intermediate-time credit compares favorably with the volume of commercial bank land credit.

It is believed, however, that bank loans under the present system do not give an adequate picture of the intermediate-time credit requirements of agriculture. In a recent survey made by Youngblood and Cox,* in a typical ranching section of Texas, the average indebtedness on livestock was found to be approximately $30 per animal unit, seven sheep and goats were counted the equivalent of one cow and the cow was taken as the unit. According to the United States Department of Agriculture Yearbook, there were approximately seventy million such animal units in the United States in 1921. At the above rate the cattle and sheep alone would carry a total credit of over two billion dollars. There are, according to the Yearbook, more than twenty million horses and mules in the country. If they should carry as heavy loan as cattle and sheep, they alone would require over a half billion dollars to finance them. The enormous business done by the cattle loan companies shows, in a measure, how very large the volume of such loans is.

The livestock loans represent only a part of the intermediate-time credit requirements. The volume of credit needed for the purchase of agricultural machinery, fertilizer, seeds, fruit trees and other capital goods is perhaps much larger than that for livestock alone.

At any rate, a credit institution which is designed to take care of the livestock paper, the farm machinery paper, the fertilizer paper, the seed, tree and other similar paper, deserves an equal consideration with long and short time credits in our national system of credits.

Sources of Supply of Intermediate-Time Investment

Capital

Granting that there is sufficient demand for intermediatetime agricultural credit to claim the attention of Congress,

4"An Economic Study of a Typical Ranching Area in the Edwards Plateau of Texas."

are there sources of supply to meet the demands at reasonable rates, provided the paper can be made otherwise attractive? Not having tried such a plan, there are, of course, no conclusive figures to which to refer. The primary source of supply of such funds would perhaps come from savings accounts. Young men who are laying aside a certain portion of their incomes with the hope of going into business on their own account after a few years, would find it convenient to buy intermediate-time paper. Tenant farmers who are planning to buy farms would find that such investments correspond to their needs.

Moreover, the readiness with which the short time securities of the Government were absorbed may be taken as some indication of the possible demand for intermediatetime securities. The big eastern bankers who have expressed themselves feel that intermediate-time paper properly secured would find a ready market at advantageous rates.

Essential Requirements of an Intermediate-Time Credits System

The function of supplying intermediate-time credit belongs essentially to some form of investment banking. The purchasers of capital goods to produce agricultural products use up the goods in their productive processes and must depend on paying their loans out of the increased efficiency of the enterprise which is spread over the life of the capital bought. Short time liquidations required in deposit banking are wholly unsuited to the needs of intermediate-time credit requirements.

Banking Machinery Required

Central Discounting Institution.-Any form of investment banking must secure the funds necessary to carry on its business by a sale of bonds, the length of which must correspond to the turnover of the enterprises being financed. In the case of intermediate-time credits the debentures is

sued in lieu of the notes discounted should run from one to

five years.

The efficiency of any sort of bond issuing institution depends very largely on its size and its business record. The size is measured in terms of paid-in capital stock and unimpaired surplus. It is evident, therefore, that the central discounting agent or agencies should be large.

The central discounting agencies must be located as near as possible to the centers where their bonds are most greatly in demand. The central institutions must reach the individual borrower through some responsible local organization.

Local Guarantee Associations.-The local organization which makes the loans to the producers is the vital unit in the system. This local organization may be a private corporation, a joint stock company, or a co-operative. Since, as has been pointed out, the thing for which the loan was made to purchase is more or less unattachable when once the productive process has been started, the security must cover the product of the thing bought as well as the thing itself, and in addition a further guarantee must exist to cover the personal risk involved. The property risks are covered by a mortgage, and the personal risks are covered by the capital stock and surplus of the local organization. Modern cattle loan companies are fair examples of the essential characteristics of such organizations. The corporate cattle loan company could be turned into a co-operative by the borrowers subscribing the capital stock, managing it through a board of directors and dividing profits on the basis of patronage. At the present there would doubtless be a place for all three forms of local organizations. In either case, the local bank might serve as the nucleus of the organization and the officers of the bank might well be the officers of the loan organization.

Regional Discount Agency.-In some instances, it may be advisable to have a regional discount agency that serves as a link between the local organization and the central discounting institution. The position of the Fort Worth Stock and Agricultural Loan Agency in transferring credit from

the War Finance Corporation to the local bank is a good example of the function of such an institution.

Recent Proposals for Furnishing Agricultural IntermediateTime Credit

Proposal of the Joint Commission of Agricultural Inquiry. The report of the Joint Commission of Agricultural Inquiry proposes that a separate department be organized in the Federal Land Banks to undertake the handling of intermediate-time agricultural credits. When the differences between intermediate-time and long time credits are considered, it is difficult to see any well founded reason why a Federal Land Bank should be called upon to handle intermediate-time credits. In fact, the two types of credit are so different, that the machinery required for handling them would have to be entirely separate. It would thus appear that putting the two systems together might cause one or the other to suffer in efficiency, and both might suffer.

Longer Time on Agricultural Loans Granted by Federal Reserve Banks.-Some have argued that the Federal Reserve Banks should grant twelve months credit to agriculture. When the limitations of deposit banking for making long time credits are considered, and it is further recognized that even the twelve months' time does not meet the demand of agriculture, it is believed that such a modification would be detrimental both to the best interests of the Federal Reserve System and agriculture.

Conversion of the War Finance Corporation into a Permanent Intermediate-Time Credit Institution.-It has been proposed that the War Finance Corporation be reorganized and converted into a permanent institution for furnishing intermediate-time credit. The fact that it will take several years for the corporation to wind up its loan renewals, even though it makes no more new loans after July, and the further fact that is has already created machinery for making loans, are strong points in favor of making it the center of the intermediate-time credit system. Moreover, the corporation has been successful in its efforts to relieve the em

barassing credit situation in which agriculture found itself in 1920.

Whether some existing institution is modified to meet the needs of intermediate-time credit, or an entirely new organization is set up, is a matter that should be worked out on the basis of serviceability. In either case, it is a means to an end. The main object should be to supply the much needed credit facilities. Indeed, those engaged in agricultural production have a right to demand it.