money gives a mortgage on his farm to the association. The association then indorses the mortgages received from its own members and sends them to the Farm Land Bank of the district. The Farm Land Bank then advances the money to the Farm Loan Association, and the association in turn advances the money to each of the farmers.

When the Farm Land Bank has a sufficient number of mortgages transferred to it in this way, it may deposit these mortgages with a custodian appointed by the Farm Loan Board, and it is then empowered to issue bonds to an equal amount and offer these bonds for sale to the general investing public. With the money received as the proceeds of these sales of bonds it may buy more mortgages from the local Farm Loan Associations within the district. On the basis of these new mortgages it may issue more bonds, and so on till its outstanding bonds equal twenty times the capital of the Farm Land Bank.

Authority as shown in the chart proceeds from the Farm Loan Board to the Farm Land Bank, and from the Farm Land Bank to the Farm Loan Association. The mortgages are passed in the opposite direction, — first, from the individual farmer to the Farm Loan Association, then from the Farm Loan Association to the Farm Land Bank, and, finally, from the Farm Land Bank to the Farm Loan Board. The money proceeds, in exchange for bonds, from the individual investor, who is a part of the general public, to the Farm Land Bank, which in turn forwards it, in exchange for mortgages, to the Farm Loan Association, which finally passes it on, in exchange for mortgages, to the individual farmers.

The fundamental advantage of this system is that it greatly increases the supply of loanable capital which is available for the farmer borrowers. When the farmer has to borrow directly from the general public, giving a mortgage as security, only a small fraction of the people who have money to lend or invest are in a position to take his mortgage. Each mortgage requires close inspection, not only as to the value of the property

mortgaged, but also as to the laws of the state, the form in which the mortgage is drawn, and a number of minor details. Only a few are expert enough to make this inspection. The inexpert investors must look for investments which do not require such close inspection. But under this new system anyone, however inexpert, who has a little money to lend or invest can as safely buy a bond of a Farm Land Bank as any other form of security. This will put at the disposition of the farmer borrower a vast fund of loanable capital from which he was formerly shut off completely.

CHAPTER XXVI

MARKETING

One very important topic under the general subject of exchange is that of marketing. This has to do with the actual process of finding buyers for that which has been produced, or, in more abstract terms, with the bridging of the gap which separates producer and consumer.

Essentials of successful marketing. There are four essentials to the easy and successful marketing of any commodity. In the first place, it must be of good quality, that is, of the quality which is desired by the buyers. In the second place, the product must be so graded or standardized that the buyer can buy it without inspection. The buyer of a farm product, for example, who must inspect it in order to test its quality, must necessarily waste a great deal of time and energy in the process. Time and energy are expensive. In order to save his time and do a large business at the minimum labor cost, he must insist on buying such products as have been graded and standardized so that he can order by grade and without inspection. In the third place, the product must be in some way stamped or branded, and the stamp or brand must be safeguarded as carefully as a banker would safeguard his signature or the government its seal. Any individual or association which permits inferior or ungraded products to go under its stamp or brand must eventually suffer loss; the reputation of the stamp or brand will be destroyed, and buyers will thereafter place no confidence in it. In the fourth place, the public must be educated as to the meaning of the grades and standards, and the stamps, brands, or trade-marks, in order that it may be aware of the desirability of buying without inspection, and of the possibilities in that direction.

318

Unless the producers themselves will undertake to do these four things, the consumers will never consent to buy any large proportion of the product directly. The consumer will insist on saving his time, even at the loss of some money in the way of higher prices. The producer will not be able to get the advantage of those higher prices, and there will be a considerable spread between the price which the producer gets and that which the consumer pays. This spread will be absorbed by those middlemen who buy the ungraded, nondescript products directly from the producers, in a form in which the consumers do not generally want them at all, and then put those products into such forms as will satisfy the consumers.

Special difficulties in marketing farm produce. The marketing of farm products is the least organized and probably the least efficient part of our whole marketing system. This is probably inherent in the very nature of agricultural production. From the standpoint of production the advantages appear to be very definitely on the side of the small producer. A small farmer, being able to produce more economically than the large farmer, continues to hold the field. But he is at a peculiar disadvantage in the marketing of his own produce. Even if he were able to grade and standardize his produce, the difficulty of educating the public to the meaning of his brand would be insuperable. He has so little to sell that the cost of advertising would eat up the profits. To put it in another way, the public would soon become bewildered if every one of the millions of farmers of this country tried to create a special market for his own individual products.

From the standpoint of marketing, the bonanza farmer has a great advantage. In some cases, that is, in the production of certain agricultural specialties, such as fancy fruits and vegetables, breeding animals, and race horses, this advantage in marketing is so great as to more than balance the disadvantage in production. This is probably due to the nature of an agricultural specialty. The great staple crops, on which the

world must in the main be fed, are not so difficult to market as are specialties. In the production of these great staple crops the advantage will remain probably on the side of those who can reduce the cost of production to the minimum, rather than on the side of those who can market most effectively. But in the case of agricultural specialties, where marketing is more difficult, the advantage will probably remain on the side of those who can market effectively rather than on the side of those who can reduce the cost of production to the lowest point. The large producing unit can do its own grading and standardizing, can adopt its own trade-mark or brand, and can advertise more effectively than the small producing unit. This will probably keep the production of agricultural specialties in the hands of large producers, at least for some time to come. The only chance which the small farmer will have in the field of agricultural specialties is through coöperation.

Coöperative marketing. It will be observed that there is very little coöperative farming in this country or anywhere else. There is a great deal of coöperation among farmers, especially in European countries; but this coöperation is really coöperative marketing. The farm as a productive unit is managed independently and separately, but the products of a great many farms are marketed coöperatively. This gives the double advantage of economic production in small units and efficient marketing in large units. On the whole, it looks like an ideal arrangement.

This distinction between production and marketing will throw light on certain problems in business organization outside of agriculture. The so-called trust is primarily a marketing organization rather than a producing organization. A large number of independent companies, operating independent factories, join together for a common management. This may result in some reorganization of the work of production, but in the main it works a reorganization in the methods of selling the product, of buying the raw materials, of hiring labor, or of bargaining for transportation. It is probable that some economies