Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-01-05
COST OF LIVING INCREASED
BY THE u. S BANKING SYSTEM


about substantial inc. ease IN the pro-
, duction of necessities there must be ex-
pended a vast amount OF money-very
much more than the farmers can supply
from their own resources, and more than
they can obtain from existing financial
institutions.
Farmers need funds for two general
purposes: First. for the purchase of prop
eTty and for it's permanent improvement,
and. second, for operation-that is, the
purchase of live stock. implements. seed
ana fertilizers, and the harvesting of
crops. These two general divisions of
agricultural capital requirements should
be preserved in the nature of the loans
that are made to secure funds. Each of
these two divisions can and should sup
port its own credit.
Disadvantage of U. S. System.
For the purpose Of buying land and per-
manently improving it. farmers should be
able to make mortgage loans that have
long time to run. Money invested in land
or permanent improvements becomes
hxed capital. and the proportion OF
farmers income that can properly be at
t1outed to this sort Of capital is SO linz
tied that 1t is illogical and unreason-
able to expect the money SO invested to
be repaid except after considerable Pc
riod of years. Our present commercial
banking system is designed to serve the
needs OF commerce and industry and is
not fitted to make the longtime loans
that farmers should be able to secure a
commercial bank whose deposits must he
paid out on demand must keep its as
sets liquid. II is clear. therefore, that
such an institution cannot render any
considerable service to farmers by sup
plying them with long time funds
The principal sources of real estate
loans now open to American farmers are
the life insurance companies, local saw
lnSs banks and trust companies and bro
kerS. 1t is reliably reported that thirteen
of the larger life insurance companie on
January l. 1912. had outstanding farm
loans amounting to $i29.O0O.OOo. Farm
loans are also made by individual lenders.
but the total from all Of these sources is
inadequate. The failure to supply the
demands OF great numbers of honest and
capable farmers TOR mortgage loans is
evidence that something is wrong and
that new financial ma 'hinery will have to
of farmers are increasing more rapidly
than those of any other class.
Logical and Practical Method.
The only logical and practical method
for farmer to pay loan secured by
his land is by amortzat ion-in other
words. by small partial payments. regu-
arly made. Amortization Is the domi-
nant feature of the land mortgage sys-
TENS Of all European nations. The aver
age length OF the loan there is about
thirty years, and may .un for seventy
1--WE years. The annual sum paid by the
borrower is composed Of TIE interest, the
pro rata Of the cost of business and an
instalment on the principal, and is called
an annuity. 1t remains level with the
same rate of interest through the entire
term of the loan, but each year the ac-
tual amount of interest decreases and the
amortization item increases. so that, by
the end of the term. the debt Is wiped
out completely. The percentage OF capt.
tai to be repaid each year under the
amortization depends upon the term of
the loan, of course.
Uses an Illustration.
Thus, suppose a loan to be granted at
per cent for ten years. The annuity is
l3.5S6s. little over 131s per cent: If the
term be twenty years. the annuity is
S.71S5, about 81 per cent; IL the
term be fifty years the annuity is
6.33444. a little over 6.33 per cent. The
longer the term the smaller the annuity,
SO that, in this last case the payment on
the principal becomes absolutely insgnif-
can't and hardly distinguishable from the
interest rate. 1t starts at "a cents per
500. the first year. and, at the R&al year,