the di- 
 rectors or committees, except to such as of- 
 ficers and employees as devote practically 
 their entire time to the work. 
 
 The proposed system, therefore, is based 
 upon patriotic voluntary service by those 
 whom the members honor by election to 
 the directorate. This principle of volun- 
 
 96
 
 CO-OPERATIVE ASSOCIATIONS 
 
 tary service in return for distinction be- 
 stowed, is the principle upon which has 
 been developed during the past 200 years 
 the purely mutual savings banks that have 
 done so much to promote thrift and pros- 
 perity throughout New England. 
 
 The same principle has been employed 
 by the local co-operative building and loan 
 associations, thousands of which are being 
 conducted successfully and at minimum 
 cost by wage earners. Other forms of asso- 
 ciated effort in economic affairs, as in social 
 and religious affairs, have long demon- 
 strated the high character of ability that is 
 ready to give voluntary service. 
 
 The Local Must Report Annually to Fed- 
 eral Rural Credits Board. It is subject to 
 audit by the Board's examiner. 
 
 In various ways its operations are safe- 
 guarded. Failure ''to comply with the just 
 and legal orders, rules and regulations of 
 the Board, or failure to meet its obligations, 
 shall warrant the Board in withdrawing 
 and forfeiting its charter," whereupon it 
 shall liquidate forthwith. 
 
 97
 
 RURAL CREDITS SYSTEM 
 
 In practical operation the audits and ex- 
 aminations of the locals probably will be 
 under the supervision of the Debenture 
 bank of which the local is a member. 
 
 98
 
 CHAPTER SEVEN 
 MISCELLANEOUS FEATURES 
 
 MANY OTHER FEATURES of this 
 subject in addition to those else- 
 where covered in this book, remain 
 to be considered. No attempt has been 
 made to treat exhaustively each of the man- 
 ifold details, of this great proposition. 
 
 Enough has been presented, however, to- 
 gether with the quite complete draft of the 
 proposed bill, to afford some insight into 
 the subject. The present chapter treats of 
 various matters not elsewhere fully touched 
 upon. 
 
 The Attractive Investment for saving and 
 other funds, for a period of from six months 
 to three or five years, offered by Federal de- 
 bentures, is a profoundly important feature 
 of the system. In every state, in every com- 
 munity, are individuals, trustees or institu- 
 tions which always have more or less funds 
 for investment. They may not want to tie 
 
 99
 
 RURAL CREDITS SYSTEM 
 
 Up this money in permanent investments 
 like the Liberty bonds, federal farm loan 
 bonds, municipals, or long term securities. 
 On the other hand, these people do not 
 want to buy commercial paper or accep- 
 tances coming due in thirty, sixty or ninety 
 days. They are not in the banking business 
 and do not want to get into it. 
 
 But they would gladly buy Federal de- 
 bentures, especially as this paper could be 
 bought with maturities in from six months 
 to three or five years to meet the views of 
 any investor. These debentures could be 
 bought and sold at every existing bank as 
 well as through all brokers, agents and 
 other market channels. 
 
 Objections May be Made by the bankers 
 who would prefer to have these people 
 keep their money on deposit instead of in- 
 vesting it. But in practice, banks and 
 bankers would not lose much of any de- 
 posits in this way. 
 
 The money thus invested in debentures 
 would simply pass into the hands of bor- 
 rowers, who would use it in their business 
 or to pay their debts. The money would 
 
 100
 
 MISCELLANEOUS FEATURES 
 
 stay in the community. Its presence and its 
 activity would fructify all lines of business, 
 including agriculture and the farm trade. 
 Such increase in business prosperity would 
 be reflected in larger deposits in national 
 or state banks and trust companies. 
 
 This Change gradually would come 
 about : More cash and credits would be re- 
 tained and employed in each rural commu- 
 nity, instead of being drained away to the 
 larger centers. Country banks would not 
 have to send their temporarily idle funds to 
 their correspondent bank in the reserve 
 cities, for the purpose of saving loss of in- 
 terest until it could be used at home. Nor 
 would country banks be forced to invest so 
 much of their funds in the commercial 
 paper of large industrial and railroad en- 
 terprises that center in the great cities. 
 
 Both such uses for current funds would 
 continue to be employed by country and 
 city banks, but not necessarily as largely as 
 heretofore. Federal debentures running 
 off at convenient dates, month after month, 
 would be attractive paper in any bank's 
 portfolio. The more that funds could thus 
 
 101
 
 RURAL CREDITS SYSTEM 
 
 be retained in the community, the better 
 would be the business of any and all com- 
 mercial banks. 
 
 Thus to Keep Money at Home, by educat- 
 ing and encouraging the people in each 
 locality to invest their savings and current 
 funds at least temporarily in Federal de- 
 bentures secured by local paper, means an 
 aggregate of millions saved and applied to 
 productive industry in local communities 
 which otherwise may be wasted or frittered 
 away. 
 
 All this means better business in every 
 line of industry, and especially among 
 banks and bankers, throughout rural com- 
 munities and in towns and cities. 
 
 The Division of Earnings of the system 
 is carefully provided for in section 20. All 
 earnings of Federal Rural Credits Com- 
 pany, after it has acquired a surplus of 50 % 
 of its capital, go to the United States as 
 franchise tax. 
 
 In view of the experience of the Federal 
 Reserve System, and in spite of the 
 insurance against excessive rates and 
 
 102
 
 MISCELLANEOUS FEATURES 
 
 charges in the proposed bill, it is doubtless 
 true that these earnings will be extremely 
 satisfactory from the standpoint of reve- 
 nue to the tjnited States Treasury. 
 
 Yet the benefits conferred by the System 
 amply warrant it in paying rates and 
 charges which may net the Treasury a lu- 
 crative franchise tax. 
 
 As the money invested by Federal Rural 
 Credits Company in shares of the deben- 
 ture banks is not entitled to dividend, it is 
 all the fairer, simpler and more expedient 
 that all the net earnings of that parent of 
 the System shall accrue to the government 
 as a franchise tax. 
 
 On the Other Hand, this plan goes far to 
 insure that the member capital invested in 
 the shares of each Federal Debenture Bank 
 shall receive 6%, cumulatively. Thereafter 
 the bank's earnings go into its surplus until 
 that fund reaches 25% of its capital, when 
 it may pay an extra dividend of 2% per an- 
 num. Excess earnings then go to surplus 
 until it amounts to 50%. 
 
 Then remaining profits of each debenture 
 bank must be used to buy back and retire at 
 
 103
 
 RURAL CREDITS SYSTEM 
 
 par the shares subscribed for in the first 
 instance by Federal Rural Credits Com- 
 pany. Here again it is conservative to be- 
 lieve that earnings, plus new member cap- 
 ital, will enable the debenture banks thus 
 to pay back within a reasonable time all the 
 initial capital that was advanced by Wash- 
 ington. 
 
 Thereupon the balance of each bank's ex- 
 tra earnings all goes to the United States as 
 a franchise tax. It is believed that the rev- 
 enue which the government will obtain 
 from this source may total even more than 
 its prospectively large income from the net 
 earnings of Federal Rural Credits Com- 
 pany. 
 
 It will be seen that the new system recog- 
 nizes the wages of capital to be an expense, 
 second only to the wages of labor and of 
 other expenses. After capital is paid the 
 reasonable returns permitted, the govern- 
 ment receives as a franchise tax the entire 
 earnings of the national and state phases 
 of the rural credits system. 
 
 Building-Loan Associations. 
 
 104 
 
 Just the
 
 MISCELLANEOUS FEATURES 
 
 difference between being an owner, or a 
 tenant or hired man, may be governed by 
 the extent to which such people take advan- 
 tage of the facilities for cashing farm mort- 
 gages second to federal first mortgages 
 which my bill affords. But why should it 
 be extended to farmers and not to other 
 people? 
 
 Partly because nearly every wage earn- 
 ing or salary earning person can enjoy the 
 privileges already long established where- 
 by he may with relative ease and conven- 
 ience acquire the ownership of a home of 
 his own. The local co-operative building 
 and loan association is the most perfect in- 
 stitution for this purpose ever devised. The 
 great number of these local co-ops, the vast 
 aggregate of their thousands of loans, and 
 the extent to which large numbers of people 
 already have acquired or are now paying 
 for homes of their own, is a record as hon- 
 orable as it is gratifying. 
 
 This form of self-help, however, calls for 
 monthly payments by its member borrow- 
 ers. Hence it is not adapted to farmers, 
 
 105
 
 RURAL CREDITS SYSTEM 
 
 whose income is spasmodic or seasonal rath- 
 er than coming at regular intervals. 
 
 Fake Competitors — So pronounced has 
 been the success of the genuine co-operative 
 building and loan associations, that certain 
 spurious or speculative types of competi- 
 tion have developed. 
 
 One such type is the notorious install- 
 ment-deposit-loan concern, which obtains 
 depositors by specious promises of big loans 
 at nominal rates. The history of this type 
 shows it to be founded upon a delusion and 
 a snare. Being based primarily upon the 
 lottery principle, it garners in its victims by 
 loans to those who draw early or lucky num- 
 bers (dates), while the chances of the late 
 comers obtaining loans become more and 
 more remote, according as their numbers 
 or dates are belated. The whole history 
 of these fakes is such a record of disastrous 
 failure that it is surprising that such 
 schemes should still be permitted anywhere 
 within the United States. 
 
 Veterans Are Recognized by two out- 
 standing provisions. 
 
 106
 
 MISCELLANEOUS FEATURES 
 
 In the first place, all the charges cus- 
 tomarily authorized to be collected by 
 banks, associations or others under the Act 
 for services performed, are not to be im- 
 posed in the case of a veteran. The only ex- 
 ception to this is such registration fees and 
 the like as are required by existing law. 
 
 Furthermore, the definition of the term 
 "veterans" is sufficiently broad to cover all 
 those who have honorably served their 
 country in or since the Spanish war of 1898, 
 including specifically women in service as 
 nurses or otherwise. 
 
 Another proviso in the special interest of 
 veterans is the proposed amendment to the 
 Farm Loan Act, extending its privileges to 
 veterans whose farms are as small as one 
 acre in extent. Under the farm loan sys- 
 tem, the census basis of three acres as the 
 minimum for a farm is recognized in 
 theory, but in practice first mortgages are 
 seldom placed through any federal land 
 bank upon a farm smaller than 10 acres in 
 size. 
 
 I feel that this proposed amendment may 
 enable veterans to acquire little farms of 
 
 107
 
 RURAL CREDITS SYSTEM 
 
 their own, by means of federal first mort- 
 gages supplemented by second mortgages 
 financed through debenture banks. 
 
 And all the institutions and individuals 
 concerned or employed in financing such 
 veterans' realty loans should perform such 
 service "free gratis for nothing," and glad- 
 ly, too. 
 
 The cold truth, however, is that many a 
 service man, instead of being helped by 
 lenders, agents, brokers and even banks, at 
 times has been unmercifully plucked or oth- 
 erwise imposed upon when he attempted to 
 get a little farm or home of his own. Put it 
 right into the law that our veterans shall 
 have this service performed without 
 charge, so far as this may be done legally ! 
 Of course, regulations will be framed to ob- 
 viate any abuses that possibly might be 
 practiced under this proviso. 
 
 Women Are Showing exceptional ability 
 in financial matters and in the administra- 
 tion of practical business. Hence the bill 
 specifically provides that nothing therein 
 
 108
 
 MISCELLANEOUS FEATURES 
 
 shall be held to debar women from any of- 
 fice or position named therein. 
 
 It is altogether true that much of the suc- 
 cess achieved by men often is due directly 
 or indirectly to the guidance, encourage- 
 ment or judgment of wife, mother or sister. 
 In agriculture, especially, the wife often 
 has more business acumen than the hus- 
 band. 
 
 As to the Taxation of securities issued 
 under the proposed Rural Credits System, 
 much can be said. 
 
 For thirty years the author labored to es- 
 tablish the principle that notes secured by 
 first mortgages on farms, or the bonds or 
 credit instruments issued against such col- 
 lateral to an amount not exceeding the tax- 
 able value of the property, should be free of 
 all tax whatsoever other than inheritance 
 taxes. This for the reason that the real es- 
 tate is taxed as such in the first instance. 
 Subsequently to again tax any instrument 
 representing such realty is double taxation 
 of the rankest kind. 
 
 109
 
 RURAL CREDITS SYSTEM 
 
 This viewpoint has been sustained by the 
 United States supreme court upholding the 
 constitutionality of the non-taxable fea- 
 tures of the Federal Farm Loan Act. 
 
 Conditions Are Widely Different, how- 
 ever, in rural credits. Even in its real es- 
 tate department, the new system deals with 
 first mortgages only upon the business 
 property of co-operatives. Doubtless the 
 bulk of the business of this department will 
 be in second mortgages upon farms owned, 
 occupied and worked by their owners whose 
 first mortgage is held by a federal land 
 bank. 
 
 In the latter class, many of the loans will 
 be for an amount which, together with the 
 balance outstanding upon the first mort- 
 gage, may even exceed the taxable value of 
 real estate mortgage. And surely there is 
 no possible ground upon which to claim 
 taxation upon that portion of a mortgage 
 obligation which exceeds the taxable value 
 of the real estate held as security. 
 
 On the other hand, co-operative associa- 
 tions will be competitors of other persons 
 in commercial business whose property, 
 
 » 110
 
 MISCELLANEOUS FEATURES 
 
 goods and instruments of credit are subject 
 to taxation according to the laws of the 
 state. To exempt the co-ops and to tax 
 their competitors certainly would be unfair 
 discrimination. 
 
 No such favors are asked by the co-oper- 
 ative movement. Its demand is simply for 
 "a fair field and no favors." 
 
 Personal Security for credit instruments, 
 whether in the form of mortgages on chat- 
 tels or otherwise, differs still more widely 
 from the real estate and securities of the 
 Federal Farm Loan System. Wherein is 
 the justice or logic of exempting from taxa- 
 tion such rural credit instruments? 
 
 The General Welfare of all the people, in 
 other vocations as well as in agriculture, of 
 course is subserved by any fair means 
 which relieves agriculture of undue bur- 
 dens. A strong argument also may be ad- 
 vanced for encouraging investment in rural 
 credit instruments by providing that such 
 paper, the principal of which does not ex- 
 ceed in the aggregate $5,000 "owned by one 
 person," may be tax exempt. 
 
 Ill
 
 RURAL CREDITS SYSTEM 
 
 In view of all the foregoing, and of the 
 many arguments, pro and con, upon this or 
 other phases of the tax problem, the bill 
 submitted adopts the phraseology of the 
 Norbeck measure. This also seems to be fa- 
 vored by some of the farm organizations 
 which have taken a positive stand against 
 any form of tax exemption. S 3639 would 
 exempt rural credit securities issued prior 
 to July 20, 1925, while thereafter subjecting 
 them to income and property tax. Weigh 
 the footnote in connection with section 22. 
 
 Live Stock Loan Companies are not to be 
 
 incorporated under the proposed federal 
 Act. Such corporations always have been 
 under state law. The nature of the busi- 
 ness is such that a cattle loan company nec- 
 essarily must be circumscribed in the area 
 of its operations, so that its officers may be 
 personally familiar with each security of- 
 fered as well as with each borrower. 
 
 Cattle paper has won enviable confidence 
 in certain financial circles because these 
 precautions, and the character of the men 
 identified with such paper — borrower, lend- 
 
 112
 
 MISCELLANEOUS FEATURES 
 
 er, broker and discounter — have been such 
 as to justify that confidence. 
 
 A mortgage on chattels with four legs 
 may easily stray out of its bailiwick. I re- 
 call how, as a boy in Colorado, in "the good 
 old days before the crime of 73," my father 
 was paying 4V2^^ a month in advance on his 
 chattel mortgage. The rush for the Black 
 Hills started from our town. When I urged 
 my father to join the rush and start the 
 first paper in the Black Hills, his principal 
 objection was that his property was mort- 
 gaged and could not be moved until the 
 debt was paid, to which the boy replied ex- 
 citedly : 
 
 "That's nothin', everybody here's mort- 
 gaged. They are taking their mortgages 
 with 'em. The sheriff is going along, too. 
 He says the mortgages will be no good after 
 we get our stuff over the line into Wyoming 
 or Dakota. We can make money so fast in 
 the Black Hills that we can pay our debts 
 and still have a big wad to the good!" 
 
 It Is Equally True Today that every 
 proper precaution may well be employed to 
 insure the security of cattle paper. Long 
 
 113
 
 RURAL CREDITS SYSTEM 
 
 and stern experience emphasizes this truth. 
 Every cattle man and western banker real- 
 izes it and agrees to this statement. 
 
 Yet in spite of all these precautions in- 
 suring its stability, borrowers on live stock 
 too often have had to pay commissions, in- 
 terest or discount to well nigh extortionate 
 rates. Yet experience shows that, one year 
 with another, or over a series of years, live 
 stock may not fluctuate in value any more 
 than grain or cotton, or stocks and bonds 
 on Wall Street. Every wise means that 
 tends safely to facilitate the mobilization 
 of live stock as a basis of sound credits, has 
 a tendency to improve the standing of live 
 stock paper, to broaden its market and to 
 reduce its cost to the borrower. 
 
 The Bill Provides that a live stock loan 
 corporation under the laws of whatever 
 state incorporated may be examined by 
 Federal Rural Credits Board, and after 
 having its approval, live stock paper issued 
 by such company and upon v/hich it has 
 borrowed from any national or state bank, 
 co-operative association or federal co-oper- 
 ative bank, shall be entitled to full recogni- 
 
 114
 
 MISCELLANEOUS FEATURES 
 
 tion for rediscount, not only in the Rural 
 Credits System but also (to a wisely limited 
 extent) through the Federal Reserve sys- 
 tem. Under Title III, the bill specifically 
 provides a larger discount market for live 
 stock paper. Indeed, Section 2 of that Title 
 in its third paragraph actually provides : 
 
 "(B) Notes, drafts or bills of exchange 
 secured by chattel mortgage upon live stock 
 may be discounted with a maturity not ex- 
 ceeding two years, provided such live stock 
 is at the time of discount being prepared for 
 market under such conditions that it will be 
 ready for market on or before the date of 
 maturity of such note, draft or bill." 
 
 The Bank which in the first instance 
 loans upon live stock paper will satisfy it- 
 self that such paper complies with the con- 
 ditions stated. Having done that, and the 
 leading bank being a member of the Fed- 
 eral Reserve, the cattle paper thus safe- 
 guarded is eligible for rediscount by any 
 member bank with its Federal Reserve 
 bank, to an extent not exceeding the limit 
 prescribed by the Federal Reserve board. 
 
 Right here it should be observed again 
 
 115
 
 RURAL CREDITS SYSTEM 
 
 how carefully the bill avoids any possible 
 interference between or complication with 
 the Federal Reserve, the Rural Credits or 
 the Farm Loan Systems. Each are inde- 
 pendent, but dovetail into the service of the 
 common weal. 
 
 Without setting up the complicated ma- 
 chinery for a special or independent system 
 of live stock loans, as some of the other bills 
 propose, the draft herewith aims to embody 
 the essentials of those measures. In a word, 
 it is hoped that due and ample, as well as 
 safe and sound provisions are made in the 
 bill herewith for the handling of cattle 
 paper as an important part of one compre- 
 hensive federal rural credits rather than as 
 a separate and distinct institution. 
 
 116
 
 CHAPTER EIGHT 
 FEDERAL CO-OPERATIVE BANKS 
 
 AN INTEGRAL PART of an efficient 
 Rural credits system must allow the 
 people in any neighborhood or com- 
 munity to establish a little local bank of 
 their own upon the co-operative principle. 
 Let it receive deposits, make loans and 
 transact any or all commercial business the 
 same as any institution under the national 
 bank act and laws amendatory thereof. 
 
 Too much cannot be said in favor of 
 granting the common people the privilege of 
 doing their own banking for their own bene- 
 fit. And instead of opposing this idea, many 
 of the larger banks favor it. They realize 
 that the customers of these little co-opera- 
 tives, both depositors and borrowers, will 
 be mostly of the class that do not now do 
 business with existing banks of discount. 
 In this way these little banks may be feed- 
 ers for larger institutions, either directly by 
 depositing with the latter, or by educating 
 
 117
 
 RURAL CREDITS SYSTEM 
 
 great numbers of people into banking prac- 
 tice who as they attain a competency may 
 become customers of larger institutions. 
 
 In Rural Districts and little communities 
 where even a small national bank could not 
 expect to operate profitably, the little co-op 
 may thrive and do good service because of 
 its simple plan, low expenses and co-opera- 
 tive support. 
 
 The value of the little institution to its 
 clientele will not be measured merely by its 
 service in receiving deposits or making 
 loans. Its educational value will be most 
 marked. 
 
 Indeed, it has been suggested already 
 that a little co-operative bank could serve 
 as an admirable school of instruction for 
 the senior class in the agricultural high 
 school or consolidated school in any county 
 or community. Boys and girls as well as 
 adults could be shareholders, would make 
 their little deposits therein and borrow 
 therefrom for financing their club work in 
 buying and feeding poultry, pigs, calves, 
 beeves or in crop raising or other activity. 
 
 118
 
 FEDERAL CO-OPERATIVE BANKS 
 
 Title Two of the bill herewith provides 
 briefly but comprehensively for federal co- 
 operative banks. Each member has but one 
 vote regardless of the number of shares, so 
 that it would be impossible for banks under 
 this title to be manipulated by "chain" op- 
 erators. As a further precaution, one per- 
 son may hold shares only in one such bank. 
 
 The shareholder is liable for the debts of 
 the bank only to the par value of its shares 
 standing in his name, thus avoiding the 
 double liability imposed upon national 
 banks or federal co-operative agricultural 
 associations. Congress may think it best, 
 however, to impose the usual double lia- 
 bility. 
 
 Starting with at least $5,000, the little 
 federal co-operative bank may go ahead 
 and do business under the national banking 
 laws. It thus comes under the supervision 
 of the Comptroller of the Currency and of 
 the Federal Reserve Board. It is a very 
 little cog in the big wheel of the country's 
 system of commercial finance, subject to 
 the same supervision, laws, rules and regu- 
 lations as national banks. 
 
 119
 
 RURAL CREDITS SYSTEM 
 
 When it gets big enough it must even join 
 the Federal Reserve System. 
 
 It Is Obligatory that each Federal Co-op- 
 erative Bank become a member of the de- 
 benture bank of its state, by investing there- 
 in not less than 10 percent of the co-op's 
 cash capital. 
 
 This is a much larger proportion than is 
 required of either national or state banks, 
 but it is none too much. These little insti- 
 tutions, being a minor but important feature 
 of the whole system of co-operative finance 
 or rural credits, will mostly serve the local 
 farming community of moderate means, 
 who need its facilities for small deposits, 
 checks and current loans, in order to sup- 
 plement the service done for such people 
 by their co-operative agricultural associa- 
 tion or debenture bank. 
 
 As a member of its debenture bank, the 
 co-operative institution may rediscount its 
 paper therewith — another reason why at 
 least one-tenth of its capital and surplus 
 should be invested in shares of the deben- 
 ture bank. 
 
 120
 
 FEDERAL CO-OPERATIVE BANKS 
 
 A Real Estate Department in any federal 
 co-operative bank, also in any national 
 bank, is provided for in section five of title 
 two. 
 
 This is done so conservatively and prud- 
 ently that with suitable management such a 
 department may be of real service to the 
 community and profitable to the bank with- 
 out interfering with its commercial depart- 
 ment. 
 
 The bill provides that, the real estate de- 
 partment must be wholly segregated from 
 the other departments of the bank. Not less 
 than five percent nor more than ten percent 
 of the institution's capital and surplus may 
 be segregated to and employed by this de- 
 partment. 
 
 It may invest in United States securities, 
 federal farm loan bonds or federal deben- 
 tures. It can also loan to nearby co-opera- 
 tive associations secured by their real es- 
 tate. 
 
 The little bank also may loan on first 
 mortgages on farms within thirty miles of 
 the bank and also may take a second mort- 
 gage subject to the federal land bank's first 
 
 121
 
 RURAL CREDITS SYSTEM 
 
 lien. These mortgage loans must not be for 
 more than five years. 
 
 This is an even closer restriction than ex- 
 isting law applies to national banks. 
 
 Any national bank outside of a central 
 reserve city is now authorized to make loans 
 upon improved and unencumbered farm 
 lands within its federal reserve district or 
 within a radius of 100 miles, irrespective of 
 district lines for not longer than five years, 
 or upon other real estate for not longer than 
 one year up to not exceeding 50 percent of 
 the actual value of the property. Such loans 
 in the aggregate may equal 25% of its cap- 
 ital and surplus or one-third of its time de- 
 posits. 
 
 Savings Department — In practice, how- 
 ever, national banks do not freely exercise 
 their privilege of making loans on real es- 
 tate. Evidently it was enacted in connec- 
 tion with the clause that "Such banks may 
 continue hereafter as heretofore to receive 
 time deposits and to pay interest on the 
 
 same. 
 
 This quotation is the only warrant in law 
 
 122
 
 FEDERAL CO-OPERATIVE BANKS 
 
 for the savings departments of national 
 banks, a feature of their operations which 
 has been much criticised as absorbing pop- 
 ular savings for commercial purposes in 
 contra-distinction to and without the safe- 
 guards of the mutual savings banks, which 
 are the secret of much of New England^s 
 thrift and prosperity but which are rela- 
 tively unknown west of the Hudson River. 
 
 Of course Federal co-operative banks 
 likewise might have a savings department. 
 
 Small Loans will be especially popular 
 with these little co-operative banks. Many 
 American banks and bankers of late years 
 have encouraged small deposits, but I do 
 not know of any of them that have encour- 
 aged the business of making small loans. 
 
 They are glad enough to get the little de- 
 posits of little people, but they are averse 
 to making little loans to little people. This 
 may be because such petty business "costs 
 more than it is worth" under present meth- 
 ods of banking with its relatively large 
 overhead expenses. 
 
 Yet the Bank of France actually makes 
 millions of loans every year in sums of 100 
 
 123
 
 RURAL CREDITS SYSTEM 
 
 francs or $20. It even employs an army of 
 collectors to go out and collect its notes 
 when due, instead of having the borrower 
 come to the bank as is the usual custom in 
 the United States. 
 
 Undoubtedly there is a large field for 
 these little co-ops in making petty loans. 
 This business can be so simplified that the 
 expense will be nominal, the chances of 
 risk reduced to a minimum, and the rate 
 therefore may be made reasonable to the 
 small borrower for the first time in Ameri- 
 can history. 
 
 Towns and Cities possibly may offer a 
 limited field for the activities of these little 
 people's bank. Experience may show that, 
 under the auspices of labor unions, charit- 
 able organizations or eleemosynary institu- 
 tions, a Federal Co-operative Bank may be 
 developed to encourage thrift and to supply 
 small loans and current credits to people of 
 very limited means. With such facilities 
 for self-help these people who today are be- 
 low the level of the classes that patronize 
 existing banking institutions, may be en- 
 
 124
 
 FEDERAL CO-OPERATIVE BANKS 
 
 abled to help themselves to a better estate 
 gradually and slowly, but surely. 
 
 It is an economic sin that this large con- 
 stituency should have been so long deprived 
 of such an agency, or forced to submit to 
 Shylock extortion in order to obtain the 
 loans or credits required to meet impera- 
 tive necessities. At least there can be no ob- 
 jection to offering this constituency the 
 help to self-help which may be afforded by 
 a Federal Co-operative Bank. The success- 
 ful operation of one such institution might 
 alone be worth, as an example for others, all 
 the effort involved in the enactment of the 
 bill submitted. 
 
 The Absence of this type of little com- 
 mercial bank upon the co-operative prin- 
 ciple is a grave defect in the financial sys- 
 tem of the United States. This defect is not 
 remedied by the so-called credit unions 
 which, originally created under the laws of 
 Massachusetts, now exist in several other 
 states, notably North Carolina. Excellent 
 in their way, credit unions are not banks, 
 they are not quite in keeping with the cus- 
 
 125
 
 RURAL CREDITS SYSTEM 
 
 toms of the American people and have not 
 proven of particular efficacy. 
 
 There is no valid reason why the common 
 people should not be encouraged to have 
 little banks of their own. To be sure, this 
 will put some extra work upon the office of 
 the Comptroller of the Currency at Wash- 
 ington, but that is a petty matter compared 
 to the great advantages that may accrue to 
 such of the masses as work together to es- 
 tablish, patronize and conduct a Federal 
 Co-operative Bank. 
 
 Let a Labor Union in any community 
 start such a little bank of its own, and de- 
 velop the same gradually under the tutel- 
 age of national supervisors, this of itself 
 will enable those organizations to get an 
 experience and acquire a knowledge that 
 may be of constructive value to them and 
 their members. 
 
 Righteous ideas of thrift, proper financ- 
 ing by lowly people, will be conserved best 
 through their individual and associated ex- 
 perience in little co-operative banks of their 
 own. 
 
 356
 
 FEDERAL CO-OPERATIVE BANKS 
 
 "O P M." is a formula that has done 
 much harm. Certain institutions, groups or 
 individuals have waxed fat by the manipu- 
 lation of "Other People's Money", but this 
 gives them no vested right to manipulate 
 the little savings of the little people for the 
 benefit of selfish interests or big combina- 
 tions. 
 
 The wage earner, the person of really 
 small means, women and children — each is 
 a capitalist. The prejudice against capital, 
 in the minds of some of these people, is 
 prejudice against capital in big bunches, 
 not in the small amounts that they possess ! 
 
 When as a boy I hit the city of Denver 
 with only ten cents in my pocket, the boy 
 went without a couple of meals until he 
 could begin earning at least something, for 
 he said to himself: "As long as I have got 
 ten cents in my pocket, I am a capitalist. If 
 I spend that I am broke — up against it, 
 busted!" 
 
 And it may be added as a fresh illustra- 
 tion of the power of small savings that to 
 keep down his expenses during his first 
 week in Denver the lad slept on old news- 
 
 127
 
 RURAL CREDITS SYSTEM 
 
 papers under the printing office bench. 
 When he received his wages of $10 the first 
 Saturday night, he paid $5 for his meals 
 which he had obtained on credit, sent $5 to 
 his father who was in need, and still had his 
 original ten cents in his pocket. The joy 
 of that triumph still lingers in the memory, 
 for the boy tasted the priceless pleasure of 
 having met and conquered the world ! 
 
 The least that our national financial sys- 
 tem can do to encourage young and old to 
 similar thrift, greater effort and larger suc- 
 cess, is to authorize the common people to 
 employ their own savings, their own re- 
 sources and their own character in the de- 
 velopment of their own finances through 
 their own federal co-operative banks. 
 
 128
 
 CHAPTER NINE 
 FEDERAL RESERVE AMENDMENT 
 
 IT IS UNDOUBTEDLY true that the Fed- 
 eral Reserve System was of immeasur- 
 able service to every interest throughout 
 the United States, especially prior to and 
 during the war. But for the facilities af- 
 forded by this system, it would have been 
 well nigh impossible to have handled the 
 gigantic financial operations of the war 
 period. 
 
 It is equally true that, in the sudden and 
 drastic deflation of 1919-21 the Federal Re- 
 serve took a prominent part. The evidence 
 seems to show, however, that its most dras- 
 tic policies were forced upon the Federal 
 Reserve Board by the then Secretary of the 
 Treasury, D. F. Houston. 
 
 With all its faults of omission or commis- 
 sion, however, the usefulness of the System 
 has been amply demonstrated. It is some- 
 thing to be wisely used but not unfairly 
 abused. 
 
 Also it is true that only a comparatively 
 small number of all the banks in the United 
 
 129
 
 RURAL CREDITS SYSTEM 
 
 States as yet are members of the Federal 
 Reserve. These member banks carried the 
 load and sustained the responsibility of the 
 system during the critical period, while the 
 much larger number of non-member banks 
 shared in the benefits of the system but es- 
 caped its responsibilities. 
 
 At the Most Critical Period in the finan- 
 cial history of this country about 30 June 
 1921, out of a total of 30,748 banks in the 
 United States, only 9,745 were members of 
 the reserve system. Of these member banks, 
 8,150 were national banks which, under the 
 terms of their charters, must become mem- 
 bers of the system. The remaining 1595 
 member institutions were state banks, 
 which had applied voluntarily for admis- 
 sion to the system. Furthermore, of the 
 8150 national banks that were members at 
 that date, no less than 7730 were classed as 
 country banks, 374 were national banks in 
 reserve cities and 46 were nationals in the 
 central reserve cities. 
 
 Of the 1595 state banks and trust com- 
 panies that were members, 55 were in cen- 
 tral reserve cities, 198 were in other reserve 
 
 130
 
 FEDERAL RESERVE AMENDMENT 
 
 cities and 1342 were other banks which may 
 be classed as "country banks". 
 
 State banks have been coming into the 
 system since, but at the date named out of 
 21,003 non-member banks in the United 
 States, no less than 19,672 were state banks 
 and trust companies, 623 were mutual sav- 
 ings banks and 708 were private banks. 
 
 Some Non-member Banks, especially in 
 the smaller cities and rural communities, 
 carried the deflation policy to an extreme. 
 When remonstrated with, they "passed the 
 buck" to the Federal Reserve, yet were not 
 even its members! The detailed table on 
 page 142 affords illuminating insight into 
 this situation. 
 
 It should not be allowed to continue. 
 Many member banks are insistent that 
 these non-members be brought into the sys- 
 tem forthwith. "If they won't come in vol- 
 untarily they should be forced in". 
 
 Indeed, some bankers have gone so far as 
 to suggest that any state banking institu- 
 tion, other than mutual savings banks, 
 which fails to join the Federal Reserve Sys- 
 tem within say six months from the amend- 
 
 131
 
 RURAL CREDITS SYSTEM 
 
 ment to the reserve Act proposed herewith, 
 should be denied the privileges of the Unit- 
 ed States mails ! 
 
 They ask why should the government al- 
 low non-member banks to use the mails, 
 when the alternative seems to be the only 
 way in which the federal government can 
 force recalcitrant state banks into the 
 system. 
 
 "We Take Pride in the fact that we are 
 not members and have not even redis- 
 counted any paper with any correspond- 
 ent bank that is a member of the Fed- 
 eral Reserve System", say some non-mem- 
 bers. But practically every banker who 
 is a member and who uses the Reserve Sys- 
 tem recognizes the fallacy of such pride. In 
 almost every case non-member banks often 
 fail to extend the accommodation to which 
 their customers were reasonably, safely 
 and morally entitled. 
 
 The Federal Reserve System was erected 
 for the use of all the banks and all the 
 people all the time. Any institution which 
 stays out of the system for fallacious rea- 
 sons may easily find itself unable to do its 
 
 132
 
 FEDERAL RESERVE AMENDMENT 
 
 full duty toward its customers and the 
 people of its bailiwick in times of storm and 
 stress. 
 
 Many a banker who was loath to join the 
 Federal Reserve system has learned by ex- 
 perience of its great merit and the value of 
 the insurance which it offers. Non-mem- 
 bers may well imitate such men. 
 
 The Failures of Banks in former times 
 was partly due to lack of thrift in a com- 
 munity. Banking failures also were brought 
 about by a spirit of speculative adventure 
 or reckless plunging — characteristics which 
 occur more frequently among people where 
 the thrift instinct is not generally prevalent. 
 
 The disgraceful frequency with which 
 bank failures occurred in former years was 
 due also to the absence of any such mobili- 
 zation of banking resources and of credits 
 as has been brought about under the Fed- 
 eral Reserve System. Before it went into 
 effect, however, too many of the so-called 
 average bankers opposed it or other plans 
 for safeguarding finance. Among bankers, 
 as among men in other vocations, leaders of 
 broad vision, men of understanding of the 
 
 133
 
 RURAL CREDITS SYSTEM 
 
 science as well as of the art of banking, are 
 not overly numerous. 
 
 Men of this type knew why it was that, 
 during the twenty years ended with 1910, 
 banks failed in the tlnited States at the rate 
 of about one bank every four days ! These 
 men who can see all around the problem 
 realize today that under the safeguards out- 
 lined herein, as well as those provided by 
 existing law, the little federal co-operative 
 banks I suggest doubtless would make a 
 better record for success in the coming 
 twenty years than did state and national 
 banks during the twenty years referred to 
 in which they "went broke" at the rate of 
 one bank about every four days. 
 
 Co-operative Enterprises in former years 
 also harvested a big crop of failures, but 
 experience and better organization, 
 coupled with more knowledge and forced 
 by necessity, insures success in many of the 
 properly financed co-operative undertak- 
 ings of the present day. I feel sure, there- 
 fore, that this adequate method for rural 
 credits with its Federal co-operative banks, 
 
 134
 
 FEDERAL RESERVE AMENDMENT 
 
 together with associations for the co-opera- 
 tive assemblage, grading, packing, distrib- 
 uting and marketing of produce, is certain 
 to make a record in accomplishing its pur- 
 pose even more favorable than was the 
 banking record for the two decades cited. 
 
 The Co-operative Idea is the very basis 
 of the whole Federal Reserve System. Each 
 member of a Federal Reserve bank has only 
 one vote in its affairs and in the election of 
 representatives on its directorate. The 
 bank with $100,000,000 of resources has no 
 more voting power or influence than an in- 
 stitution with only $100,000, although the 
 latter's holdings in shares of the reserve 
 bank are infinitely smaller than the former, 
 though upon the same percentage basis. 
 
 The mobilization of banking brought 
 about through the reserve system is funda- 
 mentally co-operative. In view of the great 
 benefits resulting therefrom, how or why 
 can any interest oppose granting to people 
 of very limited means the privileges of co- 
 operative banking for their own benefit, as 
 outlined for federal co-operative banks. 
 
 135
 
 RURAL CREDITS SYSTEM 
 
 The First Amendment proposed in the 
 bill herewith strikes out the following pro- 
 vision in existing law : 
 
 "Provided that notes, drafts and bills 
 drawn or issued for agricultural purposes 
 or based on live stock and having a matur- 
 ity not exceeding six months, exclusive of 
 days of grace, may be discounted in an 
 amount to be limited to a percentage of the 
 assets of the Federal Reserve Bank, to be 
 ascertained and fixed by the Federal Re- 
 serve Board." 
 
 In Lieu Thereof, broader provisions for 
 the discount of agricultural and live stock 
 paper are proposed in Section two of the 
 amendments. 
 
 Not only member banks of the Federal 
 Reserve, but Federal Rural Credits Com- 
 pany or any federal debenture bank, it is 
 suggested, may discount agricultural or live 
 stock paper having a maturity of not ex- 
 ceeding six months. 
 
 It is further urged that the discount privi- 
 lege be extended to agricultural paper when 
 secured by warehouse receipts conveying 
 
 136
 
 FEDERAL RESERVE AMENDMENT 
 
 title to readily marketable and non-perish- 
 able agricultural products, when within one 
 year of maturity. But the Federal Reserve 
 Board is to draft regulations designed to in- 
 sure that only such paper shall be dis- 
 counted as is "a part of a program of or- 
 derly marketing of such agricultural prod- 
 ucts and not for speculative holding.'^ 
 
 Live stock paper, thoroughly secured by 
 chattel mortgage may be discounted with a 
 maturity not exceeding two years, but only 
 in case the live stock is being prepared for 
 market under such conditions that it would 
 be marketable on or before such paper ma- 
 tures. 
 
 The Present Limit for the discount of 
 farm or live stock paper is six months, while 
 commercial paper is limited to three 
 months but as a matter of fact is subject to 
 repeated renewal. 
 
 The longer terms proposed — up to one 
 year on certain agricultural paper and up to 
 two years on live stock instruments of cred- 
 it, are very much needed. The amendments 
 provide against this privilege being abused, 
 
 137
 
 RURAL CREDITS SYSTEM 
 
 as Federal Reserve Board may prescribe 
 the extent to which any member bank be al- 
 lowed to discount such longer term paper. 
 
 Strong Opposition is voiced to any such 
 extension of the discount privilege. The 
 opponents are of three classes : 
 
 (a) Large and wealthy institution that 
 do not favor any policy which may have a 
 tendency to liberalize this service that 
 banking can render to the agricultural and 
 live stock industries at other then high 
 rates. This objection has little standing be- 
 cause based upon selfishness. 
 
 (b) Really competent students of finance 
 who fear the introduction into the Federal 
 Reserve of any paper whatsoever having 
 longer than six months maturity. These 
 fairminded authorities seem to dread al- 
 lowing federal reserve notes, which so 
 largely compose the cash of the country, to 
 be issued against either non-perishable 
 agricultural products or live stock, even 
 when either or both are practically enroute 
 to the consumer. 
 
 Such critics admit that cloth, copper, 
 
 138
 
 FEDERAL RESERVE AMENDMENT 
 
 lumber and practically any and all other 
 merchandise enroute from producer to con- 
 sumer is a safe basis upon which to issue 
 federal reserve notes for a limited time. 
 But is not the food which must be consumed 
 and that must be paid for before it is con- 
 sumed an even better basis for such credits 
 than other forms of merchandise which are 
 not nearly so indispensable as human food? 
 
 The Third Objecting party is most num- 
 erous. It is composed mainly of people who 
 look wise but who do not know what they 
 are talking about ! The less they know as to 
 the science of exchange and the art of bank- 
 ing, the more loudly they oppose the slight- 
 est innovation upon the system. 
 
 This party is most numerous among the 
 officials and directors of the large majority 
 of banks that are not even members of the 
 system. That bunch ^'holler" the most 
 against any evolution, yet have never done 
 a thing to support the system as it is ! Of 
 course opposition from such a source 
 should have no weight before the public or 
 in Congress. 
 
 139
 
 RURAL CREDITS SYSTEM 
 
 Admittance to the Reserve is granted to 
 smaller banks as described in Section 3. 
 Under the present law the bank must have 
 at least $25,000 paid up capital in order to 
 become a member of its Federal Reserve 
 Bank. 
 
 The amendment now proposed also 
 would allow any federal co-operative bank 
 to become a member when it attains the 
 amount of paid up and unimpaired capital 
 required of national or state banks. 
 
 No valid objection can be raised to either 
 of these modifications. Indeed every rea- 
 sonable effort should be made to encourage 
 all banks, the small as well as large, to join 
 the Federal Reserve system, provided only 
 that they are sound, regardless of their size. 
 
 Indeed, a smaller bank often is much 
 closer to its customers than larger institu- 
 tions. At least the smaller bank may better 
 serve the people of limited means who 
 most need encouragement to thrift and rea- 
 sonable facilities for employing their little 
 credits to economic advantage. 
 
 A New Feature is the granting to member 
 
 140
 
 FEDERAL RESERVE AMENDMENT 
 
 banks, by section 4 of the proposed amend- 
 ments, the right to discount their direct ob- 
 ligations when secured by notes of Federal 
 Rural Credits Company or by Federal de- 
 bentures, or to rediscount paper thus se- 
 cured. 
 
 The Discount Privilege is also extended 
 to export paper issued by Federal Rural 
 Credits Company pursuant to section 7 of 
 Title I, which paper is amply secured by 
 warehouse receipts and has not more than 
 one year to run. 
 
 Federal debentures issued by any Fed- 
 eral debenture bank also may be dis- 
 counted in the Federal Reserve when with- 
 in one year of maturity, according to para- 
 graph 4 of section 2 of the amendments 
 outlined under Title III. 
 
 It Is Conservative to say that all these 
 amendments tend to strengthen and not 
 weaken the Federal Reserve System. Most 
 of these changes already have been spon- 
 sored by substantial authorities. They are 
 further justified by the experience of War 
 Finance Corporation. They do not infringe 
 
 141
 
 RURAL CREDITS SYSTEM 
 
 upon the safety or efficiency of the reserve 
 system. 
 
 Rules for the use of the privileges pro- 
 posed will be made by Federal Reserve 
 Board in a way to accomplish maximum 
 efficiency at minimum of hazard. 
 
 Because Heretofore the Federal Reserve 
 
 has confined its discounts so largely to com- 
 mercial paper, including also paper repre- 
 senting deals of a highly speculative char- 
 acter, it has come to be the fashion with a 
 certain element in the banking fraternity 
 to take firm ground against any liberaliz- 
 ing of the discount privilege. But going 
 back a few years we would find many of 
 these same gentlemen wholly opposing the 
 Reserve System itself. 
 
 What is there about grain, flour or cot- 
 ton, when it has passed from the producer 
 into the hands of the speculator which so 
 transforms its character as to make it bet- 
 ter collateral? To be sure, that process 
 tends to make the product more mobile and 
 to that extent more salable or pushes it 
 further along enroute to the ultimate con- 
 sumer who must pay for it before he can 
 
 142
 
 FEDERAL RESERVE AMENDMENT 
 
 get it. But the organization herein pro- 
 posed for intermediate credits imparts 
 similar mobility to such products when in 
 the hands of the producer. 
 
 Right here we get down to the real nub 
 of the opposition. The present or old plan 
 operates primarily in the interest of the 
 middleman — of the speculator who would 
 profit from the producer's inability of 
 finance himself. My plan aims to mobilize 
 products while still in the producers' hands, 
 and to do this through an organization and 
 a system and with a safety, stability and 
 availability that will make these products 
 even better security than heretofore. 
 
 MEMBERSHIP IN FEDERAL RESERVE 
 
 NUMBER OF MEMBER AND NONMEMBER BANKS IN EACH 
 STATE AS OF THE END OF JUNE 1921. 
 
 TOTAL MEMBER NONMEMBER 
 
 NUMBER BANKS BANKS 
 
 *^ 4^ n p^ 4.9 DO 
 
 STATE ^2 |„ „ g.nWHiwHi'Sic-S". 
 
 |S Jig sg |g 51§ ^-gllSg-^g 
 
 Maine 64 94 158 61 3 52 42 
 
 New Hampshire 56 70 126 56 . 25 45 
 
 Vermont 49 59 108 49 . 39 20 
 
 Massachusetts 193 277 470 162 81 80 197 
 
 Rhode Island 20 28 48 17 3 13 15 . 
 
 Connecticut 69 154 223 64 5 67 80 7 
 
 New York 601 478 1,079 505 96 238 143 97 
 
 New Jersey 265 137 402 220 46 111 26 
 
 143
 
 RURAL CREDITS SYSTEM 
 
 
 
 TOTAL 
 
 MEMBER 
 
 NONMEMBER 
 
 
 
 NUMBER 
 
 BANKS 
 
 BANKS 
 
 
 
 
 
 
 C m S 
 
 C CO 0) 
 
 
 
 STATE 
 
 ^"1 
 
 O a; rt 
 
 
 "3 
 
 C m 
 
 4? s'H 
 
 hi 
 
 Ul (SO 
 
 
 Si « 
 
 Pennsylvania 
 
 917 
 
 690 
 
 1,607 
 
 861 
 
 56 
 
 559 
 
 10 
 
 121 
 
 Delaware 
 
 22 
 
 33 
 
 55 
 
 18 
 
 4 
 
 31 
 
 2 
 
 
 Maryland 
 
 96 
 
 189 
 
 285 
 
 90 
 
 6 
 
 172 
 
 17 
 
 
 Dist. of Col. 
 
 16 
 
 31 
 
 47 
 
 15 
 
 1 
 
 31 
 
 
 
 Virginia 
 
 190 
 
 321 
 
 511 
 
 174 
 
 16 
 
 321 
 
 
 
 West Virginia 
 
 132 
 
 218 
 
 350 
 
 123 
 
 9 
 
 217 
 
 i 
 
 
 North Carolina 
 
 102 
 
 539 
 
 641 
 
 87 
 
 15 
 
 539 
 
 
 
 South Carolina 
 
 99 
 
 361 
 
 460 
 
 81 
 
 18 
 
 361 
 
 
 
 Georgia 
 
 165 
 
 558 
 
 723 
 
 95 
 
 70 
 
 558 
 
 
 
 Florida 
 
 68 
 
 204 
 
 272 
 
 56 
 
 12 
 
 204 
 
 
 
 Alabama 
 
 125 
 
 233 
 
 358 
 
 107 
 
 18 
 
 233 
 
 
 
 Mississippi 
 
 34 
 
 321 
 
 355 
 
 31 
 
 3 
 
 321 
 
 
 
 Louisiana 
 
 50 
 
 219 
 
 269 
 
 36 
 
 14 
 
 219 
 
 
 
 Texas 
 
 749 
 
 860 
 
 1.609 
 
 557 
 
 192 
 
 833 
 
 
 27 
 
 Arkansas 
 
 118 
 
 370 
 
 488 
 
 83 
 
 35 
 
 370 
 
 
 
 Kentucky 
 
 145 
 
 457 
 
 602 
 
 134 
 
 11 
 
 457 
 
 
 
 Tennessee 
 
 113 
 
 457 
 
 570 
 
 98 
 
 15 
 
 457 
 
 
 
 Ohio 
 
 459 
 
 673 
 
 1,132 
 
 375 
 
 84 
 
 549 
 
 8 
 
 12i 
 
 Indiana 
 
 274 
 
 809 
 
 1,083 
 
 252 
 
 22 
 
 637 
 
 5 
 
 167 
 
 Illinois 
 
 574 
 
 1.319 
 
 1,893 
 
 494 
 
 80 
 
 1,319 
 
 
 
 Michigan 
 
 276 
 
 461 
 
 737 
 
 117 
 
 159 
 
 407 
 
 
 64 
 
 Wisconsin 
 
 189 
 
 809 
 
 998 
 
 153 
 
 36 
 
 802 
 
 7 
 
 
 Minnesota 
 
 371 
 
 1,165 
 
 1,536 
 
 341 
 
 30 
 
 1,156 
 
 9 
 
 
 Iowa 
 
 458 
 
 1,345 
 
 1.803 
 
 354 
 
 104 
 
 1.245 
 
 
 100 
 
 Missouri 
 
 169 
 
 1,503 
 
 1,672 
 
 131 
 
 38 
 
 1.500 
 
 
 3 
 
 North Dakota 
 
 185 
 
 669 
 
 854 
 
 180 
 
 5 
 
 669 
 
 
 , 
 
 South Dakota 
 
 152 
 
 548 
 
 700 
 
 134 
 
 18 
 
 548 
 
 
 , 
 
 Nebraska 
 
 207 
 
 977 
 
 1,184 
 
 186 
 
 21 
 
 977 
 
 
 
 Kansas 
 
 275 
 
 1.104 
 
 1,379 
 
 267 
 
 8 
 
 1,104 
 
 
 
 Montana 
 
 202 
 
 218 
 
 420 
 
 143 
 
 59 
 
 211 
 
 
 7 
 
 Wyoming 
 
 51 
 
 104 
 
 155 
 
 47 
 
 4 
 
 103 
 
 
 1 
 
 Colorado 
 
 146 
 
 253 
 
 399 
 
 143 
 
 3 
 
 250 
 
 
 3 
 
 New Mexico 
 
 57 
 
 69 
 
 126 
 
 50 
 
 7 
 
 69 
 
 
 
 Oklahoma 
 
 379 
 
 602 
 
 981 
 
 359 
 
 20 
 
 602 
 
 
 
 Washington 
 
 150 
 
 250 
 
 400 
 
 96 
 
 54 
 
 250 
 
 
 
 Oregon 
 
 129 
 
 156 
 
 285 
 
 96 
 
 33 
 
 156 
 
 
 
 California 
 
 355 
 
 377 
 
 732 
 
 309 
 
 46 
 
 376 
 
 
 
 Idaho 
 
 129 
 
 87 
 
 216 
 
 83 
 
 46 
 
 87 
 
 
 
 Utah 
 
 64 
 
 65 
 
 129 
 
 28 
 
 36 
 
 65 
 
 
 
 Nevada 
 
 11 
 
 24 
 
 35 
 
 11 
 
 
 24 
 
 
 
 Arizona 
 
 26 
 
 58 
 
 83 
 
 21 
 
 4 
 
 58 
 
 
 
 TOTAL 
 
 9.745 
 
 21.003 
 
 30.748 
 
 144 
 
 8,150 
 
 1.595 
 
 19,672 
 
 623 
 
 708
 
 Appendix 
 
 Full Text of Bill Drafted 
 by the Author 
 
 for the 
 
 Rural Credits System 
 
 of the United States
 
 THE BILL PROPOSED 
 
 To provide credit facilities for the orderly mar- 
 keting of agricultural products, and for the 
 preservation and development of agriculture 
 and of the livestock industry of the United 
 States ; to extend and stabilize the market for 
 United States bonds and other securities; to 
 provide fiscal agents for the United States; 
 to amend the Federal Reserve Act; to 
 provide for Federal Co-operative banks, 
 and for other purposes. 
 
 Be it enacted by the Senate and House of Rep- 
 resentatives of the United States of America in 
 Congress assembled. That the short title of this 
 act shall be the "Rural Credits Act of 1922." 
 
 DEFINITIONS 
 
 Member 
 
 Paragraph 1. Section 1. That the term 
 "member," unless otherwise specified shall 
 be held to mean any bank or association 
 which has subscribed to, paid for and owns stock 
 in the Federal Debenture bank for the state in 
 which the member is domiciled to the amount 
 required by this Act, and who has received a cer- 
 tificate of membership issued by the board of 
 directors of said bank. 
 
 146
 
 FOR RURAL CREDITS 
 
 Agricultural purposes 
 
 P 2. The term "agricultural purposes" shall 
 be held to include the cultivation of lands, the 
 planting, harvesting, assembling, grading, distri- 
 bution and marketing of crops and the purchas- 
 ing, breeding, feeding and marketing of live stock, 
 or the ownership thereof. 
 
 Agricultural business 
 
 P 3. The term "agricultural business" shall be 
 held to include the ownership and operation of 
 real estate and commodities required for agricul- 
 tural purposes, including plants co-operatively 
 owned by producers for the manufacture or prep- 
 aration for market of dairy products and other 
 agricultural products or for producing, buying, 
 selling or storing any merchandise, goods or com- 
 modities which may be required for or employed 
 in agricultural purposes. 
 
 Agricultural loans 
 
 P 4. The term "agricultural loans" shall be 
 held to mean loans, the proceeds of which have 
 been used or are to be used for agricultural pur- 
 poses and agricultural business as defined by this 
 Act, exclusive of live stock paper, commodity 
 paper or real estate obligations. 
 
 Live stock paper 
 
 P 5. The term "live stock paper" shall be held 
 to mean notes, drafts, bills of exchange or accept- 
 
 147
 
 THE BILL PROPOSED 
 
 ances issued by a company incorporated under the 
 laws of any state which is authorized by law to 
 make, and the principal business of which shall 
 consist in making, loans and advances on the 
 security of live stock, such live stock paper to be 
 secured by the notes given to it for loans on live 
 stock together with the chattel mortgages secur- 
 ing such obligations. Provided that only the paper 
 issued by live stock loan companies approved by 
 the Federal Rural Credit Board and issued to an 
 amount not exceeding ten times the paid in cash 
 capital, may be discounted or sold through the 
 Federal Rural Credits System. 
 
 Commodity paper 
 
 P 6. The term "commodity paper" shall be 
 held to mean credit instruments secured by rela- 
 tively non-perishable agricultural products in 
 warehouses, fully insured, and represented by 
 warehouse certificates issued by warehousing as- 
 sociations or corporations approved by Federal 
 Rural Credits Board. Commodity paper also shall 
 be held to include credit instruments secured by 
 chattel mortgages, bills of lading, shipping docu- 
 ments or other instruments in writing conveying 
 and securing marketable title to agricultural 
 products, including live stock products but not 
 live animals. 
 
 148
 
 FOR RURAL CREDITS 
 
 Co-operative association 
 
 P 7. The term "co-operative association" shall 
 be held to mean any association upon the co- 
 operative principle composed of five or more per- 
 sons duly incorporated pursuant to this Act or 
 under the laws of the state in which its principal 
 office is domiciled, and which association is ap- 
 proved by Federal Rural Credits Board en- 
 gaged in producing staple agricultural prod- 
 ucts, organized for the purpose of marketing 
 in an orderly manner agricultural products 
 belonging to the members composing such 
 association, or for conducting co-operatively 
 an agricultural business for supplying its 
 members with any commodities they may 
 require for agricultural purposes, such product by 
 agreement having been transferred to the asso- 
 ciation as security for the obligations of such 
 association. 
 
 Real estate obligations 
 
 P 8. By the term "real estate obligations" is 
 meant (a) first mortgages upon real estate owned 
 by incorporated co-operative associations for agri- 
 cultural purposes or agricultural business; (b) 
 second mortgages upon farms, the first mortgage 
 on which is held by the Federal Land Bank for 
 the district in which the Debenture bank is lo- 
 
 149
 
 THE BILL PROPOSED 
 
 cated, both (a) and (b) being strictly limited 
 according to section 13 of this Act. 
 
 Co-operative principle 
 
 P 9. By the term "co-operative principle" is 
 meant co-ownership and operation in which each 
 member has only one vote regardless of his share- 
 holdings, and capital is limited to reasonable in- 
 terest, earnings in excess thereof being appor- 
 tionable as dividends among those who create the 
 profit. 
 
 Veteran 
 
 P 10. The term "veteran" means any indi- 
 vidual, a member of the military or naval forces 
 of the United States in the war with Germany, 
 the war with Spain or in suppression of the in- 
 surrection in the Philippines and honorably 
 discharged therefrom or placed in the regular 
 army or naval reserve, or any woman who was 
 officially enrolled in such services and is still 
 in such service or honorably discharged there- 
 from. 
 
 FEDERAL RURAL CREDITS BOARD 
 
 P 1. Section 2. That there is hereby estab- 
 lished at the seat of government in the Depart- 
 ment of the Treasury a bureau charged with the 
 
 150
 
 FOR RURAL CREDITS 
 
 execution of this Act and all Acts amendatory 
 hereof, to be known as the Federal Rural Credits 
 Bureau, under the general supervision of the 
 Federal Rural Credits Board. 
 
 How appointed 
 
 P 2. Said Federal Rural Credits Board shall 
 consist of five members, including the Secretary 
 of the Treasury, who shall be a member and 
 chairman ex-ofRcio, and four members to be ap- 
 pointed by the President of the United States, by 
 and with the advice and consent of the Senate. 
 Of the four members to be appointed by the 
 President, not more than two shall be appointed 
 from one political party, and all four of said mem- 
 bers shall be citizens of the United States. 
 
 Qualifications 
 
 P 3. Each member of the board shall be a resi- 
 dent in and fairly representative of a different 
 geographical region of the United States, and each 
 of them shall be experienced in agriculture and 
 fi,nance. Each of said four members shall receive 
 an annual salary of $12,000 payable monthly, to- 
 gether with actual and necessary traveling ex- 
 penses. Any member receiving from the United 
 States any salary or compensation for services 
 shall not receive a salary from the board and 
 Federal Rural Credits Company in an amount 
 
 151
 
 THE BILL PROPOSED 
 
 which, together with such salary or compensation 
 from the United States, makes the total amount 
 of such salary or compensation and of such salary 
 from the board and Company exceed $12,000. 
 Each member shall devote his entire time and at- 
 tention to the duties of the board. 
 
 Terms — superintendent 
 
 P 4. One of the members to be appointed by 
 the President shall be designated by him to serve 
 for two years, one for four years, one for six 
 years and one for eight years, and thereafter each 
 member so appointed shall serve for a term of 
 eight years, unless sooner removed for cause by 
 the President, which cause shall be reported to 
 the Senate. One of the members shall be desig- 
 nated by the President as superintendent, and he 
 shall be the active executive officer of said board. 
 Each member shall within 15 days after notice of 
 his appointment take and subscribe to the oath 
 of office. 
 
 First meeting 
 
 P 5. The first meeting of the Federal Rural 
 Credits Board shall be held in Washington as soon 
 as may be after the passage of this Act, at a date 
 and place to be fixed by the Secretary of the 
 Treasury. 
 
 152
 
 FOR RURAL CREDITS 
 
 Disinterested 
 
 P 6. No member of the board shall during his 
 continuance in office be an officer or director of 
 any other institution, association or partnership 
 engaged in banking or finance. Before entering 
 upon his duties as a member, he shall certify 
 under oath to the President that he is eligible 
 under this section. 
 
 Vacancies 
 
 P 7. The President shall have power, by and 
 with the advice and consent of the Senate, to fill 
 any vacancy occurring in the membership of the 
 board; if such vacancy shall be filled during the 
 recess of the Senate, a commission shall be granted 
 which shall expire at the end of the next session. 
 
 Custodian 
 
 P 8. The Federal Rural Credits board shall ap- 
 point a Custodian for each Federal Debenture 
 Bank to receive applications for issues of Federal 
 debentures and to perform such other services as 
 are prescribed by this Act. It shall appoint as 
 many debenture bank appraisers and examiners 
 as it shall deem necessary. Said Custodian, ap- 
 praisers and examiners shall be public officials, 
 and shall, during their continuance in office, have 
 no connection with or interest in any other insti- 
 tution, association or partnership engaged in 
 
 153
 
 THE BILL PROPOSED 
 
 banking or similar business; provided, that this 
 hmitation shall not apply to persons temporarily- 
 employed by the board to do special work. 
 
 Paid by United States 
 
 P 9. The salaries and expenses of the Rural 
 Credits Board, custodians, appraisers and exam- 
 iners authorized under this section shall be paid 
 by the United States. 
 
 others paid by company 
 
 P 10. The board shall be authorized and em- 
 powered to employ such attorneys, experts, assist- 
 ants, clerks, laborers and other employees as it 
 may deem necessary to conduct the business of 
 said board. All salaries and fees authorized in 
 this section and not otherwise provided for shall 
 be fixed in advance by said board, and shall be 
 paid by Federal Rural Credits Company. All such 
 attorneys, experts, assistants, clerks, laborers and 
 other employees, and all custodians, examiners 
 and appraisers shall be appointed without regard 
 to the provisions of the Act of January 16, 1883 
 (Vol 22 U S statutes at large, page 403), and 
 amendments thereto, or any rule or regulation 
 made in pursuance thereof. 
 
 Reports 
 
 P 11. The board shall annually make a full 
 report of its full operations to the Speaker of the 
 
 154
 
 FOR RURAL CREDITS 
 
 House of Representatives who shall cause the 
 same to be printed for the information of the 
 Congress. 
 
 Regulations 
 
 P 12. The board shall have power to prescribe 
 all necessary rules and regulations for the en- 
 forcement of the provisions and for carrying out 
 the purposes of this Act. 
 
 Examinations 
 
 P 13. The board shall from time to time re- 
 quire examinations and reports of condition of all 
 Federal debenture banks or federal co-operative 
 agricultural associations established under the 
 provisions of this Act, and shall publish con- 
 solidated statements of the results thereof. 
 
 other bodies 
 
 P 14. The board may require similar infor^ 
 mation from live stock loan companies or 
 cooperative associations incorporated under 
 state law before approving same for membei:- 
 ship in any debenture bank. 
 
 rW^^^^ T' Quorum 
 
 P 15. Three members of the board shall 
 constitute a quorum for the transaction of its 
 business. 
 
 166
 
 THE BILL PROPOSED 
 
 POWERS OF FEDERAL RURAL CREDITS 
 
 BOARD 
 P 1. Section 3. That the Federal Rural 
 Credits board shall have power — 
 
 Debenture banks 
 
 P 2. (a) To organize and charter Federal 
 Debenture Banks subject to the provisions of this 
 Act. 
 
 Fix rates 
 
 P 3. (b) To establish, review and alter at its 
 discretion the rate of interest vto be charged by 
 Federal Debenture Banks or by co-operative asso- 
 ciations or live stock loan companies for loans or 
 advances or for purchases of paper made by them 
 under the provisions of this Act, said rates to be 
 uniform so far as practicable. 
 
 Debentures 
 
 P 4. (c) To grant or refuse to Federal De- 
 benture Banks authority to make any specific is- 
 sue of Federal debentures. 
 
 Regulations 
 
 P 5. (d) To make rules and regulations re- 
 specting all charges made for or in connection 
 with business transacted under this Act. 
 P 6. (e) To prescribe all necessary rules and 
 regulations for the enforcement of the provisions 
 and for carrying out the purposes of this Act. 
 
 156
 
 FOR RURAL CREDITS 
 
 Examinations 
 
 P 7. (f ) To require reports and statements 
 of condition and to make examinations of all 
 banks, associations or corporations doing busi- 
 ness under the provisions of this Act, other 
 than Federal Co-operative banks. 
 
 Debentures — surety 
 
 P 8. (g) To describe the forms and terms of 
 Federal debentures, and the form, terms and 
 penal sums of all surety bonds required under this 
 Act, and ?11 such other surety bonds as they 
 shall deem necessary, such surety bonds to cover 
 financial loss as well as faithful performance of 
 duty. 
 
 Supervision 
 
 P 9. (h) To exercise general supervisory 
 authority over the debenture banks, co-opera- 
 tive associations or livestock loan companies 
 herein provided for. 
 
 Removals 
 
 P 9. (i) To suspend or to remove for cause 
 any director, official or employee of any Federal 
 Debenture Bank, or any Custodian, or examiner 
 or other officers appointed by said board under 
 authority of this Act, the cause of such suspension 
 or removal to be communicated in writing to the 
 board by the person suspended, and in case of a 
 
 157
 
 THE BILL PROPOSED 
 
 debenture bank director, officer or employee, to 
 the said bank; and to remove incompetent or 
 dishonest officials of any federal co-operative 
 agricultural association incorporated here- 
 under. 
 
 other powers 
 
 P 10. (j) To exercise such incidental powers 
 as shall be necessary or requisite to fulfill its du- 
 ties and carry out the purposes of this Act. 
 
 FEDERAL RURAL CREDITS COMPANY 
 
 Name 
 
 Section 4. That the Secretary of the Treasury 
 and the other four members of the Federal Rural 
 Credits board hereby are created by a body corpo- 
 rate and politic in deed and in law by the name of 
 "Federal Rural Credits Company," hereinafter 
 referred to as the Company. This coporation shall 
 have succession until dissolved by Act of Con- 
 gress. 
 
 Capital 
 
 P 1. Section 5. That the original capital 
 stock of the Company shall be $500,000,000 divid- 
 ed into shares of a par value $100 each, all of 
 which shall be subscribed by the United States of 
 America and paid for and reduced by the retire- 
 ment of capital stock of the War Finance Corpo- 
 
 158
 
 FOR RURAL CREDITS 
 
 ration, and the transfer and liquidation of its as- 
 sets in the following manner : 
 
 Liquidates war finance corporation 
 
 P 2. The War Finance Corporation, within 
 ninety days from the date upon which the Com- 
 pany hereby created is authorized by the Pi'esi- 
 dent to commence business, shall, after depositing 
 with the Treasurer of the United States a sum 
 sufficient to retire all outstanding obligations of 
 the War Finance Corporation and making pro- 
 vision for the payment of any and all other liabil- 
 ities, transfer and deliver to the corporation here- 
 by created all of the assets, of every kind and de- 
 scription, belonging to or held by or for account 
 of the War Finance Corporation, including all 
 moneys on deposit with the Treasurer of the Unit- 
 ed States or other depository, all bills, notes, 
 drafts, and other evidences of debt, and all secu- 
 rities and property of every kind and description, 
 including office furniture, equipment, fixtures and 
 supplies, wherever situated, which said assets 
 shall forthwith be and become the property of said 
 Company. 
 
 Successor 
 
 P 3. The War Finance Corporation having 
 paid or provided for all its outstanding liabilities 
 
 159
 
 THE BILL PROPOSED 
 
 and transferred all its assets as hereinbefore pro- 
 vided, the entire capital stock of the War Finance 
 Corporation held by the United States, amounting 
 to $500,000,000, shall thereupon be retired and 
 canceled, and simultaneously the corporation 
 hereby created shall issue with the retirement and 
 cancellation of the capital stock of the War 
 Finance Coporation its capital stock in an equal 
 aggregate amount in the name of the United 
 States and deliver the same to the Secretary of 
 the Treasury, who shall have power on behalf of 
 the United States to assign and transfer such cer- 
 tificates in the manner and for the purpose pro- 
 vided by this Act. 
 
 Powers — privileges 
 
 P 4. All assets so transferred to the Federal 
 Rural Credits Company shall be taken up on its 
 books at the value at which such assets are carried 
 on the books of the War Finance Corporation and 
 the amount by which such assets exceed $500,000,- 
 000 shall be carried into the surplus fund of the 
 Company. In the liquidation of such assets the 
 Company shall succeed to and be vested with all 
 the powers, rights, and privileges of the War 
 Finance Corporation. 
 
 Capital reduced 
 
 P 5. When the Company has received the sum 
 
 160
 
 FOR RURAL CREDITS 
 
 of $250,000,000, either upon the transfer of the 
 cash assets or from the liquidation of other assets, 
 all further sums received as a result of the trans- 
 fer to it of the assets of the War Finance Corpo- 
 ration shall be carried into a special account and 
 deposited with the Treasurer of the United States 
 and from time to time applied to the retirement 
 of the capital stock of the corporation held by the 
 United States until the stock so held by the Unit- 
 ed States shall be reduced to $250,000,000. Pro- 
 vided, however, that the entire capital stock of the 
 corporation shall at no time be reduced to an 
 amount less than $250,000,000. All sums paid to 
 the Treasurer of the United States in retirement 
 of the capital stock of the corporation shall be cov- 
 ered into the general fund of the Treasury as mis- 
 cellaneous receipts. 
 
 P 6. That the principal office of the corpora- 
 tion shall be located in the District of Columbia, 
 but agencies or branch offices may be established 
 as hereinafter provided or under rules and regula- 
 tions prescribed by the board of directors. 
 
 POWERS OF COMPANY 
 P 1. Section 6. That the Company shall have 
 power, subject to the limitations prescribed by 
 this Act — 
 
 161
 
 THE BILL PROPOSED 
 
 By-laws 
 
 P 2. (a) To prescribe by its board of direc- 
 tors by-laws regulating the manner in which its 
 general business may be conducted and the privi- 
 leges granted to it by law may be exercised and 
 enjoyed. 
 
 Powers 
 
 P 3. (b) To exercise by its board of direc- 
 tors or duly authorized officers or agents all 
 powers specifically granted by the provisions of 
 this Act, and such incidental powers as shall be 
 necessary to carry on the business for which it is 
 incorporated, within the limitations prescribed 
 by this Act. 
 
 Capital In debenture banks 
 
 P 4. (c) To invest its capital in shares at 
 par of any Federal Debenture Bank as defined by 
 this Act at the rate of $1,000 for each million 
 dollars of value of all farm property within the 
 state for which said bank is established, as shown 
 by the fourteenth census of the United States, and 
 to purchase debenture issued by any such bank or 
 make advances or loans thereto. Provided, that 
 in any state wherein such total value of all farm 
 property is under $500,000,000, the Company 
 shall invest its capital in said shares to the 
 amount of $500,000 ; except, that in any State 
 
 162
 
 FOR RURAL CREDITS 
 
 where such values total less than $100,000,000 
 said investment shall be $100,000. 
 
 Discounts 
 
 P 5. (d) Upon the indorsement of any Fed- 
 eral Debenture Bank, which indorsement shall be 
 deemed a waiver of demand, notice, and protest 
 by such bank as to its own indorsement, to dis- 
 count notes, drafts, bills of exchange or other evi- 
 dences of debt representing agricultural loans or 
 live stock paper, commodity paper or real estate 
 obligations as defined by this Act. 
 
 Buying paper 
 
 P 6. (e) To purchase in the open market or 
 otherwise from any cooperative association in- 
 corporated hereunder, or from any agricultural 
 co-operative association or live stock loan com- 
 pany incorporated under the laws of any state 
 and approved by Federal Rural Credits Board, 
 live stock paper, agricultural loans, commodity 
 paper or real estate obligations as defined in 
 this Act bearing proper indorsement or to make 
 loans on promissory notes of incorporated co- 
 operative associations secured by commodity 
 paper. 
 
 Buys Bonds 
 
 P 7. (f ) To subscribe for, acquire, and own, 
 
 163
 
 THE BILL PROPOSED 
 
 buy, sell, and otherwise deal in the bonds and 
 other obligations of the United States, or Federal 
 Farm Loan bonds to such extent as the directors 
 from time to time may determine. 
 
 Agencies 
 
 P 8. (g) To establish agencies in any city or 
 cities of the United States under rules and regu- 
 lations prescribed by the directors. 
 
 Reserve discounts 
 
 P 9. (h) To discount with any Federal Re- 
 serve bank paper eligible for rediscount under the 
 Federal Reserve Act and owned or issued by 
 the Company. 
 
 U. S. depository 
 
 P 10. (i) To act, upon request of the Secre- 
 tary of the Treasury, as depository of funds be- 
 longing to the United States Government and to 
 perform any other service as fiscal agent of the 
 United States. 
 
 Guarantee 
 
 P 11. To guarantee the principal and interest 
 of Federal Debenture bonds issued pursuant to 
 this Act as specified in Section 16 hereof. 
 
 Sell certificates 
 
 P 12. To issue and sell its notes or certifi- 
 cates of indebtedness in an amount not to ex- 
 
 164
 
 FOR RURAL CREDITS 
 
 ceed the sum required to enable it to fulfill the 
 provisions of Section Seven hereof. 
 
 Temporary powers 
 
 P 13. For a period of six months after the 
 President has authorized the Company to com- 
 mence business said Company, subject to condi- 
 tions and limitations contained in this Act which 
 apply to transactions with Federal Debenture 
 Banks and under such rules and regulations as 
 the directors may prescribe, shall have power to 
 purchase or rediscount notes, drafts, bills of ex- 
 change and other evidences of debt for, and to 
 make loans and advances to banks and to corpo- 
 rations of the character referred to in this Act 
 which have not become member corporations: 
 Provided, however, that all such rediscounts, loans 
 and advances and all renewals thereof shall ma- 
 ture within a period of one year from the date of 
 the passage of this Act, and from and after the 
 expiration of said six months' period no renewals 
 shall be granted and no rediscounts, loans or ad- 
 vances shall be made except as provided in this 
 Act. 
 
 EXPORT CREDITS 
 
 Abnormal surplus 
 
 P 1. Section 7. That whenever the board of 
 
 165
 
 THE BILL PROPOSED 
 
 directors of the Company shall be of the opinion 
 that general business conditions have resulted in 
 or may result in an abnormal surplus accumula- 
 tion of any staple agricultural product of the 
 United States or lack of remunerative market for 
 the sale of the same or that the ordinary banking 
 facilities are inadequate to enable producers of or 
 dealers in such products to carry them until they 
 can be manufactured, processed, exported or sold 
 for export in an orderly manner, the Company 
 shall thereupon be empowered to make advances, 
 for periods not exceeding one year from the re- 
 spective dates of such advances, upon such terms, 
 not inconsistent with this Act, as it may deter- 
 mine; 
 
 Advances, domestic 
 
 P 2. (a) To any person engaged in the Unit- 
 ed States in producing, dealing in, or marketing 
 any such products, or to any incorporated co-oper- 
 ative association engaged in producing or mar- 
 keting such products, for the purpose of assisting 
 such person or association to carry such products 
 until they can be manufactured or processed or 
 sold for domestic consumption or for export in an 
 orderly manner. Any such advance shall bear 
 interest at a rate not exceeding 1 per centum in 
 
 166
 
 FOR RURAL CREDITS 
 
 excess of the discount rate for six months agri- 
 cultural paper prevailing at the Federal reserve 
 bank of the district in which the borrower is lo- 
 cated at the time the advance is made and shall 
 be secured by adequate security of such charac- 
 ter as shall be prescribed by the directors. The 
 Company shall retain the power to recall any such 
 advance or to require additional security at any 
 time. 
 
 Advances, foreign 
 
 P 14. (b) To any person without the United 
 States purchasing such products, but in no case 
 shall any of the money so advanced be expended 
 without the United States. Every such advance 
 shall be secured by adequate security of char- 
 acter to be prescribed by the directors. The 
 rate of interest charged on any such advance shall 
 be determined by the directors. The Company 
 shall retain the power to recall any such advance 
 or to require additional security at any time. 
 
 Advances to bank 
 
 P 15. (c) To any bank, banker, or trust com- 
 pany in the United States which makes or has 
 made an advance or advances to any such person 
 as is described in paragraph (a) of this section 
 for the purpose therein set forth or which makes 
 
 167
 
 THE BILL PROPOSED 
 
 or has made an advance or advances to any pro- 
 ducer for the purpose set forth in paragraph (a) . 
 The aggregate of the advances made to any bank, 
 banker, or trust company shall not exceed the 
 amount remaining unpaid of the advances made 
 by such bank, banker, or trust company for the 
 purposes herein described. Such advances shall 
 bear interest at rates determined by the directors. 
 
 P 16. (d) The aggregate of all such ad- 
 vances or of securities purchased pursuant to 
 this Section shall not at any time exceed $500,- 
 000,000. 
 
 Security 
 
 Sec. 8. PI. That all advances made under 
 section seven of this Act shall be made against 
 promissory note or notes, or other instrument or 
 instruments in writing, imposing on the borrower 
 a primary and unconditional obligation to repay 
 the advance at maturity, with interest as stipu- 
 lated therein, with full and adequate security in 
 each instance by indorsement, guaranty, pledge, 
 or otherwise. The Company shall retain the power 
 to require additional security at any time. 
 
 How payable 
 
 P 2. All notes or other instruments evidenc- 
 ing advances to persons outside of the United 
 
 168
 
 FOR RURAL CREDITS 
 
 States shall be in terms payable in the United 
 States in gold or currency of the United States 
 and shall be secured by adequate guaranties or in- 
 dorsements in the United States, or by warehouse 
 receipts, acceptable collateral, or other instru- 
 ments in writing conveying marketable title to 
 agricultural products in the United States, all 
 under rules and regulations to be approved by 
 Federal Rural Credits Board. 
 
 FEDERAL DEBENTURE BANKS 
 
 One in each state 
 
 P 1. Section 9. One Federal Debenture Bank 
 may be organized in each state by the Federal 
 Rural Credits Board. The initial capital of said 
 bank shall be an amount equal to $1,000 for each 
 one million dollars of total value of all farm prop- 
 erty in said state, as shown by the fourteenth cen- 
 sus of the United States. Such initial capital 
 shall not be increased or decreased, but may 
 be replaced as hereinafter set forth. Provided 
 that in any State wherein such total value is un- 
 der $500,000,000, the Company shall invest 
 said shares to the amount of $500,000, except 
 that in any State wherein such values total less 
 than $100,000,000 said investment shall be 
 $100,000. 
 
 169
 
 I 
 
 THE BILL PROPOSED 
 
 Initial shares 
 
 P 2. The shares representing the initial capi- 
 tal shall be of a par value of $100 each, all of 
 which shall be subscribed and paid for in cash 
 by Federal Rural Credits Company, which shall 
 have one vote for each of said shares it holds. 
 
 Title 
 
 P 3. There shall be only one Federal Deben- 
 ture Bank in each state of the United States, the 
 name of which shall include the name of the state, 
 together with the words "Federal Debenture 
 Bank," and it shall not be lawful for those words 
 to be used in any other title under penalty of 
 $1000 for each day during which such violation 
 is committee or repeated. 
 
 Temporary directors 
 
 P 4. Each Federal debenture bank shall be 
 managed temporarily by five directors appointed 
 by the Federal Rural Credits board. Said direc- 
 tors shall be citizens of the United States and 
 residents of the State. They shall give a surety 
 bond, the premium on which shall be paid from 
 the funds of the bank. They shall receive such 
 compensation as the Rural Credits Board may fix, 
 payable by such bank. They shall choose from 
 their number, by majority vote, a president, a 
 
 170
 
 FOR RURAL CREDITS 
 
 vice-president, a secretary and a treasurer. They 
 are further authorized and empowered to employ 
 such attorneys, experts, assistants, clerks, labor- 
 ers and other employees as they may deem neces- 
 sary, and to fix their compensation, subject to the 
 approval of the Federal Rural Credits board. 
 
 Application 
 
 P 5. Said temporary directors shall forthwith 
 under their hands apply for a charter to the Fed- 
 eral Rural Credits board in an organization cer- 
 tificate which shall specifically state: 
 P 6. (a) The name assumed in such bank. 
 P 7. (b) The amount of its initial capital 
 stock and the number of shares into which the 
 same is to be divided. 
 
 P 8. (c) The fact that the certificate is 
 made to enable such persons to enable themselves 
 of the advantages of this Act. Such certificate 
 shall be acknowledged before a judge or clerk of 
 some record or notary public and together with 
 the acknowledgment thereof, by the seal of such 
 court or notary, shall be transmitted to the Su- 
 perintendent of Federal Rural Credits Board 
 who shall record and carefully preserve the 
 same in his office, where it shall be at all times 
 open to public inspection. 
 
 171
 
 THE BILL PROPOSED 
 
 Charter 
 
 P 9. When the application has been approved, 
 the Federal Rural Credits Board shall issue a 
 charter for such debenture bank whereupon it 
 shall become, as from the date thereof, a body- 
 corporate, and as such and in the name desig- 
 nated in its charter, shall have power — 
 P 10. (1) To adopt and use a corporate seal. 
 P 11. (2) To have succession until it is dis- 
 solved by Act of Congress or under the provisions 
 of this Act. 
 
 P 12. (3) To make contracts. 
 P 13. (4) To sue and be sued, complain, in- 
 terplead, and defend, in any court of law or 
 equity, as fully as natural persons. 
 
 Directors, officers 
 
 P 14. (5) To elect or appoint directors, and 
 by its board of directors to elect a president and a 
 vice president, appoint a secretary and a treas- 
 urer and other officers and employees, define their 
 duties, require bonds of them, and fix the penalty 
 thereof; by action of its board of directors dis- 
 miss such officers and employees, or any of them, 
 at pleasure and appoint others to fill their places. 
 
 By-laws 
 
 P 15. (6) To prescribe, by its board of di- 
 rectors, subject to the supervision and regulation 
 
 172
 
 FOR RURAL CREDITS 
 
 of the Federal Rural Credits Board, by-laws not 
 inconsistent with law, regulating the manner in 
 which its stock shall be transferred, its directors 
 elected, its officers elected or appointed, its prop- 
 erty transferred, its general business conducted, 
 and the privileges granted to it by law exercised 
 and enjoyed. 
 
 Incidental powers 
 
 P 16. (7) To exercise, by its board of direc- 
 tors or duly authorized officers or agents, subject 
 to law, all such incidental powers as shall be nec- 
 essary to carry on the business herein described. 
 
 Action by state 
 
 P 17. Provided that no Federal Debenture 
 Bank shall begin business in any State until said 
 State by act of its Legislature shall have decreed 
 that the debentures issued by such banks shall 
 be a legal investment for all funds administered 
 by courts, trustees, savings banks, state banks, 
 trust companies or other corporations incorpo- 
 rated under laws of said state or doing business 
 therein; provided further, that the State shall 
 agree to buy at par with the state's funds the first 
 debentures issued by said bank to an amount not 
 to exceed the initial capital thereof paid up by the 
 Federal Rural Credits Company, and further 
 
 173
 
 THE BILL PROPOSED 
 
 agrees to have not less than that sum constantly 
 invested in said debentures. When the state shall 
 have taken such action the board of directors of 
 the Federal Debenture Bank therein shall be in- 
 creased to seven members, the additional two 
 members being appointed by the Governor of the 
 state or otherwise as its legislature may direct 
 and shall serve until the permanent organization 
 is effected. 
 
 Permanent directors 
 
 P 18. After said debenture bank shall have 
 been in operation for not less than two consecu- 
 tive years, a permanent board of seven directors 
 shall be selected in the following manner: four 
 of such directors shall be known as Federal direc- 
 tors, and shall be chosen by Federal Rural 
 Credits Board as representative of the na- 
 tional interest which has supplied the initial 
 capital. Of these Federal directors, one shall 
 be chosen for one year, another for two 
 years, a third for three years and the fourth 
 for four years ; thereafter their term of office shall 
 be four years. The remaining three shall be 
 known as state directors. One of them shall be 
 appointed by the governor or as the state legis- 
 lature may direct and be representative of the 
 
 174
 
 FOR RURAL CREDITS 
 
 state's interest invested in the bank's deben- 
 tures. The remaining two directors shall be 
 chosen by and be representative of the member 
 shareholders, one serving for two years and the 
 other for three years. Vacancies that may oc- 
 cur in the Federal directors shall be filled for 
 the unexpired term by the Rural Credits Board, 
 in other cases by the governor of the state. 
 
 Qualifications 
 
 P 19. Each director must have been for at 
 least two years resident of the State for which he 
 is appointed or elected, and at least one Federal 
 director shall be experienced in practical farming 
 and actually engaged at the time of his appoint- 
 ment in farming operations within the State. No 
 director of a federal debenture bank shall, during 
 his continuance in office, act as an officer, director 
 or employee of any other institution, association 
 or partnership engaged in banking, or in farm 
 finance. 
 
 Compensation 
 
 P 20. Directors shall receive, in addition to 
 any compensation otherwise provided, a reason- 
 able allowance for necessary expenses in attend- 
 ing meetings of their respective boards, subject 
 to the approval of the Federal Rural Credits 
 Board. 
 
 175
 
 THE BILL PROPOSED 
 
 Not jointly liable 
 
 P 21. The Federal Debenture Bank in each 
 state shall be liable for its own obligations exclu- 
 sively, and is exempted specifically from any and 
 all liability for, to or on account of any other 
 debenture bank. 
 
 MEMBERSHIP IN DEBENTURE BANKS 
 
 Banks as members 
 
 P 1. Section 10. Any national or state bank 
 or trust company may become a member of the 
 debenture bank for its state by investing at par 
 in the shares thereof a sum equal to the amount 
 required for its membership in the Federal Re- 
 serve Bank of its district. 
 
 Co-operative banks 
 
 P 2. Each Federal Co-operative Bank shall be- 
 come a member of the Federal Debenture Bank 
 for its state by investing at par in the shares 
 thereof a sum equal to ten percent of the paid 
 up capital of said ban.k. 
 
 Co-operative association 
 
 P 3. Each co-operative agricultural asso- 
 ciation incorporated under this Act shall be- 
 come a member of the Federal Debenture Bank 
 for the state in M^hich it is domiciled by invest- 
 ing at par in the shares thereof a sum fairly 
 
 176
 
 FOR RURAL CREDITS 
 
 relative, in view of the volume of the business 
 of such association, to the amount that this Act 
 requires Federal Co-operative Banks to invest 
 in said shares, all as may be prescribed by Fed- 
 eral Rural Credits Board. Any agricultural co- 
 operative association or live stock loan com- 
 pany incorporated under the laws of any state 
 may become a member of the debenture bank 
 for its state, upon a similar basis by agreeing 
 at the same time to abide by the terms of this 
 Act and of all rules and regulations made pur- 
 suant to this Act. Such regulations shall pre- 
 scribe for increases or decreases in the holdings 
 of said shares by co-operative associations or 
 live stock loan companies upon a basis fairly 
 relative to such increases or decreases by Fed- 
 eral Co-operative Banks. 
 
 Member capital 
 
 P 4. The member capital of a Federal Deben- 
 ture Bank shall consist of shares of a par value 
 of $5 each, subscribed and paid for by its mem- 
 ber institutions, each of which shall have one vote 
 in the shareholders meetings regardless of the 
 number of shares owned. Members shall be liable 
 for the debts of the bank only to the amount of 
 their investment in its shares. 
 
 177
 
 THE BILL PROPOSED 
 
 Increases 
 
 P 5. When a member of any Federal Deben- 
 ture Bank increases its capital stock, it thereupon 
 shall subscribe to an additional amount of the 
 capital stock of the debenture bank in the same 
 proportion that it subscribed originally to said 
 capital stock, such subscription to be paid upon 
 call of the directors of the debenture bank. Mem- 
 bers who join the Federal Debenture Bank after 
 the organization thereof must subscribe for an 
 amount of said capital stock the same as though 
 they had joined a the time of organization, plus 
 one-half or one per centum per month from the 
 period of the last dividend of said debenture bank. 
 
 Decreases 
 
 P 6. When the capital stock of a debenture 
 bank shall have been increased, either on account 
 of the increase of the capital stock of its members 
 or on account of the increase in the number of its 
 members, the board of directors shall cause to be 
 executed a certificate to the Federal Rural Credits 
 Board showing the increase in capital stock, the 
 amount paid in and by whom paid. 
 
 Surrenders 
 
 P 7. Whenever any member of a federal mem- 
 ber bank reduces its capital stock, it shall sur- 
 render a proportionate amount of its holdings in 
 
 178
 
 FOR RURAL CREDITS 
 
 the capital stock of said bank, and whenever any 
 member voluntarily liquidates, such member shall 
 surrender all of its holdings therein, in either case 
 receiving the book value thereof. 
 
 Retire initial capital 
 
 P 8. When the surplus of any debenture bank 
 equals fifty per centum of its then total capital, 
 its initial capital shall be retired by the purchase 
 at par of its initial shares from the Secretary of 
 the Treasury, who thereupon shall cancel the 
 same. Such purchase shall be made with funds 
 thereafter received from accretions of member 
 capital and from earnings as stated in Section 
 twenty. 
 
 Retire federal director 
 
 P 9. When not less than fifty per centum of 
 the initial capital of any debenture bank shall 
 thus have been replaced, the place shall be 
 declared vacant of the Federal director (other 
 than the Custodian) whose term is nearest 
 to expiry, and the vacancy shall be filled by vote 
 of the members. When not less than one-half 
 of the remaining initial capital shall have been 
 replaced by member capital, another Federal di- 
 rector shall be retired and replaced in like manner. 
 When all of the initial capital shall have been re- 
 placed, one of the remaining two Federal directors 
 
 179
 
 THE BILL PROPOSED 
 
 shall be retired and replaced in like manner. Pro- 
 vided, however, that the Federal directors thus 
 retired shall in no case be the Custodian ; that at 
 all times the debenture bank shall continue under 
 the general supervision of Federal Rural Credits 
 Board, and 
 
 No impairment 
 
 P 10. That at no time shaU the total capital 
 and surplus of any debenture bank be less than 
 the figure at which this total stood at the begin- 
 ning of the retirement of initial capital. 
 
 FEDERAL CUSTODIAN 
 
 Chairman, custodian 
 
 P 1. Section 11. One of the directors in each 
 Federal Debenture Bank appointed by the Federal 
 Rural Credits Board shall be designated as chair- 
 man of the board of directors and shall perform 
 the duties of the Federal custodian prescribed by 
 this Act. 
 
 Office, salary 
 
 P 2. Such Custodian shall be furnished with 
 suitable office and vault facilities on the premises 
 of each Federal Debenture Bank, and with the 
 approval of the Federal Rural Credits Board shall 
 be authorized to employ such counsel, assistants 
 and clerical force as may be necessary. The sala- 
 
 180
 
 FOR RURAL CREDITS 
 
 ries or compensation of all persons so appointed 
 shall be paid by the Federal Debenture Bank in 
 which they are employed. 
 
 Represents company 
 
 P 3. In addition to his duties as chairman of 
 the board, the Custodian shall be the representa- 
 tive of the Federal Rural Credits Company for 
 the state in which the debenture bank is located. 
 
 POWERS OF FEDERAL DEBENTURE BANKS 
 
 Section 12. Every Federal Debenture Bank 
 shall have power, subject to the requirements and 
 limitations of this Act — 
 
 Issue of debenture 
 
 First. To issue, subject to the approval of Fed- 
 eral Rural Credits Board, and to sell its own deben- 
 tures of the kinds authorized in this Act, to buy 
 the same for its own account and to retire the 
 same at or before maturity. 
 
 Investment 
 
 Second. To invest such funds as may be in its 
 possession in the debentures issued by other Fed- 
 eral Debenture banks or in mortgages as de- 
 scribed in Section 13 hereof. 
 
 Discount 
 
 Third. Upon the indorsement of any Federal 
 Debenture bank, national bank. Federal co-opera- 
 
 181
 
 THE BILL PROPOSED 
 
 tive bank, state bank or trust company, which 
 indorsement shall be deemed a waiver of demand, 
 notice and protest of such bank as to its own in- 
 dorsement, to discount notes, drafts, bills of ex- 
 change, acceptances or other evidences of debt 
 representing agricultural loans, livestock paper, 
 commodity paper or real estate mortgage obliga- 
 tions as defined by this Act. 
 
 Purchase of paper 
 
 Fourth. To purchase in the open market or 
 otherwise from any Federal or approved co-op- 
 erative association, or approved livestock loan 
 company, agricultural loans, livestock paper, 
 commodity paper or real estate obligations de- 
 fined in this Act, bearing proper indorsement, 
 or to make loans on promissory notes of incor- 
 porated co-operative associations secured by 
 commodity paper, livestock paper, agricultural 
 loans or real estate obligations. 
 
 Deals in U. S. bonds 
 
 Fifth. To subscribe for, acquire, own, sell and 
 otherwise deal in the bonds and other obligations 
 of the United States, or Federal farm loan bonds, 
 to such extent as the directors from time to time 
 may determine. 
 
 Rediscounts with reserve 
 
 Sixth. To rediscount with any Federal Reserve 
 
 182
 
 FOR RURAL CREDITS 
 
 bank paper eligible for rediscount under the Fed- 
 eral Reserve Act and owned by the Debenture 
 bank. 
 
 U. S. depository 
 
 Seventh. To act, upon request of the Secretary 
 of the Treasury, as depository of funds belonging 
 to the United States government, and to perform 
 any other service as fiscal agent of the United 
 States. 
 
 Securities 
 
 Eighth. To receive and to deposit in trust with 
 the Custodian, to be held by him as collateral 
 security for debentures, agricultural loans, live- 
 stock paper, commodity paper, and or real estate 
 obligations, and to hold or release the same as 
 provided in this Act. 
 
 Real estate for own use 
 
 Ninth. To acquire and dispose of — 
 (a) Such property, real or personal, as may be 
 necessary or convenient for the transaction of its 
 business, which, however, may be in part leased 
 to others for revenue purposes ; provided that no 
 debenture bank may invest in such real estate 
 a sum in excess of 5% of its capital, except with 
 the consent in writing of Federal Rural Credits 
 Board. 
 
 183
 
 THE BILL PROPOSED 
 
 other real estate 
 
 (b) Parcels of land acquired in satisfaction of 
 its purchase of debts or purchase at sales under 
 judgments, decrees or mortgages held by it. But 
 no such bank shall hold title and possession of any- 
 real estate purchased or acquired to secure any 
 debt due to it, for a longer period than five years, 
 except with the special approval in writing of 
 Federal Rural Credits Board. 
 
 May deposit 
 
 Tenth. To deposit its securities and its current 
 funds subject to check with any member bank of 
 the Federal Reserve System, and to receive in- 
 terest on the same as may be agreed. 
 
 Deposits received 
 
 Eleventh. To accept deposits of securities or of 
 current funds from incorporated agricultural co- 
 operative associations holding its shares, but to 
 pay no interest on such deposits. 
 
 May borrow 
 
 Twelfth. To borrow money, to give security 
 therefor and to pay interest thereon. 
 
 Charges 
 
 Thirteenth. To charge applicants for loans and 
 borrowers or for the purchase or discount of paper 
 herein authorized, under rules and regulations 
 promulgated by Federal Rural Credits Board, 
 
 184
 
 FOR RURAL CREDITS 
 
 reasonable fees not exceeding actual cost of serv- 
 ice. No such fees or charges shall exceed the 
 maximum limit established by Federal Rural 
 Credits Board. 
 
 Federal land bank 
 
 Fourteenth. To call upon the Federal Land bank 
 for the district in which the Debenture bank is 
 located, for information regarding any farm 
 property upon which a second mortgage may be 
 applied for, and said Federal Land bank shall give 
 such information forthwith. 
 
 Export credits 
 
 Fifteenth. To invest its funds in obligations 
 of Federal Rural Credits Company issued for 
 the purpose described in Section Seven of this 
 Act. 
 
 RESTRICTIONS ON FEDERAL DEBENTURE 
 BANKS 
 
 Section 13. No Federal Land Bank shall have 
 power — 
 
 Deposits limited 
 
 First. To accept deposits of current funds pay- 
 able upon demand except from its own share- 
 holders, or to transact any banking or other busi- 
 ness not expressly authorized by the provisions of 
 this Act. 
 
 185
 
 THE BILL PROPOSED 
 
 Second mortgage loans 
 
 Second. To loan on second mortgages except 
 upon farm lands the first mortgage upon which is 
 held by the Federal Land Bank for the district 
 in which the debenture bank is located. No such 
 mortgage shall be for a longer term than five 
 years. No such second mortgage shall exceed 
 $5000, nor exceed 30% of the Federal Land 
 bank's appraised valuation of said farm land, 
 and 10% thereof shall be held by the bank as 
 a reserve against such loan. 
 
 First mortgages 
 
 Third. To accept any first mortgages on other 
 real estate for the agricultural business or agri- 
 cultural purposes of Federal or approved incor- 
 porated co-operative associations. No such 
 mortgage shall be for a longer term than five 
 years, nor be for more than $20,000, nor be 
 in excess of fifty per centum of the Debenture 
 bank's appraisal of said real estate, and five per 
 centum thereof shall be held by the bank as a 
 reserve against such loan. 
 
 Debentures tenfold 
 
 Fourth. To issue or obligate itself for outstand- 
 ing debentures to a total sum in excess of ten 
 times the amount of its capital and surplus; or 
 to receive from any member additional agricul- 
 
 186
 
 FOR RURAL CREDITS 
 
 tural loans, livestock paper, commodity paper or 
 real estate obligations when the principal remain- 
 ing unpaid upon such securities already received 
 from such member shall exceed 20 times the 
 amount of its capital stock owned by such member. 
 
 No commission 
 
 Fifth. To demand or receive, under any pretense, 
 any commission or charge not specifically author- 
 ized in this Act. 
 
 Limit to rediscounts 
 
 Sixth, To rediscount for any one member an ag- 
 gregate of notes, drafts, bills of exchange, accept- 
 ances or other evidences of debt bearing the sig- 
 nature or indorsement of any one borrower, 
 whether a person, firm or corporation, in excess 
 of ten per centum of the unimpaired capital and 
 surplus of the member corporation, but this limi- 
 tation shall not apply to commodity paper or to 
 real estate securities defined by this Act, pro- 
 vided that in the case of a member co-operative 
 association the limitation may be prescribed by 
 Federal Rural Credits Board. 
 
 Length of loans 
 
 Seventh. To make any loan or advance, whether 
 by rediscount or otherwise, having a maturity at 
 the time of such advance of more than one year; 
 but the bank may, in its discretion, from time 
 
 187
 
 THE BILL PROPOSED 
 
 to time extend the time of payment of any such 
 loan or advance, through renewals, substitution 
 of new obligations or otherwise, for a maximum 
 period of three years from the date upon which 
 such loan or advance was originally made, provided 
 that loans upon real estate mortgages as herein 
 provided for may be for not less than one year 
 nor more than five years. 
 
 Interest rate 
 
 Eighth. To make any loan or advance pursuant 
 to the provisions of this Act at a rate or rates 
 of interest in excess of the charge prescribed by 
 Federal Rural Credits Board. In no event shall 
 the interest rate so charged exceed the legal rate 
 prevailing in its State. 
 
 FEDERAL DEBENTURES 
 
 Provision of 
 
 P 1. Section 14. Any Federal Debenture 
 Bank may issue and have outstanding at any one 
 time its debentures in an amount not more than 
 ten times its paid in capital and surplus. Deben- 
 tures shall mature not less than six months nor 
 more than three years from the respective dates 
 of issue. Provided, that debentures secured wholly 
 by mortgages as described in Section 13, may 
 mature in not more than five years from the 
 
 188
 
 FOR RURAL CREDITS 
 
 respective dates of issue. Debentures shall 
 bear such rate of interest and be issued 
 upon such terms and conditions as the di- 
 rectors of the debenture bank may determine. 
 
 First lien 
 
 P 2. Such debentures shall constitute a first 
 and paramount floating charge on all of the assets 
 of the issuing bank, which shall not at any time 
 otherwise mortgage or pledge any of its assets. 
 Such debentures may be offered for sale publicly 
 or to any individual, firm, corporation or associa- 
 tion at such price or prices as the directors of the 
 issuing bank may d'^termine, subject to the ap- 
 proval of Federal Rural Credits Board. 
 
 FORM OF FEDERAL DEBENTURES 
 
 Denominations 
 
 P 1. Section 15. That the debentures provid- 
 ed for in this Act shall be issued in series as de- 
 termined by Federal Rural Credits Board and 
 may be in denominations of $25, $50, $100, 
 $500, $1,000, $5,000, $10,000 $50,000 or $100,- 
 000 ; they shall run for specified periods, pay- 
 able at maturity in gold or lawful money. 
 
 Term of 
 
 P 2. Each debenture secured in whole or in 
 part by personal security shall have a maturity 
 
 189
 
 THE BILL PROPOSED 
 
 of not less than six months and not exceeding 
 three years from its date. Debentures the se- 
 curity for which consists wholly of mortgage obli- 
 gations upon real estate shall have a maturity 
 of not less than one year and not exceeding five 
 years. 
 
 Coupons 
 
 P 3. Debentures having a maturity of not less 
 than one year nor more than five years shall have 
 interest coupons attached, payable semi-annually. 
 They shall bear such rate of interest as may be 
 fixed by Federal Rural Credits Board. 
 
 Printing debentures 
 
 P 4. In order to furnish federal debentures for 
 delivery at the Federal Debenture Banks, the 
 Secretary of the Treasury is hereby authorized 
 to prepare suitable debentures in such form, sub- 
 ject to the provisions of this act, as the Federal 
 Rural Credits Board may approve. Such deben- 
 tures when prepared shall be held in the Treasury 
 subject to delivery upon order of the Federal 
 Rural Credits Board. The engraving plates, dies, 
 bed pieces, and so forth, executed in connection 
 therewith, shall remain in the custody of the Sec- 
 retary of the Treasury. Any expense incurred in 
 the preparation, custody and delivery of such de- 
 bentures shall be paid by the Secretary of the 
 
 190
 
 FOR RURAL CREDITS 
 
 Treasury from any funds in the Treasury not 
 otherwise appropriated; provided however, that 
 the Secretary shall be reimbursed for such ex- 
 penditures through assessment upon the Federal 
 Debenture Banks in proportion to the work 
 executed. 
 
 SPECIAL PROVISIONS OF FEDERAL 
 DEBENTURES 
 
 Bound by its officers 
 
 P 1. Section 16. That each Federal Deben- 
 ture Bank shall be bound in all respects by the acts 
 of its oflEicers in signing and issuing federal deben- 
 tures, and by the acts of the Federal Rural Credits 
 Board in authorizing their issue. 
 
 Specific liability 
 
 P 2. Every Federal Debenture Bank shall ob- 
 ligate itself to become liable upon its debentures 
 as provided in this section, by appropriate action 
 of its board of directors, duly recorded in its 
 minutes. 
 
 Certified by F R C Co 
 
 P 3. Every Federal debenture issued by a 
 Federal Debenture Bank shall be signed by its 
 president and attested by its secretary and shall 
 contain in the face thereof a certificate signed by 
 the president of the Federal Rural Credits Com- 
 
 191
 
 THE BILL PROPOSED 
 
 pany to the effect that it is issued under the 
 authority of Federal Rural Credits Act, has the 
 approval in form and issue of Federal Rural 
 Credits Board, and is legal and regular in all re- 
 spects; that it is not taxable by national, state, 
 municipal or local authority except as speci- 
 fied in this Act; that it is issued against 
 collateral security of United States govern- 
 ment bonds or indorsed real estate mortgages 
 and or secured agricultural loans, live stock paper 
 or commodity paper exceeding in amount the de- 
 bentures issued as provided by this Act ; and that 
 the principal and interest of each debenture are 
 both unreservedly guaranteed by the Federal 
 Rural Credits Company. 
 
 Guarantee of principal and interest 
 
 P 4. The Federal Rural Credits Company 
 hereby is authorized and instructed to obligate 
 itself to become liable for the principal and in- 
 terest of federal debentures, as provided in this 
 section, by appropriate action of its board of di- 
 rectors duly recorded in its minutes. 
 
 APPLICATIONS FOR FEDERAL 
 DEBENTURES 
 
 Margin for debentures 
 
 P 1. Section 17. Any Federal Debenture 
 
 192
 
 FOR RURAL CREDITS 
 
 Bank which shall have voted to issue Federal 
 debentures under this Act, shall make written ap- 
 plication to Federal Rural Credits Board through 
 the Custodian of the bank for approval of such 
 issue. With said application said bank shall 
 tender to said Custodian as collateral security 
 United States bonds not less in aggregate amount 
 than the sum of the debentures proposed to be 
 issued; or other properly secured paper qualified 
 under the provisions of this Act, not less in amount 
 than $100 of first mortgage real estate obliga- 
 tions for each $95 of debentures proposed to be 
 issued; not less in amount than $100 of second 
 mortgage real estate obligations for each $90 of 
 debentures proposed to be issued; not less in 
 amount than $100 of commodity paper for each 
 $90 to be issued; not less in amount than $100 
 of live stock paper for each $85 proposed to be 
 issued; not less in amount than $100 of agri- 
 cultural loans for each $80 proposed to be issued. 
 
 Custodian verifies 
 
 P 2. Upon receipt of such application the 
 Custodian shall verify said schedule and shall 
 transmit the application and schedule to Federal 
 Rural Credits Board, giving such further infor- 
 mation pertaining thereto as he may possess. The 
 
 193
 
 THE BILL PROPOSED 
 
 Board forthwith shall cause to be made such in- 
 vestigation and appraisement of the securities 
 tendered as it shall deem wise, and it shall grant 
 in whole or in part, or reject entirely, such appli- 
 cation. 
 
 Board decides 
 
 P 3. The Board shall promptly transmit its 
 decision as to any issue of debentures to the bank 
 applying for the same and to the Custodian 
 thereof. Said custodian shall furnish in writing 
 such information regarding any issue of deben- 
 tures of his bank as the board may at any time 
 require. 
 
 Guarantee 
 
 P 4. No issue of Federal debentures shall be 
 authorized unless Federal Rural Credits Board 
 shall approve such issue in writing, and such ap- 
 proval shall carry with it the agreement on the 
 part of the Federal Rural Credits Company to 
 guarantee the principal and interest of said de- 
 bentures. 
 
 ISSUE OF FEDERAL DEBENTURES 
 
 Delivery 
 
 P 1. Section 18. Whenever any Custodian 
 shall receive from Federal Rural Credits Board 
 notice that it has approved any issue of Federal 
 debentures under the provisions of Section 15, he 
 
 194
 
 FOR RURAL CREDITS 
 
 shall forthwith take such steps as may be neces- 
 sary, in accordance with the provisions of this 
 Act, to secure the prompt execution of said deben- 
 tures and the delivery of the same to the deben- 
 ture bank applying therefor. 
 
 Rejection 
 
 P 2. Whenever Federal Rural Credits Board 
 shall reject any security tendered to the Custo- 
 dian as collateral, the same shall be returned 
 forthwith to said bank by him. 
 
 Securities 
 
 P 3. Whenever Federal Rural Credits Board 
 shall approve an issue of debentures by any Fed- 
 eral debenture bank, the federal Custodian having 
 the custody of the securities tendered as collateral 
 for such issue of debentures, shall retain in his 
 custody those securities which are to be held as 
 collateral against said debentures, and shall re- 
 turn to the bank owning the same any of such 
 securities which are not to be held by him as 
 collateral. The Federal debenture bank which is 
 to issue said debentures shall transfer to said 
 Custodian, by assignment, in trust, the paper 
 representing all real estate obligations, com- 
 modity paper, live stock paper or agricultural 
 loans, and all mortgages, liens or other security 
 supporting same, which are to be held by the 
 
 195
 
 THE BILL PROPOSED 
 
 Custodian as collateral security for said deben- 
 tures, said assignment providing for the right of 
 redemption at any time by payment, and reserving 
 the right of substitution of other qualified securi- 
 ties. Said collateral shall be deposited in such 
 deposit vault or bank as Federal Rural Credits 
 Board shall approve subject to the control of said 
 Custodian and in his name as the trustee for the 
 Federal debenture bank issuing the debentures 
 and for the prospective holders of said federal 
 debentures. 
 
 Classes of 
 
 P 4. It shall be the duty of each Custodian 
 to see that the Federal debenture bonds delivered 
 by him and outstanding do not exceed the amount 
 of collateral security pledged therefor. Said col- 
 lateral for any issue of bonds may be wholly or 
 partly of any of the four classes of paper above 
 described or a mixture thereof; provided, that 
 only real estate obligations may be used as col- 
 lateral security for debentures with a maturity 
 longer than three years nor more than five 
 years. Such Custodian may, in his discretion, 
 temporarily accept, in place of securities with- 
 drawn. United States government securities or 
 cash. 
 
 196 
 
 II
 
 FOR RURAL CREDITS 
 
 More security 
 
 P 5. The Federal Rural Credits Board may, at 
 any time, call upon any Federal debenture bank 
 for additional security to protect the debentures 
 issued by it. 
 
 APPLICATION OF PAYMENTS 
 
 Credits 
 
 P 1. Section 19. Whenever any Federal De- 
 benture Bank shall receive any interest, partial 
 payment or total payment upon any collateral 
 pledged as security for the issue of Federal de- 
 bentures, it forthwith shall notify the Custodian 
 of the item so received. Said Custodian shall 
 cause such payment to be duly credited forthwith 
 upon the security and title of such credit. When- 
 ever any such instrument is paid in full, the Cus- 
 todian shall cause the same to be cancelled and 
 delivered to the debenture bank, which shall 
 promptly satisfy and discharge any lien of record 
 and transmit such cancelled instrument and 
 all of the papers appertaining thereto to the 
 original maker thereof or his heirs, administra- 
 tors, executors or assigns. 
 
 Substitutions 
 
 P 2. Upon written application to its Custodian, 
 any Federal Debenture Bank may be permitted, in 
 the discretion of the Custodian, to withdraw any 
 
 197
 
 THE BILL PROPOSED 
 
 securities pledged as collateral under this act and 
 to substitute therefor other similar securities or 
 United States government securities not less in 
 amount than the securities desired to be with- 
 drawn. 
 
 How payable 
 
 P 3. Whenever any Federal debentures, or 
 coupons or interest payments thereon are due 
 under their terms, they shall be payable at the 
 debenture bank by which they were issued, in 
 gold or lawful money, and upon payment shall be 
 duly cancelled by said bank. At the discretion 
 of Federal .Rural Credits Board, payment of any 
 federal debenture or coupon or interest payment 
 may, however, be authorized to be made at any 
 other bank, including Federal Reserve banks. 
 
 Withdrawal 
 
 P 4. When any Federal Debenture Bank shall 
 surrender to its Custodian any of its Federal 
 debentures of any series, cancelled or uncancelled, 
 said bank shall be entitled to withdraw the col- 
 lateral pledged as security for said series of de- 
 bentures to an amount equal to the debentures 
 so surrendered, and it shall be the duty of said 
 Custodian to permit and direct the delivery of 
 such securities to said bank and to see to it that 
 said debentures are duly cancelled. 
 
 198
 
 FOR RURAL CREDITS 
 
 Collateral 
 
 P 5. Interest payments upon securities hy- 
 pothecated as collateral shall be at the disposal 
 of the Federal Debenture Bank pledging the same, 
 and shall be available for the payment of coupons 
 and the interest upon Federal debentures issued 
 by such bank as they become due. 
 
 Payments of 
 
 P 6. Whenever any debenture matures or the 
 interest on any debenture is due, or the coupon 
 on any coupon debenture matures, and the same 
 shall be presented for payment, as provided in this 
 Act, the full face value thereof shall be paid to 
 the holder. Partial and other payments upon the 
 principal of securities held by a Custodian as col- 
 lateral for the issue of Federal debentures shall 
 constitute a trust fund in the hands of the deben- 
 ture bank receiving the same, and shall be applied 
 or employed as follows : — 
 
 P 7. (a) To pay off debentures issued by- 
 said bank as they mature. 
 
 P 8. (b) To purchase at or below par deben- 
 tures issued by said bank or by any other Fed- 
 eral Debenture bank. 
 
 P 9. (c) To purchase the bonds or other in- 
 strumentalities of the United States. 
 
 199
 
 THE BILL PROPOSED 
 
 Trust fund 
 
 P 10. The securities constituting the trust 
 fund aforesaid, shall be deposited forthwith with 
 the Custodian as substituted collateral security in 
 place of the sums paid on the principal of securi- 
 ties held by him as collateral in trust. 
 
 Trustees power 
 
 P 11. Every debenture bank shall notify its 
 Custodian of the disposition of all payments made 
 on the principal of securities held as collateral 
 for an issue of debentures, and said Custodian is 
 authorized, at his discretion, to order any of such 
 payments or the proceeds thereof, wherever de- 
 posited or however invested, to be immediately 
 transferred to his account as trustee aforesaid. 
 
 DIVISION OF EARNINGS 
 
 Applied to surplus 
 
 P 1. Section 20. After all necessary expenses 
 of Federal Rural Credits Company shall have been 
 paid or provided for, including reserv^e for con- 
 tingencies, the earnings shall be paid into a sur- 
 plus fund until such funds amount to $100,000,000. 
 Thereafter all net earnings of Federal Rural 
 Credits Company shall be paid to the United 
 States as a franchise tax. 
 
 Six percent dividend 
 
 P 2. After all necessary expenses of any Fed- 
 
 200
 
 FOR RURAL CREDITS 
 
 eral debenture bank have been paid or provided 
 for, including reserve for contingencies to an 
 amount approved by Federal Rural Credits Board, 
 the shareholders (other than Federal Rural 
 Credits Company) shall be entitled to receive the 
 annual dividend of six per centum upon the paid 
 in capital stock, which dividend shall be cumu- 
 lative and non-taxable. 
 
 25% surplus 
 
 P 3. After the aforesaid dividend claims shall 
 have been fully met or provided for, the earnings 
 shall be paid into a surplus fund until such funds 
 shall amount to 25% of the total capital stock of 
 any Federal debenture bank. 
 P 4. Thereafter, all net earnings over and 
 above those necessary to pay cumulative dividends 
 and to maintain said surplus of such bank shall 
 be used — 
 
 Extra dividend 
 
 P 5. (a) To pay an additional non-cumula- 
 tive dividend of not to exceed two per centum per 
 annum upon all member shares. 
 
 50% surplus 
 
 P 6. (b) To increase the surplus fund of the 
 bank until such funds equal fifty per centum of 
 its initial capital. 
 
 201
 
 THE BILL PROPOSED 
 
 Retire initial capital — franchise tax 
 
 P 7. (c) The balance, if any remain, shall 
 be paid to the Secretary of the Treasury to re- 
 tire shares of the initial capital as provided in 
 paragraph 8 of section 10 hereof; and after all of 
 the initial capital shall have been retired, such 
 balance, if any remain, shall be paid to the United 
 States as a franchise tax. 
 
 LIABILITY OF THE UNITED STATES 
 
 No liability 
 
 P 1. Section 21. That the United States shall 
 not be liable for the payment of any note, deben- 
 ture or other obligation or the interest thereon 
 issued or incurred by Federal Rural Credits Com- 
 pany or by any Federal Debenture Bank, nor shall 
 it incur any liability in respect of any act or omis- 
 sion of said institutions. 
 
 Except on its shares 
 
 P 2. It shall in no event be liable for any debts 
 of Federal Rural Credits Company beyond the 
 amount of its subscription to the capital stock of 
 that company through the latter's taking over of 
 the assets of War Finance Corporation. 
 
 TAX EXEMPTION* 
 
 Exemption 
 
 P 1. Section 22. That any and all credit in- 
 struments issued by Federal Rural Credits Com- 
 
 202
 
 FOR RURAL CREDITS 
 
 pany, or by any Federal Debenture Bank, shall 
 be exempt, both as to principal and interest, from 
 all taxation now or hereafter imposed by the 
 United States, any State, or any of the possessions 
 of the United States, or by any local taxing au- 
 thority, except (a) estate or inheritance taxes, and 
 (b) graduated additional income taxes, commonly 
 known as surtaxes, and excess-profits and war- 
 profits taxes, now or hereafter imposed by the 
 United States, Upon the income or profits of in- 
 dividuals, partnerships, corporations or associa- 
 tions. The interest on an amount of such instru- 
 ments the principal of which does not exceed in 
 the aggregate $5,000, owned by an individual, 
 partnership, corporation, or association, shall be 
 exempt from the taxes referred to in clause (b). 
 
 other exemptions 
 
 P 2. The Company and said debenture banks, 
 including their franchise and the capital and re- 
 serve or surplus thereof, and the income derived 
 therefrom, shall be exempt from all taxation now 
 or hereafter imposed by the United States, any 
 State, or any of the possessions of the United 
 States, or by any local taxing authority, except 
 that any of their real property shall be subject to 
 state, county or municipal taxes to the same ex- 
 
 203
 
 THE BILL PROPOSED 
 
 tent, according to its value, as other real property 
 is taxed. 
 
 ♦SPECIAL NOTE. This section 22 is quoted from 
 the Norbeck bill, S 3499. Tlie preliminary draft of the 
 bill prepared in the office of the American Farm Bureau 
 Federation, not yet introduced, is in accord with the 
 paragraph just quoted. 
 
 The Lenroot-Anderson bill, S 3051, is silent as to 
 taxation. 
 
 The Capper bill, S 3639, provides tax exemption upon 
 securities issued prior to June 30, 1925, but after that 
 date they "shall be subject to income tax imposed by the 
 United States or any state," and all such securities issued 
 after that date "shall be subject to general property tax 
 to the same extent according to their value as other per- 
 sonal property is taxed." 
 
 The Simmons bill, S 3390, follows substantially the 
 phraseology of the Federal Farm Loan Act which, adapted 
 to this measure, would read as follows. 
 
 Sec. Any and all credit instruments issued by Fed- 
 eral Rural Credits Companj', or by any Federal debenture 
 bank, including the capital and reserve or surplus therein 
 and the income derived therefrom, shall be exempt from 
 federal, state, municipal and local taxation, except taxes 
 upon real estate held, purchased or taken by said com- 
 pany or bank under the provisions of sec twelve of this 
 Act. Mortgages executed to any Federal debenture bank, 
 also Federal debentures issued under the provisions of 
 this Act, shall be deemed and held to be instrumentalities 
 of the government of the United States, and as such 
 they and the income derived therefrom shall be exempt 
 from federal, state, municipal and local taxation. Nothing 
 herein contained shall be construed to exempt the real 
 property of Federal Rural Credits Company or any Fed- 
 eral Debenture Bank from either state, county or muni- 
 cipal tax, to the same extent, according to its value, as 
 other real property is taxed. 
 
 204
 
 FOR RURAL CREDITS 
 
 FEDERAL RURAL CREDIT SYSTEM 
 ASSOCIATIONS 
 
 Organization 
 
 P 1. Section 23. Associations to be operated 
 upon the co-operative principle for the purpose 
 of engaging in making loans on agricultural 
 products as defined in this Act, and to act when 
 required by the Secretary of the Treasury as 
 fiscal agents of the United States, and to assist 
 in the production, assembling, grading, distribu- 
 tion and marketing of agricultural products and 
 livestock in an orderly manner, and for the pro- 
 duction, buying or selling of any or all products, 
 merchandise or commodities incident to agricul- 
 ture, or for agricultural purposes or agricultural 
 business as defined by this Act, may be formed 
 by any number of natural persons not less in any 
 case than five who are producers of farm products. 
 
 How formed 
 
 P 2. The persons desiring to form such asso- 
 ciations shall make an organization certificate 
 under their seals which shall specifically state the 
 name of the association to be organized, the place 
 in which its principal office is to be located, the 
 amount of the capital stock with which it is to 
 begin business (which shall be in shares of $5 
 each with one vote only to each member irre- 
 
 205
 
 THE BILL PROPOSED 
 
 spective of the number of shares owned) , and the 
 fact that the certificate is made to enable the asso- 
 ciation formed to avail itself upon the co-operative 
 plan of the advantages of this Act. 
 
 Named 
 
 P 3, The name selected shall be subject to the 
 approval of Federal Rural Credits Board. All cor- 
 porations not created in the manner and for the 
 express purpose hereby provided, are prohibited 
 from using the words, "Federal Agricultural Co- 
 operative" as a part of their corporate firm, part- 
 nership or association name under penalty of $50 
 for each day during which such violation is com- 
 mitted or repeated. 
 
 Certificate 
 
 P 4. The organization certificate shall be ac- 
 knowledged before a judge of some court of record 
 or notary public and shall, together with the ac- 
 knowledgment thereof, be duly authenticated by 
 the seal of the court or notary, and transmitted 
 to the superintendent of the Federal Rural 
 Credits Board who shall file, record and care- 
 fully preserve the same in its office. 
 
 Charter 
 
 P 5. When the board finds that such certifi- 
 cate is in accordance with this Act and complies 
 with all rules and regulations pursuant hereto, the 
 
 206
 
 FOR RURAL CREDITS 
 
 board shall issue a charter to said association, 
 whereupon it shall become a body corporate and 
 as such and in the name approved shall have 
 power — 
 
 May make loans 
 
 P 6. (a) To make loans to persons, firms or 
 corporations engaged in producing agricultural 
 products as defined by this Act, including live 
 stock. 
 
 Deal in paper 
 
 P 7. (b) To purchase, sell, discount, issue 
 and negotiate livestock paper, agricultural loans, 
 commodity paper and real estate obligations as 
 defined by this Act, or federal farm loan bonds 
 or United States bonds or United States certifi- 
 cates of indebtedness. 
 
 Legal entity 
 
 P 8. (c) To receive and hold and enjoy lands 
 and chattels of any kind or effect whatsoever, the 
 same to grant, sell and dispose of, sue and be sued, 
 plead and be impleaded, contract and be contracted 
 with, and to establish and put into execution by- 
 laws for its government. 
 
 Member debenture bank 
 
 P 9. (d) To become a member of the Fed- 
 eral Debenture bank for its state as specified in 
 Sections 10 of this Act. 
 
 207
 
 THE BILL PROPOSED 
 
 At least $1,000 capital 
 
 P 10. No such association shall be organized 
 under the provisions of this section with a capital 
 stock of less than $1,000 to be paid in, invested 
 and held in the manner prescribed by the associa- 
 tion. 
 
 Shareholders liability 
 
 P 11. Shareholders of any such association 
 shall be held individually responsible for all con- 
 tracts, debts and engagements of such associa- 
 tion, each to the amount of his stock therein at 
 the par value thereof in addition to the amount 
 invested in such stock. The shareholders in any 
 such association who shall have transferred their 
 shares or registered the transfer thereof within 
 sixty days, next before the date of the failure 
 of such association to meet its obligations, or with 
 knowledge of such impending failure, shall be 
 liable to the same extent as if they had made no 
 such transfer to the extent that the subsequent 
 transferee fails to meet such liability. But this 
 provision shall not be construed to affect in any 
 way any recourse which such shareholders might 
 otherwise have against those in whose names such 
 shares are registered at the time of such failure. 
 
 Supervision 
 
 P 12. All such associations shall be subject to 
 
 208
 
 FOR RURAL CREDITS 
 
 rules and regulations made pursuant hereto by 
 Federal Rural Credits Board, shall make to it such 
 reports of conditions as it may require, shall be 
 subject to such general or special examination by 
 auditors appointed or selected by the board as 
 it may prescribe, and shall not charge for its 
 services a sum in excess of the limits prescribed 
 by the board. 
 
 Forfeiting charter 
 
 P 13. Failure of any such association to com- 
 ply with the j ust and legal orders, rules or regu- 
 lations of the Board, or the failure of said asso- 
 ciation to meet its obligations, shall warrant the 
 Board in withdrawing and forfeiting its charter 
 whereupon it shall liquidate forthwith. 
 
 EXAMINATIONS 
 
 Examiners 
 
 P 1. Sec. 24 That the Federal Rural 
 Credits Board shall appoint as many examiners 
 as in its judgment may be required to make 
 careful examinations of the banks and associa- 
 tions permitted to do business under this Act. 
 
 Responsibilities of 
 
 P 2. Said examiners shall be subject to the 
 same requirements, responsibilities and penal- 
 ties as are applicable to national bank examin- 
 
 209
 
 THE BILL PROPOSED 
 
 ers under the National Bank Act, the Federal 
 Reserve Act and other provisions of law. When- 
 ever directed by the Federal Rural Credits 
 Board, said examiners shall examine the con- 
 dition of any incorporated co-operative associa- 
 tion doing business pursuant to the terms hereof 
 and report the same to the chairman of the 
 Federal Rural Credits Board. They shall ex- 
 amine and report the condition of every federal 
 debenture bank at least twice a year. 
 
 Salaries 
 
 P 3. Said examiners shall receive salaries 
 to be fixed by Federal Rural Credits Board. 
 
 DISSOLUTION AND APPOINTMENT 
 OF RECEIVERS 
 
 Failures 
 
 P 1. Sec. 25. That upon receiving satis- 
 factory evidence that any Federal debenture 
 bank, federal co-operative bank or federal co- 
 operative agricultural association has failed 
 to meet its outstanding obligations of any de- 
 scription. Federal Rural Credits Board forth- 
 with may declare such association insolvent and 
 appoint a receiver and require of him such bond 
 and security as it deems proper; Provided that 
 any such institution so declared insolvent may 
 
 210 
 
 I* 
 
 1
 
 FOR RURAL CREDITS 
 
 appeal to the Federal Reserve Board, which 
 shall give a hearing to the parties in interest 
 and the verdict of such Board shall be binding. 
 Such receiver, under the direction of Federal 
 Rural Credits Board, shall take possession of 
 the books, records and assets of every descrip- 
 tion of such institution, collect all debts, dues 
 and claims belonging to it, and with the ap- 
 proval of Federal Rural Credits Board, or upon 
 the order of a court of record of competent jur- 
 isdiction, may sell or compound all bad or 
 doubtful debts, and on a like approval or order 
 may sell all real or personal property of such 
 institution, on such terms as Federal Rural 
 Credits Board or such court shall direct. 
 
 Receiver 
 
 P 2. Such receiver shall pay over all money 
 so collected to the Treasury of the United 
 States, subject to the order of Federal Rural 
 Credits Board, and also make report to said 
 Board of all his acts and proceedings. The 
 Secretary of the Treasury shall have authority 
 to deposit at interest any money so received. 
 
 Liquidation 
 
 P 3. No such institution shall go into vol- 
 untary liquidation without the written consent 
 
 211
 
 THE BILL PROPOSED 
 
 of Federal Rural Credits Board, but federal co- 
 operative agricultural associations may consoli- 
 date under rules and regulations promulgated 
 by said Board. 
 
 PENALTIES 
 
 No graft 
 
 P 1. Sec. 26. Except as herein provided, 
 any officer, director, employee, agent for or at- 
 torney of any bank mentioned herein or of any 
 federal land bank or of any joint stock land 
 bank, incorporated agricultural co-operative 
 association or incorporated live stock loan com- 
 pany who stipulates for or receives or consents 
 or agrees to receive under any form or pretense, 
 any fee, commission, bonus, gift or thing of 
 value from any person, firm or corporation, for 
 procuring or endeavoring to procure for such 
 person, firm or corporation, or for any other 
 person, firm or corporation any loan from or the 
 purchase or discount of any paper, note, draft, 
 check, acceptance, bill of exchange or obliga- 
 tion by such bank shall be deemed guilty of a 
 misdemeanor and shall be imprisoned not more 
 than one year or fined not more than $5000 or 
 both. 
 
 212
 
 FOR RURAL CREDITS 
 
 Middlemen unnecessary 
 
 P 2. It shall not be necessary for any 
 would-be borrower of any institution named 
 herein to employ an agent, attorney, middle- 
 man or other person, firm or corporation to 
 negotiate any loan from or the purchase or dis- 
 count of any paper, note, draft, check, accept- 
 ance or bill of exchange by any institution re- 
 ferred to in this act, and any borrower or his 
 agent, middleman, intermediary or attorney 
 who stipulates to give or gives or consents or 
 agrees to give under any form or pretense, any 
 fee, commission, bonus or thing of value to any 
 person, firm or corporation for procuring or en- 
 deavoring to procure for such borrower or his 
 agent, middleman, intermediary or attorney, 
 any loan from or the purchase or discount of 
 any paper, note, draft, check, acceptance, bill 
 of exchange or obligation by any institution 
 named herein, shall be deemed guilty of a mis- 
 demeanor and shall be imprisoned not more 
 than one year or fined not more than $1,000, or 
 both. 
 
 No fatuities 
 
 P 3. No Federal co-operative bank, Fed- 
 eral debenture bank or the Federal Rural Cred- 
 
 213
 
 THE BILL PROPOSED 
 
 it Company and no officer, director or employee 
 thereof shall hereafter make any loan or grant 
 any gratuity to any legally appointed examiner 
 for or auditor of such bank. Any such bank of- 
 ficer, director or employee violating this condi- 
 tion shall be deemed guilty of a misdemeanor 
 and shall be imprisoned not more than one year 
 or fined not more than $5000 or both. He may 
 be fined a further sum equal to the money so 
 loaned or gratuity given. 
 
 Penalty 
 
 P 4. Any such examiner or auditor accept- 
 ing a loan or gratuity from any such bank ex- 
 amined or audited by him or from an officer, 
 director or employee thereof or borrower there- 
 in shall be deemed guilty of a misdemeanor and 
 shall be imprisoned one year or fined not more 
 than $5000 or both and be fined a further sum 
 equal to the money so loaned or gratuity given 
 and shall forever thereafter be disqualified 
 from holding office as an examiner for or audi- 
 tor of such banks. 
 
 False statements 
 
 P 5. That any applicant for an advance, 
 loan, rediscount, purchase or sale of securities 
 under this Act who shall knowingly make any 
 
 214
 
 FOR RURAL CREDITS 
 
 false statement in his application therefor, 
 and any member of a loan committee or any ap- 
 praiser provided for in this Act who shall will- 
 fully over-value any security offered as collat- 
 eral for loans under this Act, shall be punished 
 by a fine of not exceeding $5000 or by imprison- 
 ment not exceeding one year or both. 
 
 Counterfeiting 
 
 P 6. Any person who shall falsely make, 
 forge or counterfeit, or cause or procure to be 
 falsely made, forged or counterfeited, or will- 
 ingly aid or assist in falsely making, forging or 
 counterfeiting any debenture, coupon or paper 
 in imitation of or purporting to be in imitation 
 of the debentures or coupons issued by any fed- 
 eral debenture bank or by Federal Rural Cred- 
 its Company; or any person who shall pass, ut- 
 ter or publish, or attempt to pass, utter or pub- 
 lish any false, forged or counterfeited deben- 
 ture coupon or paper purporting to be issued by 
 any such bank or the Company, knowing the 
 same to be falsely made, forged or counter- 
 feited; or whoever shall falsely alter, or cause 
 or procure to be falsely altered, or shall will- 
 ingly aid or assist in falsely altering any such 
 debenture, coupon or paper, or shall pass, utter 
 
 215
 
 THE BILL PROPOSED 
 
 or publish as true any falsely altered or spu- 
 rious debenture, coupon or paper issued, or pur- 
 porting to have been issued by any such bank 
 or by the Company, knowing the same to be 
 falsely altered or spurious, shall be punished 
 by a fine of not exceeding $5000 or by imprison- 
 ment not exceeding five years or both. 
 
 No consideration 
 
 P 7. Other than the usual salary or direct- 
 or's fee paid to any oflficer, director or employee 
 of Federal Rural Credits Company, a federal 
 debenture bank or a federal co-operative agri- 
 cultural association, and other than a reason- 
 able fee paid by such institution to any oflficer, 
 director, attorney or employee for services ac- 
 tually rendered, no oflficer, director, attorney or 
 employee of any institution organized under 
 this Act, or employee of the Company or fed- 
 eral debenture bank or federal co-operative 
 agricultural association organized under this 
 Act shall be a beneficiary of or receive, directly 
 or indirectly, any fee, commission, gift or other 
 consideration for or in connection with any trans- 
 action or business of such association or bank. 
 No such institution organized under this Act 
 shall charge or receive any fee, commission, 
 
 216 s 
 
 1
 
 FOR RURAL CREDITS 
 
 bonus, gift or other consideration not herein 
 specifically authorized. No examiner, public 
 or private, shall disclose the names of borrow- 
 ers to other than the proper officers of Federal 
 Rural Credits Company or federal debenture 
 bank or federal co-operative agricultural cor- 
 poration without first having obtained express 
 permission in writing from the chairman of 
 Federal Rural Credits Board or from the board 
 of directors of such company, bank or associa- 
 tion, except when ordered to do so by a court 
 of competent jurisdiction or by direction of the 
 Congress of the United States or of either House 
 thereof or any committee of Congress or of 
 either House duly authorized. Any person vio- 
 lating any provision of this paragraph shall be 
 punished by a fine of not exceeding $5000 or by 
 imprisonment not exceeding one year or both. 
 
 Embezzlement 
 
 P 8. Any person connected in any capacity 
 with the Federal Rural Credits Company or 
 any federal debenture bank or federal co-op- 
 erative agricultural association, who embez- 
 zles, abstracts or willfully misapplies any 
 moneys, funds or credits thereof, or who with- 
 out authority from the directors draws any or- 
 
 217
 
 THE BILL PROPOSED 
 
 der, assigns any note, bond, debenture, draft, 
 mortgage, lien, judgment or decree thereof, or 
 who makes any false entry in any book, report 
 or statement of such institution with intent in 
 either case to defraud it or any other company, 
 body politic or corporate, or any individual per- 
 son, or to deceive any officer of such institution 
 or any agent appointed to examine into the af- 
 fairs thereof, and every person who with like 
 intent aids or abets any officer, clerk or agent in 
 violation of this Section, shall be punished by 
 a fine of not exceeding $5000 or by imprison- 
 ment not exceeding five years or both. 
 
 Fraud 
 
 P 9. Any person who shall deceive, de- 
 fraud or impose upon, or who shall attempt to 
 deceive, defraud or impose upon any person, 
 firm or corporation, by making any false pre- 
 tense of representation regarding the charac- 
 ter, issue, security or terms of any credit instru- 
 ment issued under the terms of this Act; or by 
 falsely pretending or representing that any de- 
 benture or coupon issued under the terms of 
 this Act is anything other than or different from 
 what it purports to be on the face thereof, shall 
 
 218
 
 FOR RURAL CREDITS 
 
 be fined not exceeding $500 or imprisoned not 
 exceeding one year or both. 
 
 Secret service 
 
 P 10. The Secretary of the Treasury here- 
 by is authorized to direct and use the secret ser- 
 vice division of the Treasury Department to de- 
 tect, arrest and deliver into custody of the 
 United States Marshall having jurisdiction any 
 person or persons violating any of the provi- 
 sions of this Section. 
 
 MISCELLANEOUS 
 
 Women 
 
 P 1. Section 27. That nothing in this act 
 shall be held to debar women from any office or 
 position named herein. 
 
 Preference to veterans 
 
 P 2. That no charge shall be made for services 
 under this act to veterans other than registration 
 and similar fees required by law, under rules and 
 regulations to be prescribed by federal farm loan 
 board, and federal rural credits board in their 
 respective spheres. 
 
 AMENDMENT TO FEDERAL FARM 
 
 LOAN ACT 
 
 Section 28. That the Federal Farm Loan Act 
 
 approved 17 July, 1916, is hereby amended by 
 
 219
 
 THE BILL PROPOSED 
 
 adding to paragraph 6 of section 12: "Provided 
 that such loans may be made to any veteran (as 
 defined in the Rural Credits Act of 1922) who 
 lives upon and cultivates the owned farm, pro- 
 vided its extent is not less than one acre ; and 
 provided further, that none of the charges for 
 making loans under the Farm Loan Act shall be 
 collected from such veteran, other than registra- 
 tion or similar fees required by law." 
 
 LIMITATION OF COURT DECISIONS 
 
 Section 29. That if any clause, sentence, 
 paragraph or part of this Act shall for any rea- 
 son be adjudged by any court of competent jur- 
 isdiction to be invalid, such judgment shall not 
 affect, impair or invalidate the remainder of 
 this Act, but shall be confined in its operation 
 to the clause, sentence, paragraph or part 
 thereof directly involved in the controversy in 
 which such judgment shall have been rendered. 
 
 REPEALING CLAUSE 
 
 Section 30. That all Acts or parts of Acts in- 
 consistent with this Act are hereby repealed 
 and this Act shall take effect upon its passage. 
 The right to amend, alter or repeal this Act is 
 hereby expressly reserved. 
 
 220
 
 FOR RURAL CREDITS 
 
 TITLE II 
 FEDERAL CO-OPERATIVE BANKS 
 
 Title 
 
 Section 1. This title may be cited as "Federal 
 Co-operative Bank Act of 1922." 
 
 How formed 
 
 P 1. Section 2. Five or more natural per- 
 sons, residents in the community in which it is to 
 be established, may form a banking institution to 
 be conducted upon the co-operative principle, the 
 title of which shall include the words, "Federal 
 Co-operative Bank," which words may be em- 
 ployed only in the title of institutions chartered 
 pursuant to this title under penalty of $10 for 
 each day during which such violation is com- 
 mitted or repeated. 
 
 $5 shares 
 
 P 2. The capital stock of any federal co-opera- 
 tive bank shall be in shares of a par value of five 
 dollars. 
 
 Liability 
 
 P 3. Each share holder shall be liable for the 
 debts of the bank to total the amount of par value 
 of its shares standing in his name. 
 
 One vote 
 
 P 6. Shares may be owned only by natural 
 persons, each of whom may hold shares only in 
 
 221
 
 THE BILL PROPOSED 
 
 one such bank, and have but one vote irrespective 
 of the number of shares held. 
 
 Minimum capital 
 
 Section 3. No federal co-operative bank 
 
 shall be organized with a less capital than $5000 
 in any place the population of which by the last 
 federal census does not exceed 1500 inhabitants; 
 nor with a less capital than $10,000 in any place 
 the population of which does not exceed 6000 ; nor 
 with a less capital than $15,000 in places having 
 in excess of 6000 inhabitants. 
 
 Business 
 
 P 1. Section 4. Each Federal co-operative 
 bank shall establish a commercial department in 
 which it may receive deposits, make loans and 
 transact a general banking business in the same 
 manner and under the same laws, rules and regu- 
 lations as any national bank ; except that its suit- 
 ably secured agricultural loans and or live stock 
 paper may be for not longer than one year, with 
 such safely restricted renewal privileges as may 
 be approved by the Comptroller of the Currency. 
 
 Joins reserve bank 
 
 P 2. Any federal co-operative bank shall ap- 
 ply for membership in the Federal Reserve Bank 
 for its district when it shall have complied with 
 the provisions of Section 3 of Title III of this 
 
 222
 
 FOR RURAL CREDITS 
 
 Act and of all other provisions of the Federal 
 Reserve Act and of acts amendatory thereto 
 pertaining to said application. 
 
 Joins debenture bank 
 
 P 3. Each federal co-operative bank shall be- 
 come a member of the Federal debenture bank for 
 its state by investing in the shares thereof not less 
 than ten per cent of the paid up cash capital of 
 such Federal Co-operative bank. 
 
 Real estate department 
 
 P 1. Section 5. A real estate department may 
 be created in any Federal co-operative bank or in 
 any national bank. The assets and liabilities of 
 such real estate department shall be segregated 
 from the assets and liabilities of any and all other 
 departments of the bank. 
 
 Limit of capital 
 
 P 2. Not less than five per cent nor more than 
 ten per cent of the capital and surplus of the bank 
 may be segregated to and employed by its real es- 
 tate department. 
 
 Investments of 
 
 P 3. Any of the funds of the real estate de- 
 partment may be invested in (a) bonds or other 
 credit instruments of the United States, or in 
 Federal farm loan bonds or Federal debentures; 
 (b) in first mortgages on real estate located with- 
 
 223
 
 THE BILL PROPOSED 
 
 in 30 miles of such bank and owned by any incor- 
 porated co-operative association and used by it 
 for agricultural purposes or agricultural busi- 
 ness, or (c) in mortgage on a farm located within 
 30 miles of such bank which may be a first 
 mortgage or second to a first mortgage there- 
 on owned by the Federal land bank. No such 
 mortgage shall be for a longer period than five 
 years and shall comply with the provisions of this 
 Act. 
 
 Rediscounts 
 
 P 4. Such bank may rediscount its paper with 
 the Federal debenture bank in accordance with 
 the provision of this Act. 
 
 When reserved 
 
 P 5. When any Federal Co-operative Bank 
 meets the provisions of paragraph 2 of Section 
 3 of this Act it shall apply for membership in 
 the Federal Reserve banks for its district. 
 
 Supervised by comptroller 
 
 Section 6. The Comptroller of the Currency, 
 with the sanction of the Secretary of the Treas- 
 ury, shall have supervision over all Federal co- 
 operative banks the same as he has supervision 
 over all institutions incorporated under the Na- 
 tional Bank Act of June 20, 1874, and of all Acts 
 amendatory thereof. 
 
 224
 
 FOR RURAL CREDITS 
 
 TITLE III. 
 
 AMENDMENTS TO FEDERAL RESERVE 
 
 ACT 
 
 Title 
 
 Section 1. This title may be cited as "Federal 
 Reserve Amendments of 1922." 
 
 Amends Section 13 
 
 P 1. Section 2. That section 13 of the Fed- 
 eral Reserve Act, as amended, be further amend- 
 ed by striking out the proviso at the end of the 
 second paragraph of said section, so that said par- 
 agraph shall read as follows : 
 
 Discounts 
 
 P 2. "Upon the indorsement of any of its 
 member banks, or of Federal Rural Credits Com- 
 pany or any federal debenture bank, which shall 
 be deemed a waiver of demand, notice and pro- 
 test by such bank as to its own indorsement ex- 
 clusively, any Federal reserve bank may discount 
 notes, drafts, and bills of exchange arising out of 
 actual commercial transactions; that is, notes, 
 drafts, and bills of exchange issued or drawn for 
 agricultural, industrial, or commercial purposes, 
 or the proceeds of which have been used, or are to 
 be used, for such purposes, the Federal Reserve 
 Board to have the right to determine or define the 
 
 225
 
 THE BILL PROPOSED 
 
 character of the paper thus eligible for discount, 
 within the meaning of this Act. Nothing in this 
 Act contained shall be construed to prohibit such 
 notes, drafts, and bills of exchange secured by 
 staple agricultural products, or other goods, 
 wares, or merchandise from being eligible for 
 such discount, but such definition shall not include 
 notes, drafts, or bills, covering merely invest- 
 ments or issued or drawn for the purpose of car- 
 rying or trading in stocks, bonds, or other invest- 
 ment securities, except bonds and notes of the 
 Government of the United States. Notes, drafts, 
 or bills admitted to discount under the terms of 
 this paragraph must have a maturity at the time 
 of discount of not more than ninety days, exclu- 
 sive of days of grace." 
 
 New section 
 
 P 1. Section 2. That the Federal Reserve 
 Act, as amended, be further amended by adding 
 at the end of section 13 a new section, to be num- 
 bered section 13a and to read as follows : 
 
 "DISCOUNT OF AGRICULTURAL AND LIVE- 
 STOCK PAPER 
 
 Rediscounting commodity paper 
 
 P 2. "Section 13a. Upon the indorsement of 
 any of its member banks, or of Federal Rural 
 
 226
 
 FOR RURAL CREDITS 
 
 Credits Company or any federal debenture bank 
 which shall be deemed a waiver of demand, notice 
 and protest by such bank as to its own indorse- 
 ment exclusively, any Federal reserve bank may 
 discount notes, drafts, and bills of exchange is- 
 sued or drawn for an agricultural purpose, or 
 based upon live stock, and having a maturity, at 
 the time of discount, exclusive of days of grace, 
 not exceeding six months: Provided, however 
 That (a) notes, drafts, or bills of exchange se- 
 cured by warehouse receipts or other such nego- 
 tiable documents, conveying or securing title to 
 readily marketable, non-perishable agricultural 
 products, may be discounted with a maturity, at 
 the time of discount, not exceeding one year, un- 
 der regulations to be prescribed by the Federal 
 Reserve Board. Such regulations shall be designed 
 to insure that such notes, drafts, or bills of ex- 
 change were drawn or issued as a part of a pro- 
 gram of orderly marketing of such agricultural 
 products and not for speculative holding of such 
 products. 
 
 Live stock and agricultural paper 
 
 P 3. "(b) Notes, drafts, or bills of exchange 
 secured by chattel mortgage upon live stock may 
 be discounted with a maturity not exceeding two 
 
 227
 
 THE BILL PROPOSED 
 
 years provided such live stock is at the time of 
 discount being prepared for market under such 
 conditions that it will be ready for market on or 
 before the date of maturity of such note, draft or 
 bill. Notes issued by incorporated co-operative 
 agricultural associations, or drafts or bills ac- 
 cepted by any such association, shall be deemed to 
 have been issued or drawn for an agricultural 
 purpose, within the meaning of this section, if the 
 proceeds thereof have been or will be advanced 
 by such association to any member thereof for an 
 agricultural purpose, or if such proceeds have 
 been or will be used by such association for its 
 agricultural business, or to meet expenditures 
 incurred by the association in connection with 
 the grading, processing, packing, preparation 
 for market, or marketing of any agricultural 
 product or live stock handled by such associa- 
 tion for any of its members. 
 
 Debentures discounted 
 
 P 4. "(c) Federal debentures issued by any 
 Federal debenture bank may be discounted by 
 any Federal Reserve Bank when having a ma- 
 turity, at the time of discount, not exceeding 
 one year. Obligations of Federal Rural Credits 
 company issued pursuant to section 7 of the 
 Rural Credits Act of 1922, may be discounted 
 
 228
 
 FOR RURAL CREDITS 
 
 by any Federal Reserve Bank, either direct for 
 said Company or for any Federal debenture 
 bank or any member bank. 
 
 Limits of 
 
 P 5. "The Federal Reserve Board may, by reg- 
 ulation, limit to a percentage of the assets of a 
 Federal Reserve bank the amount of notes, drafts, 
 or bills, having a maturity in excess of three 
 months, but not exceeding six months, exclusive 
 of days of grace, which may be discounted by such 
 bank, and the amount of notes, drafts, or bills 
 having a maturity in excess of six months, but 
 not exceeding two years, which may be dis- 
 counted by such bank." 
 
 P 1. Section 3. That the ninth paragraph of 
 section 9 of the Federal Reserve Act be amended 
 to read as follows: 
 
 Little banks in reserve 
 
 P 2. "No applying bank shall be admitted to 
 membership in a Federal reserve bank unless it 
 possesses a paid-up, unimpaired capital sufRciefit 
 to entitle it to become a national banking associa- 
 tion in the place where it is situated under the 
 provisions of the national bank Act: Provided, 
 however. That an applying bank organized in a 
 place the population of which does not exceed six 
 thousand inhabitants may, in the discretion of the 
 
 229
 
 THE BILL PROPOSED 
 
 Federal Reserve Board, be admitted to member- 
 ship, if it possesses a paid-up, unimpaired capital 
 of at least $15,000, and if the application is ac- 
 companied by adequate undertakings of such bank 
 and of its principal stockholders that the capital 
 of such bank will within three years be increased 
 to $20,000: And provided further, That an ap- 
 plying bank, organized in a place the population 
 of which does not exceed three thousand inhabi- 
 tants, may, in the discretion of the Federal Re- 
 serve Board, be admitted to membership if it 
 possesses a paid-up unimpaired capital of at least 
 $10,000, and if it is accompanied by adequate 
 undertakings of such bank and of its principal 
 stockholders that such capital will within three 
 years be increased to $15,000. If any such 
 undertakings have not been fulfilled within three 
 years the Federal Reserve Board may require it to 
 withdraw forthwith from membership in the Fed- 
 eral reserve system." 
 
 Depositories 
 
 Section 4. That the Federal Reserve Banks 
 are hereby authorized to act as depositaries of and 
 as fiscal agents for Federal Rural Credits Com- 
 pany or any Federal Debenture Bank, and subject 
 to the maturity limitations of the Federal Reserve 
 Act as hereby amended and to regulations of the 
 
 230
 
 FOR RURAL CREDITS 
 
 Federal Reserve Board, to discount the direct ob- 
 ligations of member banks of the Federal Reserve 
 System secured by notes of Federal Rural Credits 
 Company or by Federal debentures, and to redis- 
 count for member bank notes, drafts or other ne- 
 gotiable instruments secured by notes of Federal 
 Rural Credits Company or Federal debentures 
 and indorsed by member banks. 
 P 1. Section 5. That Section 11 of the Fed- 
 eral Reserve Act is amended by adding thereto a 
 new paragraph, to read as follows : 
 
 Rural credits discounts 
 
 P 2. "The Federal Reserve Board shall be au- 
 thorized to permit or require Federal Reserve 
 banks to rediscount paper held by the Federal 
 Rural Credit Company or by any Federal De- 
 benture bank which conforms to the maturity 
 and other requirements of eligible paper, in- 
 cluding obligations of Federal Rural Credits 
 Company issued pursuant to Section 7 of the 
 Rural Credits Act of 1922." 
 P 3. That Section 5202, Revised Statutes, as 
 amended, is hereby further amended by adding 
 thereto a new paragraph to read as follows : "8. 
 Liabilities incurred under the provisions of the 
 Rural Credits Act of 1922." 
 
 231
 
 INDEX 
 
 To first part of book, pages 1 to 144 
 
 Bill, the proposed • 146-232 
 
 Company, Federal Rural Credits (see federal) 
 
 Co-operative associations, see chap 6 qa 
 
 Backing- doubled i »0 
 
 Capital required ^^ 
 
 Conducted for ^^ 
 
 How organized ^* 
 
 Local Co-op ^J 
 
 Local must report annually 9 < 
 
 No charge to members for financial 
 
 accommodation 95 
 
 No limitation 96 
 
 Powers of ^^ 
 
 Share, par value of 92 
 
 Success of 11 
 
 Voluntary service 96 
 
 Federal Co-operative Banks, see chap 8 . . . 117 
 
 Co-operative bank a member of debenture 
 
 bank 120 
 
 Credits unions 125 
 
 Educational value in rural districts 118 
 
 How it does business 119 
 
 Labor unions 126 
 
 Little local banks on co-operative principle . . . 117 
 
 "Other People's Money" 127 
 
 Real estate department 121 
 
 Savings department 122 
 
 Small loans 123 
 
 Towns and cities may offer limited field 124 
 
 Federal Debenture banks, see chap 5 65 
 
 Advantage to state 70,80 
 
 Amendment 81 
 
 Each state owes a duty 66 
 
 Farm mortgages 83 
 
 Guarantee of principal and interest 73 
 
 Investment for trust funds 76 
 
 Joint and several liability, no 72,86 
 
 Least any state can do 66 
 
 Limit to debentures issued 78 
 
 Margin required 77 
 
 Matching federal by state money 67 
 
 Members of debenture bank 71 
 
 Objection may be made 79 
 
 One for each state 52,69 
 
 Powers 77 
 
 Real estate obligations 82 
 
 232
 
 INDEX 
 
 State rights Vi 74 7^^ 
 
 Washington eliminated / ' ' ' „ 1 9q 
 
 Federal Reserve Amendments, see chap 9 j^» 
 
 Admittance to reserve • • • ■'■'*•'• 
 
 Broader provisions for discount of agricul- 
 
 tural and livestock paper l^b 
 
 Comparison of old and new plan 14^ 
 
 Co-operative enterprises ^^* 
 
 Co-operative idea |^^ 
 
 Discount privilege i^^ 
 
 Failure of bank ^^^ 
 
 First amendment 1^^ 
 
 Longer terms proposed |^ ' 
 
 Member and non-member banks l-JO 
 
 Member banks to discount their direct 
 
 obligations 141 
 
 Membership in federal reserve — table 143 
 
 Non-members should be forced into federal 
 
 reserve 131 
 
 Opposition to extension of discount privilege . 138 
 
 Usefulness of federal reserve system 129 
 
 Value of federal reserve 132 
 
 Federal Rural Credits Company, see chap 4 43,79 
 
 Agricultural credits act 57 
 
 Capital, $250,000 44 
 
 Basis of 45 
 
 Exceptions for various states 51 
 
 Initial to Debenture bank 45 
 
 Provided by central company 61 
 
 Reason for 46 
 
 Return of initial 47 
 
 Table of all states 48 
 
 Duties of the company 58 
 
 Organization of system 60 
 
 Permanent system essential 57 
 
 Profits all to federal treasury 45 
 
 Revenues from 44 
 
 Successor to War Finance Corporation 43 
 
 Supervisors of the system 43 
 
 Surplus 44 
 
 Abnormal 59 
 
 Taxes: 
 
 Injustice to east 50 
 
 Internal revenue tax paid by states — 
 
 map 64 
 
 Revenue taxes 50 
 
 Taxes paid by states — tables 48 
 
 233
 
 INDEX 
 
 War Finance Corporation 39,43 
 
 Agricultural and live stock purposes • . 62 
 
 Financing exports 62 
 
 Loans to Co-operative marketing 
 
 associations 55,57 
 
 Revenue producing states discriminated 
 
 against 53 
 
 To be disbanded 39 
 
 Work done by 54 
 
 Index to the proposed bill 146-232 
 
 Mandate, the 
 
 Miscellaneous Features, see chap 9 99 
 
 Bankers might object 100 
 
 Building loan associations , 104 
 
 Fake competitors 106 
 
 Division of earnings 102 
 
 Franchise tax 104 
 
 Investment for saving and other funds 99 
 
 Livestock loan companies 112 
 
 No interference or complication with 
 federal reserve, rural credits or 
 
 farm loan systems 37,116 
 
 Precautions to insure security of 
 
 cattle paper 113 
 
 Rediscount of livestock paper 114 
 
 Member capital lOS 
 
 Money kept at home 102 
 
 Result of the plan 101 
 
 Taxation of securities 109 
 
 Difference of conditions 110 
 
 General welfare Ill 
 
 Personal security Ill 
 
 Veterans 106 
 
 Women's ability 108 
 
 Plan, The 
 
 Principles of Rural Credits, see chap 2 21 
 
 Attractiveness to investors 34 
 
 Base of plan 33 
 
 Good management 29 
 
 Borrowers must have some capital 30 
 
 Co-operation required 23 
 
 Advantages of 25,28 
 
 Co-operative association 31 
 
 Meetings of locals 33 
 
 Mutual benflts 32 
 
 Other business, benefits to 33 
 
 Objections made to farmers' obligations 21 
 
 234
 
 INDEX 
 
 Objections overcome ' 22 
 
 Penalty section ^4 
 
 Privileges by joining debenture bank 32 
 
 Rural credits not for those ignorant of 
 
 agriculture 29 
 
 Second mortgage 30 
 
 Problem, The, see chap 1 15 
 
 Agricultural inquiry 18 
 
 Division of finance : 
 
 Federal farm loan system 15 
 
 Federal reserve system 15 
 
 Rural credits 15 
 
 Great deflation 18 
 
 Orderly marketing of products 17,31 
 
 Purpose of Rural Credits Bill 19 
 
 Short term mortgages 16 
 
 For co-operative associations 17 
 
 For experienced farmers 16 
 
 Vision, The 10 
 
 Why Federal Rural Credits Board, see chap 3 . . . . 36 
 
 Avoids new appropriation by Congress 39 
 
 Broad powers 3 9 
 
 Consists of 38 
 
 Different to Federal Reserve board 37 
 
 Federal debentures 41 
 
 Increase and decrease of rural credits 36 
 
 No interference with Federal Reserve of Fed- 
 eral Farm Loan system 37 
 
 Other duties 41 
 
 Rates of interest and discount 40 
 
 Separate and distinct bureau 38 
 
 Takes over War Finance Corporation ...'... 39 
 
 INDEX 
 
 To the Proposed Bill 
 
 Abnormal surplus 165 Amendment to Federal Farm 
 Action by state 173 Loan Act 219 
 Advances, domestic 166 Amendments, Section 13 225 
 Advances, foreign 167 Amendments to Federal Re- 
 Advances to bank 167 serve Act 225 
 Agencies 164 Application 171 
 Agricultural and livestock paper 227 Application of payments 197 
 
 Discount of 226 Applications for Federal De- 
 
 Agricultural business 147 bentures 192 
 
 Agricultural loans 147 Applied to surplus 200 
 
 Agricultural purposes 147 Appointed, how 161 
 
 235
 
 INDIiX 
 
 Appointment and dissolution 
 
 
 Charter, forfeiting 
 
 209 
 
 of receivers 
 
 210 
 
 Classes of 
 
 196 
 
 Association, co-operative 
 
 149 
 
 Clause, repealing 
 
 220 
 
 Association, co-operative 
 
 176 
 
 Collateral 
 
 199 
 
 Associations, Federal Rural 
 
 
 Commission, no 
 
 187 
 
 Credits System 
 
 205 
 
 Commodity paper 
 
 148 
 
 At least $1,000 capitel 
 
 208 
 
 Commodity paper, rediscount- 
 
 
 
 
 ing 
 
 226 
 
 Bank, advances to 
 
 167 
 
 Company, Certified by F R C 
 
 191 
 
 Bank, debenture — joins 
 
 223 
 
 Company, Federal Rural Credits 158 
 
 Bank, debenture — Member 
 
 207 
 
 Powers of 
 
 161 
 
 Bank, Federal land 
 
 185 
 
 Company, others paid by 
 
 154 
 
 Bank, reserve — joins 
 
 222 
 
 Company, represents 
 
 181 
 
 Banks as members 
 
 176 
 
 Compensation 
 
 175 
 
 Banks, co-operative 
 
 176 
 
 Comptroller, supervised by 
 
 224 
 
 Banks, debenture 
 
 156 
 
 Consideration, no 
 
 216 
 
 Banks, debenture — capital in 
 
 162 
 
 Coupons 
 
 190 
 
 Banks, Federal co-operative 
 
 221 
 
 Co-operative association 
 
 149 
 
 Banks, Federal debenture 
 
 169 
 
 Co-operative association 
 
 176 
 
 Membership in 
 
 176 
 
 Co-operative banks 
 
 176 
 
 Banks in reserve, little 
 
 229 
 
 Co-operative banks, Federal 
 
 221 
 
 Board decides 
 
 194 
 
 Co-operative principle 
 
 150 
 
 Board, Federal Rural Credits 
 
 150 
 
 Corporation, liquidates War 
 
 
 Powers of 
 
 156 
 
 Finance 
 
 159 
 
 Bodies, other 
 
 155 
 
 Counterfeiting 
 
 215 
 
 Bonds, buys 
 
 163 
 
 Court decisions, limitation of 
 
 220 
 
 Bonds, U. S. — deals in 
 
 182 
 
 Credits 
 
 197 
 
 Borrow, may 
 
 184 
 
 Credits, export 
 
 186 
 
 Bound by its oflScers 
 
 191 
 
 Custodian 
 
 163 
 
 Business 
 
 222 
 
 Custodian chairman 
 
 180 
 
 Business, agricultural 
 
 147 
 
 Custodian, federal 
 
 181 
 
 Buying paper 
 
 163 
 
 Custodian verifies. 
 
 193 
 
 Buys bonds 
 
 163 
 
 
 
 By-laws 
 
 162 
 
 Deal in paper 
 
 207 
 
 By-laws 
 
 172 
 
 Deals in U S bonds 
 
 182 
 
 
 
 Debenture bank, joins 
 
 223 
 
 Capital 
 
 158 
 
 Debenture bank, member 
 
 207 
 
 Capital at least $1,000 
 
 208 
 
 Debenture banks 
 
 156 
 
 Capital in debenture banks 
 
 162 
 
 Debenture banks, capital in 
 
 162 
 
 Capital, initial — retire 
 
 179 
 
 Debenture banks. Federal 
 
 169 
 
 Capital, Limit of 
 
 223 
 
 Membership in 
 
 176 
 
 Capital, member 
 
 177 
 
 Powers of 
 
 181 
 
 Capital, minimum 
 
 222 
 
 Restrictions on 
 
 186 
 
 Capital reduced 
 
 160 
 
 Debenture, issue of 
 
 181 
 
 Capital, retire, initial — fran- 
 
 
 Debentures 
 
 156 
 
 chise tax 
 
 202 
 
 Debentures 
 
 188 
 
 Certificate 
 
 206 
 
 Debentures discounted 
 
 228 
 
 Certificates, sell 
 
 164 
 
 Debentures, margin for 
 
 192 
 
 Certified by F R C Company 
 
 191 
 
 Debentures, printing 
 
 190 
 
 Chairman, custodian 
 
 180 
 
 Debentures — surety 
 
 157 
 
 Charges 
 
 184 
 
 Debentures tenfold 
 
 186 
 
 Charter 
 
 172 
 
 Decreases 
 
 178 
 
 Charter 
 
 206 
 
 Definitions 
 
 146 
 
 236
 
 INDEX 
 
 Delivery 194 
 
 Denominations 189 
 
 Department, real estate 223 
 
 Deposit, may 184 
 
 Depositories 230 
 
 Depository, U S 164 
 
 Depository, U S 183 
 
 Deposits, limited 185 
 
 Deposits received 184 
 
 Director, federal retire 179 
 
 Directors, officers 172 
 
 Directors, permanent 174 
 
 Directors, temporary 170 
 
 Discount 181 
 Discount of agricultural and 
 
 livestock paper 226 
 
 Discounted, debentures 228 
 
 Discounts 163 
 
 Discounts 225 
 
 Discounts, reserve 164 
 
 Discounts, Rural Credits 231 
 
 Disinterested 153 
 Dissolution of appointment of 
 
 receivers 210 
 
 Dividend, extra 201 
 
 Dividend, six per cent 200 
 
 Division of earnings 200 
 
 Domestic advances 166 
 
 Earnings, division of 200 
 
 Embezzlement 217 
 
 Entity, legal 207 
 
 Examinations 155 
 
 Examinations 157 
 
 Examinations 209 
 
 Examiners 209 
 
 Except on its shares 202 
 
 Exemption 202 
 
 Exemption, tax 202 
 
 Exemptions, other 203 
 
 Export credits 165 
 
 Export credits 185 
 
 Extra dividend 201 
 
 Failures 210 
 False statements 214 
 Federal Co-operative Banks 221 
 Federal custodian 181 
 Federal debenture banks 169 
 Powers of 181 
 Federal debentures 188 
 Federal debentures — applica- 
 tions for 192 
 Federal director, retire 179 
 
 Federal land bank 185 
 Federal Farm Loan Act, 
 
 amendment to 219 
 Federal Reserve Act, 
 
 amendments to 225 
 Federal Rural Credits Board 150 
 Powers of 156 
 Federal Rural Credits Company 158 
 Powers of 161 
 Federal Rural Credits Com- 
 pany, certified by 191 
 Federal Rural Credits system 
 
 associations 205 
 
 First lien 189 
 
 First meeting 152 
 
 First mortgages 186 
 
 Fix rates 166 
 
 Foreign advances 167 
 
 Forfeiting charter 209 
 
 Form of federal debenture 189 
 
 Formed how 205 
 
 Formed how 221 
 Franchise tax — retire initial 
 
 capital 202 
 
 Fraud 218 
 
 Fund, trust 200 
 
 Graft, no 212 
 
 Gratuities, no 213 
 
 Guarantee 164 
 
 Guarantee 194 
 Guarantee of principal and 
 
 interest 192 
 
 How appointed 161 
 
 How formed 205 
 
 How formed 221 
 
 How payable 168 
 
 How payable 198 
 
 Impairment, no 180 
 Incidental powers 173 
 Increases 178 
 Initial capital, retire 179 
 Initial capital, retire — fran- 
 chise tax 202 
 Initial shares 170 
 Interest and principal, guar- 
 antee of 192 
 Interest rate 188 
 Investment 181 
 Investments of 223 
 Issue of debentures 181 
 Issue of debentures 194 
 
 237
 
 INDEX 
 
 Joins debenture bank 223 
 Joins reserve bank 222 
 Land bank, federal 185 
 Legal entity 207 
 Length of loans 187 
 LiabUity 221 
 Liability, no 202 
 Liability of the U. S. 202 
 Liability, shareholders 208 
 Liability, specific 191 
 Liable, not jointly 176 
 Lien, first 189 
 Limit of capital 223 
 Limit to rediscounts 187 
 Limitation of Court decisions 220 
 Limited deposits 185 
 Limits of 229 
 Liquidates War Finance Cor- 
 poration 159 
 Liquidation 211 
 Little banks in reserve 229 
 Livestock and agricultural paper 227 
 Discount of 226 
 Livestock paper 147 
 Loans, agricultural 147 
 I^oans, length of 187 
 Loans, may make 207 
 Loans, second mortgage 186 
 Make loans, may 207 
 Margin for debentures 192 
 May borrow 184 
 May deposit 184 
 May make loans 207 
 Meeting, first 152 
 Member 146 
 Member capital 177 
 Member debenture bank 207 
 Menibers. banks as 176 
 Membership in debenture banks 176 
 Middleman unnecessary 213 
 Minimum capital 222 
 Miscellaneous 219 
 More security 197 
 Mortgage loans, second 186 
 Mortgages, first 186 
 Name 158 
 Named 206 
 New section 226 
 No commission 187 
 No consideration 216 
 No graft 212 
 No gratuities 213 
 No impairment 180 
 
 No liability 202 
 
 Not jointly liable 176 
 
 Obligations, real estate 149 
 
 Office, salary 180 
 
 Officers, bound by its 190 
 
 Officers, directors 172 
 
 One in each state 169 
 
 One vote 221 
 
 Organization 205 
 
 Other bodies 155 
 
 Other exemptions 203 
 
 Other powers 158 
 
 Other real estate 184 
 
 Others paid by company 154 
 
 Paid by company, others 154 
 
 Paid by United States 154 
 
 Paper, buying 168 
 
 Paper, commodity 148 
 Paper, commodity — rediecount- 
 
 ing 226 
 
 Paper, deal in 207 
 
 Paper, livestock 147 
 Paper, livestock and agricultural 227 
 
 Paper, purchases of 182 
 
 Payable, how 168 
 
 Payable, how 198 
 
 Payments, application of 197 
 
 Payments of 199 
 
 Penalties 212 
 
 Permanent directors 174 
 
 Power, trustees 200 
 
 Powers 162 
 
 Powers, incidental 173 
 Powers of federal debenture 
 
 banks 181 
 Powers of Federal Rural Credits 
 
 board 156 
 Powers of Federal Rural Credits 
 
 Company 161 
 Powers, other 168 
 Powers — privileges 160 
 Powers, temporary 165 
 Preference to veterans 219 
 Principal and interest, guar- 
 antee of 192 
 Principle, co-operative 150 
 Printing debentures 190 
 Privileges — powers 160 
 Provisions of 188 
 Provisions of the federal de- 
 bentures, special 191 
 Purchase of paper 182 
 
 238
 
 INDEX 
 
 Purposes, agricultural 
 
 Qualiflcations 
 
 151 
 
 Qualifications 
 
 175 
 
 Quorum 
 
 155 
 
 Rate, interest 
 
 188 
 
 Rates, fix 
 
 156 
 
 Real estate department 
 
 22.? 
 
 Real estate for own use 
 
 183 
 
 Real estate oblisrations 
 
 149 
 
 Renl estate, other 
 
 184 
 
 Received, deposits 
 
 184 
 
 Receiver 
 
 211 
 
 Receivers, dissolution and ap- 
 
 
 pointment of 
 
 211 
 
 Rediscounting commodity paper 
 
 226 
 
 Rediscounts 
 
 224 
 
 Rediscounts, limit to 
 
 187 
 
 Rediscounts with reserv* 
 
 182 
 
 Reduced, capital 
 
 IfiO 
 
 ReRulations 
 
 155 
 
 Rejection 
 
 195 
 
 Removals 
 
 167 
 
 Repealing clause 
 
 220 
 
 Reports 
 
 154 
 
 Represents company 
 
 181 
 
 Reserve bank, joins 
 
 222 
 
 Reserve discounts 
 
 164 
 
 Reserve, little banks in 
 
 229 
 
 Reserve, rediscounts with 
 
 182 
 
 Reserved, when 
 
 224 
 
 Responsibilities of 
 
 209 
 
 Restrictions on Federal De- 
 
 
 benture banks 
 
 186 
 
 Retire federal director 
 
 179 
 
 Retire initial capital 
 
 179 
 
 Retire initial capital — 
 
 
 franchise tax 
 
 202 
 
 Rural credits board, federal 
 
 160 
 
 Powers of 
 
 156 
 
 Rural credits company 
 
 158 
 
 Powers of 
 
 161 
 
 Rural credits discounts 
 
 231 
 
 Salaries 
 
 210 
 
 Salary, office 
 
 180 
 
 Second mortgage loans 
 
 186 
 
 Secret service 
 
 219 
 
 Section 13, amendments 
 
 225 
 
 Section, new 
 
 226 
 
 Securities 
 
 183 
 
 Securities 
 
 196 
 
 Security 
 
 168 
 
 Security, more 
 
 197 
 
 Sell certificates 16* 
 
 Shareholder's liability 2081 
 
 Shares $5 221 
 
 Shares, except on its 202 
 
 Shares, initial 170 
 
 Six percent dividend 200 
 Special provisions of Federal 
 
 debentures 191 
 
 Specific liabilty 191 
 
 State, action by 178 
 
 State, one in each 169 
 
 Statements, false 214 
 
 Substitutions 197 
 
 Successor 159 
 
 Superintendent — terms 152 
 
 Supervised by comptroller 224 
 
 Supervision 157 
 
 Supervision 208 
 
 Surety— debentures 157 
 
 Surplus, abnormal 166 
 
 Surplus, applied to 200 
 
 Surplus, 25% 201 
 
 Surplus, 50% 201 
 
 Surrenders 178 
 
 Tax exemption 202 
 Tax, franchise — retire initial 
 
 capital 202 
 
 Temporary directors 170 
 
 Temporary powers 166 
 
 Tenfold, debentures 186 
 
 Terms — superintendent 162 
 
 Term of 189 
 
 Title 170 
 
 Title 221 
 
 Title 226 
 
 Trust fund 200 
 
 Trustees power 200 
 
 United States, paid by 164 
 
 Unnecessary, middlemen 2l3 
 
 U. S. bonds, deals in 182 
 
 U. S. depository 164 
 
 U. S. bonds depository 183 
 
 U. S. liability of 202 
 
 Vacancies 160 
 
 Verifies, custodian 193 
 
 Veteran 160 
 
 Veterans, preference to 219 
 
 Vote, one 221 
 War Finance Corporation, 
 
 liquidates 159 
 
 When reserved 224 
 
 Withdrawal 198 
 
 Women 219 
 
 239
 
 The Right Use of Health 
 
 AN INVOCATION 
 
 Uttered in humility and penitence, by one who feels implicit 
 
 confidence in God's infinite power, sublime 
 
 mercy and universal presence 
 
 WHATEVER powers be in me, 
 dedicate anew to larger serv- 
 ice, to wider usefulness, to nobler 
 endeavor. 
 
 INSPIRE me with the divine en- 
 ergy which seeks expression in 
 duty well done. Grant me the 
 Fight always to see that which I 
 should do, and the will to do it 
 aright. 
 
 TEACH me to conserve my phys- 
 ical, mental and spiritual forces 
 so that they may unite in a Trini- 
 ty of Health. Enable me to con- 
 secrate my health to the service of 
 God from whence it comes, and to 
 do this by better serving my fel- 
 low-men. 
 
 LEAD me into the Infinite Har- 
 mony, the poise of Nature, "the 
 peace of God which passeth all un- 
 derstanding." Attune my being to 
 receive Thy vibrations, make of me 
 an instrument for transmitting Thy 
 will. 
 
 HELP me, O God, to nourish my 
 Body in holiness and health — 
 to keep it free from all evil ten- 
 dencies or unrighteous actions, to 
 
 know its marvels and wisely to use 
 them, rather than ignorantly or 
 wickedly to abuse its wonders. 
 
 AND help me yet more, O Lord, 
 in Mind-growth and mental 
 strength. Aid me to expand my 
 thinking powers, further develop 
 my reason, enrich my affections and 
 emotions, increase my vigor of will, 
 guide my hopes and enthusiasms, 
 banish my fears and worries, en- 
 courage me to bear my burdens, 
 stimulate my self-control, refresh 
 my earnestness of purpose, enlarge 
 my love for the beautiful. 
 
 nPHUS, with Thy ever-present help, 
 -■■ Lord God Almighty, may my 
 Body and Mind always be a fitting 
 temple for my Soul — for Thy spir- 
 it in me with which in its fullness 1 
 am Truth and Strength, Faith and 
 Love, Health and Happiness, but 
 without which I am merely human. 
 
 FEED Thou my whole life — di- 
 rect Body, Mind and Soul to 
 co-operate in unison for efficiency, 
 progress, contentment, joy, serv- 
 ice, truth. Amen. 
 
 — Herbert Myrick 
 
 240
 
 AA 001 119 290 3 
 
 I\/IYRICK. Herbert 
 
 AUTHOR 
 
 Rural Credits System 
 
 TITLE 
 
 DATE 
 DUE 
 
 BOMKUWtH ;> rsAMt 
 
 DATE 
 RETURNED 
 
 / 
 
 /