The Redwood gazette., 1936-02-27
"A Reader Writes
WHAT FOR THE FARMER; AN
ADEQUATE INCOME OR A
SUBSISTENCE SUBSIDY?
BY Glen Armitage

Since proposals for a solution
to the farm problem are again
open for debate / will attempt to
map course, which, while al
ready part way paved, could be
widened and extended to a point
that would give promise of a
permanent and satisfactory road
to agricultural restoration. / re-
fer to the Federal Land Bank.
In order that may give the
reader a general idea of this
possible course it is necessary
that l make comparison be-
tween the Federal Land Banks
and the Federal Reserve Banks.
Both are government sponsored
but privately owned institutions
and are, theoretically, semi-offi-
cially controlled by the govern
lment. Stock of the Land Bank is
owned by the farmers as is the
Reserve Bank stock owned by
the banks. Likewise they both
perform a related service that
of getting money for borrowers.
But the method of securing
money for these borrowers is diff
ferent and this method is the gist
of this article.
The Land Bank, in order to get
money to loan to a farmer, must
issue and sell bonds to an invest
or. The money thus raised is
then loaned to farmers on land
and mortgage on the land is
taken as security. The mortgage
payments then becomes the means
of paying interest on and retiring
Land Bank bonds.
The Federal Reserve Bank does
not loan money on a note secured
by land. 1t loans money through
its member banks on farmers
notes secured by chattel fperson-
al property and to business in
general on commercial paper. The
Reserve Bank does not get its
money through issuance of bonds.
1t goes direct to the federal treas
ury and gets currency federal
Reserve notes) from the govern
ment at printing cost. About
two-thirds of the currency in cir
culation is money secured from
the government by the Federal
Reserve Banks. Boiled down this
means that banks have access to
a supply of non-interest bearing
currency which they can re-loan
and circulate or hold in reserve
while the interest bearing paper
is being held.
The eminent Senator, Carter
Glass, of Virginia, who was sec
retary of treasury during the
Wilson administration, is the
father of the Federal Reserve
Bank Act and he evidently had in
mind means of providing money
for banks with which to take
care of credit needs of their COM
nlunity or pay restless depositors.
As one would infer from the pre-
amble to the act it was supposed
to prevent depressions in that it
would function as above mention
ed. How well it succeeded we all
know and no one knows better
than the farmer its failure in that
capacity. On May IS, 1920 the
Federal Reserve board, which
dominates the policies of the IL
reserve banks, deliberately launch
ed a def1ationary plan by stop
ping the flow of credit currency
into agricultural sections. Farm
prices were then excessively hign
and it was the boards opinion
that danger lurked ahead unless
action were taken to reduce COM
modify prices. Within six months
every farmer who owed a bank
was told to act. The result is a
sad page in the history of Ameri-
can agriculture. AS result of
this rash action, farmers were
left without bank credit, country
banks were crippled and the
ground work laid for a financial
carnage that devastated the whole
agricultural community and final
ly the nation.
Once the farmers equity in
chattels was wiped out there re-
mained nothing on which to base
credit. The local bank could not
accept his note consequently the
country banks had no farmers
notes they could discount with the