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amount of real estate as security for loans and do so; but, as every one knows, national banks are prohibited by law from doing this. As a matter of fact, national banks do take some land as security, and over one half of all banks reporting held farmers' personal notes secured by real estate. Such loans appear to make from 1 per cent to 10 per cent of the total. Sometimes, if a borrower has real estate notes they are put up in national banks, and although they are not pledged for security, it is understood that they are in the bank for that purpose. If a national bank has good customers who have real estate paper, it will frequently take their notes for collection on the understanding that when collected these notes will be applied on the payment of their obligations to the bank. Occasionally, too, national banks take a real estate loan -as collateral security when the maker of the land note has other property subject to execution and the land does not have to be depended upon for the liquidation of the debt. It seems that national bank examiners are familiar with this fact and that the practice has been tacitly sanctioned, perhaps to check lending without any security at all.

Such being the conditions surrounding farm credits, what is the interest rate? Here we find some discrepancy between the reports of the bankers and those given by the farmers. The bankers' returns, when averaged, give a rate of 10.07 per cent. The most common rate shown is 10 per cent. Their reports can be analyzed so as to distinguish long and short loans, and, when this is done, the long-time rate is found to average 9.3 per cent, while the short-time rate stands at about 10.8 per cent. In several counties the rate is clearly 8 per cent; but in others it is 12 or 15 per cent. About one third of the bankers indicated a maximum of over 10 per cent the legal rate!

On the other hand, the farmers' statements give an average interest rate on all loans of 12 per cent. Interest paid on large loans average 10.7 per cent; on small loans, 13 per cent. Examination of all loans of $50 or under shows an average interest rate actually paid by farmers of 15.6 per cent. The most common rate, however, is 11.1 per cent, arrived at by paying a nominal rate of 10 per cent, which, being deducted from the principal in advance,

'The Bureau of Statistics of the Department of Agriculture recently collected data from country banks on loans running from three to six months, and found the rate to be 10.03 per cent for Texas in 1912.

makes the actual payment on the cash received equal 10 per cent plus 1.1 per cent.

What has been written thus far, concerns the average run of ordinarily prosperous white farmers, mostly owners. In a state, however, in which 53 per cent of farmers are tenants, more weight must be given to the less prosperous tenant farmer.

To what extent do banks handle tenant loans? In the cotton counties, with but few exceptions, from 25 per cent to 75 per cent of the number of loans made to farmers by Texas banks are made to tenant farmers. The great majority report 50 per cent or more of loans to tenants. The more common percentages appear to be 50 per cent and 75 per cent. The percentage, of course, refers to number of loans, and the amount of loans to tenants would be a much smaller percentage-perhaps 5 per cent. Also, it is to be remembered that the data are mostly from small banks in small towns. The proportion of tenants who borrow from banks varies with the character of the tenants, being greatest in counties in which prosperous foreigners are numerous.

(1) The tenant farmer usually borrows simply to provide teams, implements, and supplies for making a crop-supplies for teams and family making the largest item. (2) The average tenant farmer hardly finds it necessary to borrow at any one time more than $500. In fact, his various separate loans are generally less than $100,-$50 and $75 being very common; and his aggregate borrowing during a year will run from $200 to $600. (3) Tenant farmers' loans are usually made in the winter or spring to be repaid the following fall or winter, and so average from seven to nine months. (4) As security, tenant farmers generally give a chattel mortgage on teams, stock, implements, and crops. Not infrequently they offer the personal security of the landlord or of some friend acceptable to the lender. (5) The statistics already cited concerning interest rates on small loans apply to tenant loans. In progressive cotton counties, tenant farmers with good standing and acceptable collateral can borrow from the banks at from 8 to 10 per cent. Otherwise, and in dealing with outside parties, they may pay from 10 to 30 per cent.

Store Credit and the Tenant Farmer

A majority of the tenant farmers find in the country merchant their chief source of credit; and store credit and crop mortgage arrangements form a dark place in the Texas farm credit system.

Virtually all negro tenants, and 75 per cent to 90 per cent of the white tenants, foreigners and the best black-land tenants excepted, regularly depend upon advances of credit from the local storekeeper for food, clothes, and various supplies, and give mortgages on their crops as security. Probably less than 10 per cent of farm owners are accommodated in this way, and the percentage of white tenants seems to be on the decrease in most sections. The nominal interest rate is always 10 per cent.

The system usually works as follows: At the end of the year those who have secured advances on a crop mortgage have little or nothing left. One of them will go to his merchant about February 1, and ask for credit until he can make a crop in the fall. The merchant will agree to extend a certain amount of credit in return for a mortgage on the prospective crops of the tenant and any other property which he may own-which is often nothing. Often the acreage in cotton is considered, and whites may be allowed about $5 an acre and negroes from $3.50 to $4.00. Generally, however, the amount is not formally figured in this way, but a maximum allowance per month is set, being about $30 for whites, and somewhat less for negroes. The amount varies with the community, and may run up to from $60 to $75 a month in a German community. As low a limit as $15 may be set. It depends on the character of the tenant and the number of his teams. The aggregate amount for the season, then, is the product of the monthly allowance and the number of months, say nine months. The character of the security is indicated by a crop mortgage form which accompanies the farmer's note."

'THE ABOVE OBLIGATION [the note] is given in settlement for goods, wares and merchandise furnished to..............by said..............for the purpose of enabling.............. to make a crop for the year 19..., and without which advances it would not be possible for...... ..to make a crop; and it is hereby agreed, in consideration of the premises, that the above amount, together with any further advances hereafter made to..............upon conditions herein named, are intended and shall operate in law as a perfect and bona fide LIEN upon all such crops, either CORN or COTTON ......as may be grown upon........farm......

COUNTY, TEXAS, the present year.

And upon default on........ ..part to pay the above described obligation when due, out of the first of the proceeds of said crops, it is agreed and understood that the said....... ......may enter upon the said premises and take possession of the said crops, or such portions of the same as may be sufficient in amount to discharge and pay off this obligation and such necessary expenses as may be incurred in collecting the same. This is the only encumbrance upon the above described crops.

WITNESS:..

This crop mortgage system is satisfactory to no one but the dishonest storekeeper-not all storekeepers are dishonest.' The interest is nearly always deducted in advance, and it is almost universally complained that the borrower is overcharged for his、 goods. If the farmer borrows $300 he gets only $270 in cash, and is given the worst bacon and flour at the price of the best. Once the mortgage is given, the tenant becomes the storekeeper's man; for he must depend on credit, and all his credit is pledged. He, or his trade at least, is regarded as the possession of the merchant who holds the mortgage on his crop. Then, at the end of the season, he is not infrequently virtually compelled to sell his cotton to the storekeeper, and as a result often fails to get its full value.8 The same is true of the farmer's other market produce, such as chickens and eggs. The total actual interest paid under such circumstances averages at least 20 per cent. On the other hand, the tenant is often a shiftless and unreliable person and the percentage of bad debts is high. Not unfrequently the merchant has to carry the farmer over for another year on account of crop failure. In this way a big sum of debt accumulates, and, in order to cut a long debt short, the tenant "pulls up" and leaves the country. All this is true, to say nothing of the social harm done by the continuous planting of a single crop (cotton) which the system demands.

Here some one asks, why do farmers ever go to storekeepers?] Why do they not get cash from the banks, and buy on a cash basis?

The reasons are numerous and cogent. (1) The banks do not like long loans and often refuse to make them; the tenant wants credit for nine months. (2) From August to January it is generally hard to get money at the banks; the tenant wants some one to run him through the whole year. This the storekeeper will do. (3) The banks do not want to make small loans; the tenant wants no other. (4) Too much security is required by the

'See Studies in Agricultural Economics, Bulletin of the University of Texas, No. 298, pp. 5-10.

"This statement applies as a general rule to the more ignorant classes only. In some cases the storekeeper actually offers a slight advance over the market price for the cotton as a premium to induce the farmer to sell to him, his reason being that by securing the farmer's cotton business he can secure payment of the mortgage obligations out of the price of the cotton. Of course, any such premium must be an expense of the business and ultimately be borne by the farmers.

banks; the tenant often has nothing to pledge that is not bought on time. (5) Banks generally will not take crop mortgage security. (6) This kind of credit business requires close local supervision, even to the extent of directing the tenant's farming operations in not a few cases, and such intimate knowledge and care the banks cannot give.

In a very real way, however, the country merchants act as the banker's agents in making crop mortgage loans, the business being farmed out to them, as it were. From 5 per cent to 20 per cent of the loans of many Texas banks are made to country merchants, such loans being "largely" or "almost entirely" used to carry farmers on crop mortgage security. The interest paid is usually 8 per cent. As security, the merchants endorse and turn over to the banks the farmers' notes and crop mortgages. They do not, however, receive dollar for dollar on such security. In this way, indirectly, the banks carry a larger part of tenant farmers than would at first appear to be the case.

About two thirds of the sales made by hardware and implement dealers to Texas cotton farmers are on time to be paid out of the cotton crop in the fall. The credit price is higher than the cash price by an amount which varies with the interest rate but which may safely be put at 10 per cent. In the case of unreliable farmers and tenants, a mortgage is taken on the article sold and the purchaser gives his note.

The Landlord as a Source of Credit

It is probable that in most parts of central Texas over 90 per cent of those tenants who owe the store are also indebted to their landlord for larger or smaller advances. Storekeepers, as such, only give credit on food, supplies, implements, etc., whereas cash or its equivalent is often needed for mules, feed, and other current expenses. The landlord is practically always involved in supplying this cash. He may make small cash advances in a bad season; and he often sells his tenants teams and feed to be paid for out of the crop. But for larger cash advances the practice is not uniform. In the bottoms of the Brazos and Colorado, and in a few places in the "black-land belt," there are large "plantations" whose owners prefer as a rule to "accommodate" their own tenants rather than to "stand for" them with the bank or other lenders. This gives them greater control over their tenants, and unscrupulous landlords may make larger profits by charging high rates. To

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