The Federal Farm Loan Act

I

ON December 2, 1913, in addressing Congress on rural credits, President Wilson said: ‘The farmers, of course, ask and should be given no special privilege, such as extending to them the credit of the government itself. What they need and should obtain is legislation which will make their own abundant and substantial credit, resources available as a foundation for joint, concerted, local action in their own behalf in getting the capital they must use. It is to this we should now address ourselves. . . . But we must not allow ourselves to depend upon extraordinary expedients.’

Secretary of Agriculture Houston said in his report for 1914: ‘The chief difference of opinion arises over whether there should be special aid furnished [to farmers] by the government. There seems to be no emergency which requires or justifies government assistance to the farmers directly through the use of the government’s cash or the government’s credit. The American farmer is sturdy, independent, and selfreliant. He is not in the condition of serfdom or semi-serfdom in which were some of the European peoples to whom government aid was extended in some form or other during the last century. He is not in the condition of many of the Irish peasantry for whom encouragement and aid have been furnished through the land-purchase act. As a matter of fact, the American farmers are more prosperous than any other farming class in the world. As a class they are certainly as prosperous as any other great section of the people; as prosperous as the merchants, the teachers, the clerks, or mechanics. It is necessary only that the government provide machinery for the benefit of the agricultural classes as satisfactory as that provided for any other class. It is the judgment of the best students of economic conditions here that there is needed to supplement existing agencies a proper land-mortgage banking system operating through private funds, just as other banking institutions operate, and this judgment is shared by the leaders of economic thought abroad.’

Secretary of the Treasury McAdoo, in a ship-subsidy speech delivered on February 4, 1915, before the United States Chamber of Commerce, commented on the loss of the government surplus lent to the states in 1837, and said: ‘Yet, gentlemen, when we cannot get a state of the American Union to pay its just debts to the government for money loaned to it, you ask us to stand for a proposition to lend money to private corporations or individuals upon the security of mortgage. Never on the face of the earth! And I tell you, gentlemen, if you ever enter upon it, you will have to lend it upon railroads and upon every other enterprise. Bills are referred to me asking that every conceivable sort of scheme be approved, submitting them for the judgment of the Department, for raids upon the United States Treasury in the form of actual loans to be made by the Treasury of the United States on this thing and that thing — farm loans, loans on houses built by workingmen, and so on. They are all entitled to consideration if we are going into the moneylending business. We shall have to lend it to everybody. You cannot discriminate under our system of government. Everybody must tap the Treasury till, if you adopt any such resolution as this.'

All this is sound doctrine, and since it was thus deliberately pronounced as a rule of action for the Administration by the foremost three of its leaders, nobody, of course, could have predicted the Federal Farm Loan Act. That such a law should really exist still seems incredible, not only because it violates every principle of this doctrine, but because it is unjustified by any emergency, except possibly that of a political campaign that is past. Congressman Caraway of Arkansas was one of its ardent advocates, but in a speech in November before the Farm-Mortgage Bankers’ Association he confessed that the need for it ‘ does not any more exist as formerly,’ that it is ‘full of defects,’ that ‘ they are not going to do any business [under it] in the South’; that it will produce ‘more tenants and absentee landlords,’ and that ‘it is very likely to be modified [in parts] or repealed, but as long as it exists it is going to be a serious menace to private capital.’ Then he added: ‘ I do not believe in the government’s going into private business of any kind, but this is one of the things it is going to do. To tell you the facts about the matter, to be right candid with you all, we were all hoping to be reëlected by our activities in this matter. [Laughter and applause.] The farmer is the greatest agitator in the country, and it is always customary near election for all of us to shed a great many tears over his condition. And we did it, and I am proud to say that I had no opposition myself to being returned [laughter] and most of the other gentlemen got back. And it is to be hoped that, if defects appear in the act, by remedying them we may prolong our political lives.’

To what extent such motives influenced the voting is not known, since no other legislator has been so frank as Mr. Caraway. It might be noted, however, that the act was passed only a few weeks before the political conventions in June. It was approved on July 17. The Federal Farm Loan Board was appointed during the same month. In August, liberally supplied from an appropriation of $100,000, the Board started its publicity work and began a tour throughout the country that continued during the campaign. No criticism or questions of doubt were tolerated at its numerous meetings. The thousands of members and officers of granges and other agricultural bodies, farmers, and persons interested in agriculture, who attended, were regaled only with the highest recommendations of the act. This must have had considerable effect on the elections, especially since the Board spread broadcast such statements as, ‘The act will attract vast numbers of our people to the farms who have been unable to engage in agriculture because it has been impossible to secure money on farm obligations’; ‘The hearings disclose interest rates ranging from five per cent per annum to five per cent a month’; ‘In every state visited, the industrious farmer of modest means but who can offer unquestionable security is unable to get farm credit on any terms’; and ‘In many states it was found that the farmer is never certain that he can get a loan, however good the mortgage security.’

These statements regarding adverse conditions would entail no exaggeration if they referred to credit sought for or extended on security other than real estate, or to mortgages finally exacted to secure such debts, which the farmers, in too many instances, have let run on and accumulate year after year. They would be true if they referred even to any kind of credit in sections remote from money centres before 1910, when the improvement of farm finance was first nationally agitated. But they referred to farm-mortgaging at present, the sole subject before the Board’s meetings, and their unmistakable intention was to create the impression that capital is now scarce and interest excessive for farm-land credit generally, irrespective of state, values, or person. Hence, the statements are flagrantly wrong, if the declarations and investigations of Secretary Houston, asserting and showing the contrary, are right.¹

But misstatements, misconceptions, and lack of information have characterized the rural-credits movement. Never before was legislation purporting to solve a great problem enacted with such ignorance or disregard of its essentials as to both fact and principle. Aside from a very able argument about legal points, the debate on the act was simply descriptive of its clauses and added nothing to the store of rural-credits knowledge. The other discussions in Congress were also mere descriptions of bills, not a few of which were plans formulated upon novel ideas for raids on the Treasury and taxpayers’ capital, or vamped up from the clutter of John Law’s Company of the West, the Massachusetts Land Bank and Manufactory scheme, and other vagaries of bygone days that were dumped into the trash-can in 1741 by the extension to the colonies of the British ‘Bubble Act.’ The teachings of history and the best precedents from foreign countries were ignored as a guide for modern thought. The most noteworthy exceptions were the first bills and speeches of Senator Fletcher and Congressman Moss; but these men changed their views without apology or apparent reason, and yielded to the pressure, not yet explained, that caused Congress to abandon President Wilson’s, Secretary McAdoo’s, and Secretary Houston’s original plans of individual initiative and private enterprise through concerted local action of the farmers, and to depend entirely upon extraordinary expedients.

So the Federal Farm Loan Act was finally placed on the statute books, with only twelve opposing votes in the House and none in the Senate, for the purpose of assisting actual and prospective farmers (foreign immigrants as well as citizens) by the use of the government’s cash and the government’s credit. on a gigantic scale and in a complex way, such as has never been attempted in any other country. Congressman Caraway’s answer to the manifest objection to selecting one particular industry for government favors was: ‘The farmer produces what you eat and what I eat, and what you wear and what I wear, and the cost of what we eat and wear is necessarily influenced by the interest rate that the farmer has to pay. If you cut down his rate of interest, everybody gets the benefit of it; and therefore it is not class legislation to enable him to get money at a lower rate of interest than anybody else engaged in private business.’ [Renewed and uproarious laughter.]

This answer has not satisfied the American Federation of Labor, whose two million members are probably soon to be augmented by all the trade-unionists in the country. This great organization evidently understood Secretary McAdoo to be sincere when he declared that our government cannot discriminate and that all must be allowed to tap the Treasury till, if anybody be accorded that favor. At its Baltimore convention (November 20, 1916), the Federation resolved, in substance, that deposits in postal savings banks be advanced to municipalities for the purpose of building model dwellings for their inhabitants; or, as an alternative, that the Federal government establish such a system of credits that the inhabitants of these municipalities may borrow money for long terms at low interest rates to build homes free of taxation, the resolution beginning and ending: ‘Inasmuch as the government has already established a rural-credits system for the benefit of the farmer . . . we believe it is an easy matter for the government to take such steps to relieve the working people in industrial centres of the insanitary homes that are now unfit for habitation.’

Thus the act has borne its natural fruit far more quickly than was anticipated. But the Federation is just and fair in its demands, if the Federal Farm Loan Act is to remain in force. Difficulties would be encountered, of course, in adapting it to conditions in the cities on account of their shifting centres, changing real-estate values, large apartment houses, and unstable population. However, the government must address itself to meeting these demands and difficulties, or else get out of the private business of lending money for agricultural purposes.

II

If this matter were taken to the people, the vote would undoubtedly be either for all or for none. What will Congress do — repeal the act or enlarge its scope? The probabilities are that Congress will do neither; but will make some much-needed amendments, and then rest in the hope that the act will be invalidated by the courts as unconstitutional, or be proved so ineffective and dangerous in operation as to become unpopular and little used. Such a hope would not be groundless, as an outline of the act wall show. The act, however, is not as exact or as concise as it might be. Indeed, it is susceptible of different meanings at important points. But its intent to subsidize rather than to finance agriculture is quite evident. In spite of an intricate arrangement, the system created is really managed by the Federal Farm Loan Board, and is designed to draw funds from the United States Treasury and to issue bonds backed by the government for granting loans to its beneficiaries at low interest rates.

The Board is composed of the Secretary of the Treasury, Chairman ex officio, and four members appointed by the President and confirmed by the Senate, and removable by the President. It forms a bureau at Washington in the Treasury Department for supervising, directing, and controlling a system that is to coverall continental United States except Alaska. In accord with the act, it is to divide the country into twelve districts and establish a federal land bank in each district. Besides these, the system will have such national farm-loan associations within each district and such joint-stock land banks, each with a territory of not more than two contiguous states, as the Board may charter, without limit as to number. The Board shall appoint one registrar and one or more appraisers for each district; also as many examiners, attorneys, experts, assistants, clerks, laborers, and other employees, as it may deem necessary. It need not observe the civil-service rules in appointing or dismissing this force. The registrars, appraisers, and regularly employed examiners are declared to be public officers.

The territory of a national farm-loan association may legally be coextensive with a district, but it will probably be small, since the Board is urging the division even of counties, and since no charter can be granted without the consent of the district federal land bank. The business of an association is to take farm mortgages from members, and to gather up current funds for the federal land bank of the district. The incorporators shall be ten or more natural persons, applying for loans aggregating at least $20,000. The capital is variable, consisting of five-dollar doubleliability shares, which may beheld only by borrowers admitted to membership. The administration is composed of five or more directors, a loan committee of three, and the usual officers, with a secretary-treasurer. All, except the latter, must be members and, consequently, borrowers.

The loan must in all cases be secured by first mortgage on farm land, situated within the territory, and can be made only for purchasing or improving such land, for purchasing equipment, fertilizers, or live stock for it, for liquidating the owner’s indebtedness incurred for such purposes, or for any purpose if the indebtedness existed before a charter was granted to any association for the county. However, the Board may define the words ‘ improvement’ and ‘equipment’ as it pleases. The amount shall not exceed one half of the value of the land plus one fifth of the value of all permanent improvements; nor shall one borrower be allowed more than $10,000 or less than $100. The maximum for interest is six per cent per annum, but it can never exceed by more than one per cent the latest series of the district Federal land bank’s bonds. The period shall be between five and forty years. Payment shall be by annual or semi-annual installments, with the right to make additional payments in multiples of $25, at any due date after the first five years.

The borrower must use the loan only for the specific purpose for which it was granted. He must, until the debt is paid, cultivate the land, and keep the premises insured to the Board’s satisfaction and free of all back taxes, liens, judgments, and assessments. If not paid, these shall become a part of the loan and, with any defaults, draw simple interest at the rate of eight per cent per annum. No loan shall be made unless it be approved by the association’s committee and by one or more of the government’s appraisers of the district, if it is to be offered to the federal land bank. The borrower also shall subscribe to one of the association’s shares for every $100 of his loan or major fraction thereof. For instance, the subscription on a $1,051 loan, would be $55. He may pay this in cash, or borrow it from the bank and have it added to the loan, provided the sum does not increase the size of the loan above the property’s maximum credit value. Preliminary expenses may also be added, provided they do not increase the loan above any of the prescribed limits.

If the property be sold, the mortgage must be foreclosed unless the land bank allows the purchaser to assume the borrower’s obligations on his shares and contract. In event of the borrower’s death, his heirs or representatives have only sixty days within which to assume these obligations. But this does not mean that they shall become members; there is a prospect, therefore, that the association will eventually be doing business with numerous persons who cannot participate in profits or management and who, as a result, will not be concerned with its success.

After being incorporated, an association may admit new borrowers to membership upon these same conditions by a two-thirds’ vote of the directors. Whether such a vote is required for additional loans to members already admitted is not clear. The borrowers’ obligatory shares constitute the minimum for the association’s capital — that is to say, five per cent of the original amounts of the mortgages; and this must represent cash until the loans are entirely paid off. There is no maximum, since the association may make loans to all qualified natural persons within its territory. Moreover, it may allow each borrower to subscribe voluntarily to as many shares as he pleases; at least, this seems to be implied.

An association desiring money for a member may obtain it from the federal land bank of the district by indorsing and guaranteeing the mortgage offered as security, and by contributing five per cent of the amount to the bank’s capital stock. Three fourths of this stock shall be paid in cash when the loan is granted; the rest may be retained by the association at a charge of six per cent per annum. Stock thus issued cannot be transferred or hypothecated, but may be retired at the bank’s discretion with the approval of the Federal Farm Loan Board. It shall be retired on full payment of the loan, when the association shall pay off and retire the corresponding shares of its own capital that were issued to the member.

An association may also obtain from the land bank what money it needs for its own expenses; such advances to draw six per cent per annum, but to be repaid only from dividends belonging to the association. It may retain one eighth of one per cent semi-annually on unpaid principal out of every interest payment on any loan indorsed by it; such sums likewise to be paid back only from dividends. Should these permissible favors be actually accorded to associations and their members, they would, of course, impair the capital stock, surplus, and working funds of the federal land banks and create a serious situation.

Besides obtaining money in these ways from the federal land bank, and through the issuance of shares, an association may issue deposit certificates bearing interest for no longer than one year at a rate of not more than four per cent per annum, convertible into bonds of any of the system’s banks when presented at the federal land bank of the district in multiples of $25. The deposits may be of any amount and come from any person, corporate or individual. They shall be forthwith transmitted to the said bank, which shall hold them for the association’s account, subject to check or otherwise, without interest, and shall invest them in such bonds or in farm mortgages. Some contend that the convertibility of the certificates is optional, and that the association may pay them off in cash, since the power to issue such evidences of debt implies the power to redeem them unless expressly forbidden. They also contend that, if certificates are not desired, the association may arrange in any other usual way for the withdrawal and compensation of the depositor’s money; the argument being that the power granted to accept deposits is a general one and includes both savings and ordinary deposits, since the act is not specific, exclusive, or prohibitive in respect to either kind, but leaves the matter for contract or for the by-laws which an association may make for regulating the exercise or enjoyment of any of its privileges. The whole question, however, has very little practical importance, because the bonds into which the certificates are convertible may be paid off and retired before maturity, while enormous amounts of them, in denominations of $25 or more, will eventually be constantly maturing. This will afford the banks and the associations ample means of paying off and retiring the certificates even on demand, should they wish to do so.

III

There is much ambiguity regarding the loan methods of an association, as the act does not specify whether the mortgages shall be executed to it or directly to the land bank. If the former is the case, then nothing would prevent an association from holding mortgages as an investment until repaid. It would have to resort to the services of the bank in investing deposits, but it could handle any other funds itself and use all profits for reserves and dividends. With regard to the federal land bank, however, the act clearly says that it cannot lend on farm mortgages, except through national farm-loan associations of its dist rict, until July 17,1917. After that it may also lend through banks, trust or mortgage companies, or savings institutions incorporated under state laws and approved as agents by the Federal Farm Loan Board. But the only loans lawful for it to take are of the kind already described, and, after the Board decides that its district has become organized, it shall again confine itself to the associations. Hence, the position of the agents will always be precarious. Moreover, other troubles might confront them, since they must guarantee the mortgages, while their borrowers must contribute five per cent of their loans to the federal land bank’s capital stock, without right to vote the shares or to demand their repayment. Such conditions would not be generally practicable for any class of agents mentioned, especially because of the longterm character intended for the loans. The outstanding guaranties of an agent may equal ten times its capital and surplus. They could not be made by savings banks or perhaps by ordinary banks, and would be illegal for all unless permitted by state laws.

So, if the system should need aid in addition to that of the twelve federal land banks and their associations, probably it may be supplied by the socalled joint-stock land banks. These are bond and mortgage companies, each with $250,000 or more of capital stock, which may be formed under the act by private investors with a view to profit. Nevertheless, they enjoy important special privileges. They may circulate bonds up to fifteen times the capital stock and surplus, at interest not exceeding five per cent a year. They may lend directly on farm land within their respective territories, without restriction as to purpose, use, or individual amount, and regardless of whether the owner be farmer or cultivator. It seems, however, that he must become a stockholder. In all but a few other respects, they must observe the rules for lending laid down for a federal land bank, except that the interest rate will be governed by their own bonds. But the act is vague in its provisions on joint-stock land banks; it will have to be amended before they can be considered as parts of the system.

Each of the federal land banks has a capital stock of $750,000, of which the government is required to supply any portion not taken by other parties. The shares are of five dollars each and non-assessable, with times and conditions of payment fixed by the Federal Farm Loan Board. They may be held by any individual, firm, or corporation, or by the government of any state or of the United States; but only the latter and national farm-loan associations may vote. Dividends cannot be paid on shares held by the United States. The bank is temporarily managed by five directors appointed by the Board. When the subscriptions of the associations equal $100,000, they shall elect six directors and the Board shall appoint three directors. These nine shall then take over the management. When their subscriptions amount to $750,000 the bank shall apply semi-annually one fourth of all subsequent subscriptions to the retirement of shares representing the original capitalization. The bank shall by its articles of agreement permit issues of new shares for the obligatory subscriptions of associations and borrowers. In addition, the Board may at its discretion authorize the capital stock to be increased for any reason it sees fit, or decreased to any amount above five per cent of outstanding bonds. Consequently the capital stock is variable, and the shares of investors are practically deposit certificates that may be paid for by installments and paid off at specified dates, if the Board so desires.

Such shares could alone supply every financial need, but they are not the sole dependence. A federal land bank may open branches within its district. It may receive deposits in any amount from the holder of just one of its fivedollar shares. Some say that the deposits cannot draw interest; but even were this so, the machinery is there and the doubt could be easily removed by a very slight change in the act. It may borrow money, free of any regulation as to amount, interest, or period. It may be allowed the temporary use of any funds in the United States Treasury not otherwise appropriated, provided the amounts which the Secretary of the Treasury may thus deposit shall not exceed $6,000,000 at any one time. Nobody seems to know what this remarkable clause means. It may issue certificates against such amounts, bearing a rate not to exceed the current rate for other government deposits, redeemable at the Secretary’s discretion. It may also issue bonds, equal to the full face-value of their collateral, bearing interest at any rate up to five per cent per annum, running for any period above five years, redeemable by their terms in gold or any lawful money, and without any limit as to the total amount so long as the capital stock is maintained at five per cent of the circulation. Each federal land bank shall guarantee, and it may buy, sell, or pay off at or before maturity, the bonds of the eleven others. Thus it may divert funds from its own to any other district.

The farm mortgages used as collateral for the bonds shall be valued by the government’s appraisers and deposited with the government’s registrar as trustee. The bonds may be issued in series of $50,000 or more, on authority of the Farm Loan Board. They must bear the certificate of its executive officer, or Farm Loan Commissioner. The bonds and the mortgages are expressly declared to be ‘instrumentalities of the Government of the United States.’ Consequently they are not based on land values or the farmer’s credit. They are based on the credit, good faith, and honor of the United States, and are the ultimate, if not the direct, obligations of the government. This is also the case with private joint-stock land banks, the only important difference being that their bonds shall not be certified by the Farm Loan Commissioner. The bonds of both kinds of land bank may be bought and sold by member banks and, with certain limitations, by reserve banks of the Federal Reserve system; and are lawful as security for public deposits and as investment for fiduciary and trust funds. The bonds and mortgages and all federal land banks and national farm-loan associations, including capital and reserve or surplus and income derived therefrom, are exempt from national, state, municipal, and local taxation, except taxes on real estate. The government must pay all the expenses of the bureau and the salaries of all its appointees and employees, and even the outlays for advertising. Nothing is omitted but the salaries of appraisers and the costs of preparing and delivering the bonds. The cost of the bonds will not be heavy, since they are to be engraved by the Secretary of the Treasury.

The Federal Farm Loan Board has been given judicial as well as executive powers over the system, with the right to settle debts or claims of any of its units, in the event of dissolution. The Board may call upon the AttorneyGeneral, the Secretary of the Treasury, and the Secret Service, for free advice, counsel, and assistance. Finally, by making an initial appropriation of $100,000, Congress has adopted the policy of supplying the Board with any money needed for establishing and organizing land banks and associations.

IV

Thus every source of funds, public and private, has been opened and every special privilege and other known method of extending government aid has been accorded. If there be an exception, it is that the Board has not yet the power to confiscate titles and forcibly to acquire lands for allotment and sale on credit to its beneficiaries. But agrarianism and the redistribution by law of all kinds of landed properties arc not improbable outcomes of this extraordinary system, in view of the pressure which the millions of trade unionists, combined with influential colonization societies, have now resolved to exert upon Congress. The farmers did not ask for this system, nor was there any general demand for it. They were on the way toward organizing and mobilizing their own resources, when this blow was struck against private enterprise and coöperation. They would have been satisfied simply by facilities for enabling them to utilize their own abundant and substantial credit. But after a feeble attempt at doing the right thing through a national law for bond and mortgage companies, politics seems to have prevailed and the solution of the problem fell into the hands of radicals and persons seeking to distribute immigrant aliens in rural sections at the government’s risk and expense. They accomplished their ulterior motives, in disregard of the correct principles of land credit and to the detriment of the average farmer of native stock.

The result is this system, which is neither coöperative nor purely agricultural, and which must inevitably have the extension foreshadowed by the resolutions of the American Federation of Labor. It is governmental, because, aside from other reasons, no bond can be issued except through the Federal Farm Loan Board, the Farm Loan Commissioner, and the government’s registrars and because no loan can be made except with the consent of the government’s appraisers and examiners. The right granted to the borrowers to elect the officers of the associations and the majority of the directors of the federal land banks amounts to nothing, for the reason that they could not manage the business even if they elected every director. So the only effect of the stock subscription is to impose a liability on each borrower for all the loans in a sum equal to ten per cent of his own.

The lack of promised coöperative features might be pardonable if the act had provided only for farm-mortgaging. But such is not the case. The federal and joint-stock land banks may use United States bonds, instead of farm mortgages, as collateral for their bonds; invest all their funds in United States bonds; or deposit all their securities and current funds subject to check with member banks of the Federal Reserve system at any agreed interest. The farm mortgages that the federal land banks may take are of a very restricted kind indeed. In brief, the act has established a tax-exempted and highly privileged government banking system for disposing of government securities and for aiding industrial and commercial enterprises. With its district banks, regional branches, and local agencies, it will place all banks and associations operating under state charters at a disadvantage; and yet, as a matter of law, it need not lend one dollar to a farmer.

Nobody can foretell what will constitute the major part of its business in the years to come; but a great proportion of its funds, on account of their withdrawable nature, can never be invested in long-term loans to individuals. The acceptance of deposits is not a proper function of a land-mortgage bank. The issuance of bonds and the pyramiding of debts against deposits or assets are dangerous rights for a savings institution. The purchase of United States bonds and the amassing of credits in the Federal Reserve system can serve no agricultural purpose. Subsidizing special interests is an injustice to the public. The mixing of government intervention with individual initiative and private enterprise is an absurdity because no private individual can compete, much less coöperate, with the United States. The system is a hodge-podge of blunders — wrong from any angle of vision. The wisdom and honesty of the Board, clothed with arbitrary powers, will be no more capable of avoiding its pernicious possibilities than was the common-sense of Congress effective in preventing its establishment.

This combination of government finance and farm finance defies every construction of the Constitution save the broadest. Congress cannot exempt a corporation from the taxing powers of the states or of their political divisions, except for discharging a federal government function. Farm-mortgaging is not such a function. The framers of the system, however, declare that this wall be its chief object, and they pretend that the land banks were authorized to be designated as depositaries and financial agents of the government, and that their bonds and mortgages were made the government’s instrumentalities, simply with the view of getting around constitutional objections. But the Supreme Court has said in regard to subterfuges of this kind and their use for a private corporation that ‘The casual circumstance of its being employed by the government in the transaction of its fiscal affairs would no more exempt its private business from the operation of that power [of the state to tax] than it would exempt the private business of any individual employed in the same manner.’ Moreover, the Court has even doubted that Congress has a right to establish or to privilege a company in any way ‘having private trade and private profit for its great end and principal object,’ or to delegate the power which it possesses under the Constitution, ‘ to borrow money on the credit of the United States.’

The system is liable to attack on all these points. The government cannot realize any pecuniary advantage from it directly. Although the government must pay all its overhead expenses and advance public funds to it at the lowest interest rates in any amounts deemed advisable by the Secretary of the Treasury, the government is expressly forbidden dividends on shares. On the other hand, the system may admit any qualified individual as a borrower or investor, and allow him to participate in all the profits, increased, as they will be, through the government’s management and bounties. The bonds and mortgages are means for borrowing money. Since they are declared to be ‘instrumentalities of the Government of the United States,’ they are not only morally, but legally, backed by the government’s credit. Consequently Congress ought at least to have specified the total that could be made. But, contrary to sanity if not to the Constitution, Congress has delegated to a bureau in the Treasury Department and to private individuals the power, not only to make these government instrumentalities, but also to involve the government’s credit thereby in unlimited amounts for long periods, without any restriction as to interest rate except five per cent per annum for the bonds and six per cent per annum for mortgages.

Furthermore, little groups of ten or more farmers, seeking cheap money for purely private purposes, may issue certificates at four per cent per annum which, although they are to be neither certified nor authenticated by public officers, must upon request of the holders, be converted into instrumentalities of the Government of the United States. Joint-stock land banks will be merely profit-making companies for private investors. This may also be said of the twelve federal land banks, since their stockholders and the majority of their directors are eventually to be private individuals. So nothing justifies the use of the free services, money, and credit of the government or the other special privileges made available for the system. Congress has sowed the wind; the country must reap the whirlwind now set brewing by the American Federation of Labor.