II. FARM TENANCY AND ABSENTEE LANDLORDISM.

Farm tenures in Illinois. The proportion of farm tenants to farm owners has shown a steady increase in Illinois for some forty years.

The United States census for 1880 gave some attention to questions of land ownership and farm tenancy in the different states and the data collected at that time gave a higher percentage of tenants in Illinois than in any other northern state. Succeeding census reports left Illinois in the same relative position, showing a higher percentage of tenant farmers than any other state in this section of the United States.

In 1880 there were 23 tenants for every 100 farmers in the United States. In 1910 this percentage had increased to 37.1 per cent for the entire country.

In Illinois the proportion of tenants reached 31.4 per cent in 1880, and 41.4 per cent in 1910. At the present time conservative estimates place the number of tenants above 60 per cent for the entire state; and from 60 to 80 per cent for the rich lands in the corn belt. The most conservative estimates indicate that more than half the farmers of Illinois do not own the farms they cultivate.

When the proportion of tenant farmers exceeds 25 or 30 per cent under agricultural conditions in the northern states, there is occasion for inquiry. Where not more than one-fourth of the farmers are tenants, tenancy may merely represent the stage between agricultural labor and farm ownership. In many cases tenants are relatives of the owner, or the owner is a retired farmer who rents to some young farmer who is accumulating capital in order to purchase the farm later on. Under these conditions the average time spent as a tenant is about ten years and the average owner becomes an owner at about 35 years.1

Where tenancy represents merely a brief transition stage, from which the agricultural laborer or young farmer becomes the owner of the land he cultivates whenever he shows normal thrift and industry, there seems to be little cause for apprehension; but where tenancy becomes the average condition of farm life, the interests of the commonwealth are involved. Scientific investigation and common observation seem to unite in the charge that tenant farming results in smaller crops, in declining fertility of the soil, and in a lower standard of social welfare, wherever it becomes the dominant method of agriculture.

Various measures have been proposed to meet the growing problem of farm tenancy. Those most commonly urged include: 1. A state land settlement commission; 2. A graduated land tax with pro

1 See reference list for investigations made by Dr. B. F. Hibbard of the University of Wisconsin, and by Professor G. F. Warren of Cornell University.

gressive rates: (a) varying according to size of holding, and (b) with increased rates for owners who do not operate the land; 3. Inheritance tax with progressive rate for large holdings; 4. Equalization of taxes as between used and unused land; 5. Definite limit on amount any person may own; 6. Direct purchase and sale of land by government; 7. Provision for alternative investments.

State land settlement commissions are helping solve the tenancy problem in a number of states. Measures enacted in Maine, Oregon, and Arizona are typical of similar measures in force in different sections of the country.

The constitutional provision that taxation shall be uniform (Art. 9, Sec. 1) at the present time stands in the way of most of the measures urged for graduated taxes on large land holdings.

Section 1 provides that, "The General Assembly shall provide such revenue as may be needful 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."

The principle of progressive taxation is well established in this country in the income tax and the inheritance tax laws. It has been proposed that this principle be applied in taxing large land holdings.

Advocates of this plan propose that the smaller farms be entirely exempt from any graduated tax and that the sur tax should not begin to operate on any holdings not in excess of 640 acres. Others have suggested that the size of the holdings exempted should be placed as low as 480 or even 320 acres. On the other hand it has been urged that so small a holding should not be subject to the tax, as the general nature of agriculture in Illinois requires a farm varying from 80 to 320 acres to support a single family.

Others have proposed that a sur tax of 20 per cent be placed on all holdings over 640 acres, and that the rate of progression for farms over twice that amount should increase rapidly until the rate for large estates, such as the Scully estate, would become practically prohibitive. Such a provision would undoubtedly result in the reduction of many large estates into small sized farms.

A further proposition has been made to increase the rates for owners of large holdings who do not operate the land. It is urged that such a classification, based on the nature and use of the property, would not meet the constitutional objections urged against most of the proposals for breaking up large holdings.

It has also been urged that the principle of the graduated land tax be extended so as to be used in connection with the inheritance tax law. Undoubtedly many owners of large estates would elect to escape such a tax by disposing of part of their land in advance. If the rate of progression for the inheritance tax on large holdings were made higher than the rate for the graduated tax on land holdings it would result in giving a flexible margin to holdings. Under this proposal a large family, cultivating extensive lands, as a unit, would not feel

the weight of the graduated tax to such a great extent until the transfer of the holdings through inheritance.

The equalization of taxes as between used and unused land has further been proposed. This method of taxation is also prohibited at the present time by the Constitutional restriction as to uniformity.

Placing a definite limit on the amount which any person may own is another proposal sometimes urged. This method has been tried with some success in New Zealand. In general, the plan aims at the same result which would be secured under a graduated tax on large holdings, and it has been urged that a graduated tax would be more in keeping with the spirit of our laws and institutions.

A system which substitutes direct action on the part of the government in the purchase and sale of land to settlers has been effectively tried in a number of countries. In New Zealand this system has been advantageously operated in securing the settlement of the land by small holders. The government in New Zealand buys the land outright and sells it to small holders at the price paid. Provision is made for a low rate of interest and easy terms of payment. This system has been particularly useful in cases where the state desires to break up large holdings and estates into small farms owned and operated by farmers living on the land.

California has provided a land fund through which the state buys land in large holdings and resells it to small farmers on easy payments. This particular state found this method advantageous in the development of its small fruit farms.

It has further been urged that provision be made for alternative investments, so that funds now going into land investments might be turned into other channels.

This demand has been partially met by federal and state farm loan bonds. The first mortgage land bonds issued under the authority of the Federal Farm Loan Board, have opened a wide field to investors who have heretofore bought land as the only safe investment with which they were familiar. Since these bonds offer perfect security and a fair rate of interest, together with opportunity for long time investments, they will have a tendency to influence many investors against the accumulation of land. On the one hand this will result in land being offered for sale, and on the other hand it will withdraw a large group of land buyers. Giving small investors such alternative opportunities to invest their savings, would accordingly open a large amount of land to actual farmers.

Unless some positive action of this sort is brought to bear upon non-operating holders of land, the price of land in Illinois is likely to advance far beyond the value of its producing power. Even at the present time the effectiveness of a farm loan system in meeting the tenancy problem is largely discounted by the high cost of land.

Absentee landlordism in Illinois. The problem of absentee landlordism has been aggravated in the state of Illinois by a number of great non-resident holdings like the Scully estate.

Measures most frequently urged to meet the problems of absentee landlordism include: 1. Laws prohibiting the ownership of land by aliens; 2. A higher tax rate for non-residents.

Laws making it illegal for an alien to own land within a state have been enacted in a number of states. However, such laws have usually been circumvented by the acquisition of citizenship papers and fictitious residence in this country; such aliens becoming naturalized simply on account of the prohibition against alien ownership of farm land. There is the further difficulty that such a provision might be held objectionable under the federal constitution.

The proposal to tax citizens at different rates according as they are resident or non-residents within the state might also be objectionable under the federal constitution as being contrary to inter-state comity.

The purpose of both of these proposals is, of course, to break up large holdings for the use of actual farmers, who will own and operate the land upon which they live. It has been pointed out that this purpose could be just as readily secured under a graduated land tax; and that a classification as between operators and non-operators of agricultural lands could be made by any state without being objectionable under the federal constitution.

Under such a classification, land held for speculative purposes or large holdings held for occupation by tenants, could be taxed at a higher rate than land which is operated and improved by the owner.

III. SYSTEMS OF RURAL CREDITS: FIRST MORTGAGE SYSTEMS: FEDERAL FARM LOANS.

Since the enactment of the Federal Farm Loan Act July 17, 1916, a considerable number of National Farm Loan Associations have been organized within this State. By October 31, 1919, a total of 1,768 loans, aggregating $6,841,475.00 had been placed on Illinois farm lands through these Federal cooperative associations. The total for the entire United States, on the same date showed 103,672 separate loans aggregating $271,317,816.00. The total number of loans and aggregate amounts for states contiguous to Illinois for the same period were as follows: Indiana 2,440 loans and $8,234,700.00; Michigan 2,802 loans and $5,093,200.00; Wisconsin 1,884 loans and $4,455,800.00; Minnesota 3,256 loans and $9,921,100.00; Iowa 2,522 loans and $17,766,350.00; Missouri 2,682 loans and $7,223,050.00; and Kentucky 1,442 loans and $3,691,200.00. Contrasted with these Delaware had only 12 loans in all aggregating $24,500.00, the smallest number as well as the smallest aggregate for any State, while Texas had the largest number of loans as well as the largest aggregate for the same period amounting to 10,643 loans with an aggregate of $29,999,156.00.

The Joint Stock Land Banks, also provided for in the Federal act made additional farm loans amounting to $47,633,775.83 for the entire United States. Adding this amount to the total loans made through the Farm Loan Associations for the entire country, gives a sum total of $318,951,591.83 placed on farm loans under the Federal Farm Loan Board in a period slightly more than three years since it was established.

The present federal farm loan act is distinctly limited to first mortgage loans. Such loans involve little risk and therefore permit a low rate of interest and provide a safe basis for the issue of the farm loan bonds. The amortization plan of the federal law further tends to lower the amount of interest actually paid, and this process of paying off the indebtedness by installment payments of a fixed amount, which includes interest and a part of the principal, throughout a period of years, thus provides a regular source of capital for the payment of the farm loan bonds.

Briefly summarized, the purpose of the federal farm loan act is to provide capital for agricultural development and to create standard forms of investment based upon farm mortgages; or more specifically, as summarized by the Federal Farm Loan Board, "To lower and equalize interest rates on first mortgage farm loans; to provide long term loans with the privilege of repayment in installments through a long or short period of years, at the borrower's option; to assemble the farm