With the change to a commercial type of farming and with the higher price of land, the American farmer has had to make larger use of borrowed capital and his business has been seriously hampered by a lack of credit facilities to meet his needs. Probably in no field of coöperative effort have the benefits been more apparent than in that of the rural credit banks which are found throughout Europe and which have thoroughly demonstrated their usefulness. Attention has been called to the fact that our best farm lands are more and more operated by tenants, and that this is inimical to strong community life. One of the reasons for this tendency has been the inability to secure long-term loans on farm real estate by the man who has little capital of his own. As lands rose in value this became increasingly difficult. To meet this situation a commission representative of all sections of the United States visited various countries in Europe in the spring of 1913, and as a result of their report, in 1916 Congress finally enacted the Federal Farm Loan Act establishing a system of farm land banks. Under this system one-half of the value of a farm and buildings up to $10,000 may be borrowed and paid off under the amortization plan in from five to forty years at a low rate of interest. The details of the system do not concern our present discussion, but the essential feature of the system is the local land bank through which the loans are made and collected. The local land bank is strictly a coöperative society organized to secure long-term credit facilities for its members under the terms of the federal act through the regional land banks of which each local bank is a member. Like other coöperative associations, the area in which the local bank does business is not necessarily that of a community, it may be a whole county where there are but few members, or there may be more than one bank in a single community, but more commonly it is located at a village center and tends to become a community institution.
Equally important for financing the current expenses of farming operations and to make possible the orderly marketing of crops, is the farmer's need for short-time credit. Our banking system has been developed to meet the needs of the business world, and the period for which loans can be made is too short to meet the needs of the farmer, who often requires credit for six months to a year. In some ten states legislation has been passed authorizing the formation of local credit associations, which are really local coöperative banks, but the number of credit associations established in rural communities has been insignificant, thirty-three out of a total of thirty-six being in North Carolina.[32] The tremendous losses suffered by American farmers during 1921 and their inability to secure sufficient credit from their local banks has shown the necessity for better short-time credit facilities, and bills are now before Congress which will enable the local land banks to also handle short-time loans in coöperation with the Federal Reserve Banks. If this is done, the amount of business done by these local banks will be greatly increased and the coöperative principle in banking will be greatly strengthened.