III. SYSTEMS OF RURAL CREDITS: FIRST MORTGAGE SYSTEMS: FED- National Farm Loan Associations... .1089 .1090 Capital stock of national farm loan associations......1092 Farm loans made by the joint stock land banks. .1101 I. SUMMARY. The provisions of the present state constitution directly involred in the problems of farm tenancy and rural credits include: Prohibiting the state from loaning its credit. Forbidding the state to engage in banking. Requiring taxation to be uniform. Art. 4, Sec. 20. Art. 11, Sec. 5. Art. 9, Sec. 1. The restrictions as to banking activities of the state and the loaning of the state's credit read as follows: Art. IV, Sec. 20. "The state shall never pay, assume or become responsible for the debts or liabilities of, or in any manner give, loan or extend its credit to, or in aid of, any public or other corporation, association, or individual"; and: Art. XI, Sec. 5. "nor shall the state own or be liable for any stock in any corporation or joint stock company or association for banking purposes now created, or to be hereafter created." These limitations have prevented the organization of cooperative credit associations backed by the credit of the state. Whatever organizations have been created under the authority of the state to meet farm loan needs in Illinois have been fostered by private capital. The section requiring taxation to be uniform reads: Art. IX, Sec. 1. "The General Assembly shall provide such revenue as may be needed by levying a tax, by valuation, so that every person and corporation shall pay a tax in proportion to the value of his, her or its property in such manner as it shall from time to time direct by general law, uniform as to the class upon which it operates." This limitation stands in the way of a graduated land tax on large holdings, a system of taxation that has been advocated as a means of breaking up large estates. Those who favor this method of taxation urge that it would have a tendency to discourage the holding of land for speculative or tenancy purposes, and so bring about the condition they desire-the farming land of the state owned by those who cultivate it. While the aim of a graduated tax is to limit the amount of land that can be held by a non-operating owner, the purpose of farm loan systems is to furnish positive help to actual farmers in securing small farms. The problem in rural credits is how to develop measures that will bring together the person who has money to lend and the young farmer who wishes to establish a home. The credit systems so far developed have generally made provision for cooperative farm loan associations and land banks, supplementing each other in such a way that the land banks may make the loans to the borrowers and issue their bonds or debentures to the investors. In this way the land bank serves as an intermediary between those who desire to borrow and those who desire to lend on security based on agricultural land. The various systems of rural credits may be grouped under first mortgage systems, second mortgage systems and systems for short time credits. The federal rural credit system is a first mortgage system exclusively; it functions through the instrumentality of the national farm loan associations, (or in their absence through duly authorized agents) the federal land banks and joint stock land banks. These various agencies are organized in such a way that each farmer who becomes a member of a farm loan association may receive the benefit of the combined credit of all its members to the extent of the capital contributed and the limited liability they each incur. The federal system operates exclusively on the amortization plan. The federal farm loan system was enacted after a thorough consideration of the various foreign systems of rural credits, and the first mortgage plan was adopted on the theory that the land mortgage bonds must be carefully secured so that they might have a ready sale throughout the country. It has been urged that a system based on second mortgages could be advantageously developed within the limits of a single state where land values are high and conditions are stable, but most of the states so far have duplicated the federal plan, although it is urged that a large field for second mortgages remains unoccupied. A system of short time credits in the form of personal credit cooperative unions has been proposed in order to supply credit for cooperative marketing organizations. Cooperative selling systems as well as plans for cooperative buying on the part of the farmer might be developed under a well devised system of personal credit unions under the supervision of the state. Those who advocate the establishment of a state rural credit system claim that neither the federal system of rural credits nor the private agencies within the state are adequate to meet the situation in Illinois. On the one hand it is urged that the state system could be operated to advantage in competition with the federal system; on the other hand it has been suggested that a system based on second mortgages would be more advantageous, as such a system could supplement the federal first mortgage system. How may the farm loan needs of the state of Illinois be most advantageously met? What are the relative merits of the several rural credit systems so far developed, and does the experience of other states and other countries offer any suggestions for the farm loan situation in this state? The constitutional provisions and legislative measures presented in the following pages may furnish some data toward a solution of the problems under consideration. |