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The Rise of the Public AuthorityStatebuilding and Economic Development in Twentieth-Century America$

Gail Radford

Print publication date: 2013

Print ISBN-13: 9780226037691

Published to Chicago Scholarship Online: September 2013

DOI: 10.7208/chicago/9780226037868.001.0001

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The Creation of the Federal Land Banks

The Creation of the Federal Land Banks

Chapter:
(p.41) TWO The Creation of the Federal Land Banks
Source:
The Rise of the Public Authority
Author(s):

Gail Radford

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226037868.003.0003

Abstract and Keywords

This chapter describes the origins of the Federal Land Banks, established by Congress in 1916 to provide a national agricultural credit system. The land banks pioneered, at the federal level, an organizational model for fiscal freedom. As with the fleet corporation, the aspirations of the program's designers do not correspond with the imperious motives generally ascribed to the Progressive Era state-builders who pioneered the public authority template. In fact, the intentions of the sponsors were quite the opposite. The land banks as proposed, and even as originally established by Congress, had large elements of local self-governance, akin to co-ops, but this democratic component evaporated in the course of implementation and revision.

Keywords:   agricultural credit system, land banks, fiscal freedom, public authorities

The Federal Land Banks, established in 1916, were set up to provide low-interest, long-term loans secured by agricultural property.1 Created during the same period as the Emergency Fleet Corporation, the land banks manifested the second of the two basic features that would come to distinguish public authorities from conventional government agencies: the ability to raise funds without having to seek legislative appropriations beyond those given for startup. Whereas the history of the fleet corporation shows how these types of agencies acquired administrative independence from democratically accountable parts of government, the story of the land banks demonstrates how these mechanisms gained economic independence. The financial autonomy of these administrative tools would prove to have significant implications. It put public officials in the happy position of being able to initiate new activities without having to ask the electorate for more taxes or authority to borrow. At the same time, financial autonomy restricted the control public officials and the electorate at large were able to wield once these institutions were established. Given the limited accountability of agencies that use the self-financing methodology of the land banks, it is surprising to recall that the banks actually began as an effort to give citizens more control over the conditions of their lives.

As with the fleet corporation, the early history of the land banks runs counter to conventional narratives about the origins of public authority– type agencies. Those responsible for designing the banks were not attempting to insulate experts from political pressures or to bring commercial values into the public sector. Quite the opposite. Senator Henry F. Hollis of New Hampshire and Representative Robert J. Bulkley of Ohio, who drafted what became the Federal Farm Loan Act, were seeking to create mechanisms by which the federal government could facilitate public goals (in (p.42) this case access to low-cost credit for agriculture) without resorting to the time-honored practice of subsidizing for-profit businesses. They envisioned banks managed by the very people who would benefit from them. The lawmakers were guided by their previous experiences experimenting with ways of extending consumer credit to low- and moderate-income people, beliefs about the value of cooperative and not-for-profit enterprises that were popular at the time, and ideas about how to construct programs that combined decentralized management with centralized control that they developed while helping design the Federal Reserve system.

As with the fleet corporation, the land banks turned out differently from the vision of the instigators. Hollis and Bulkley’s hopes for a federally initiated program run by the beneficiaries themselves would be disappointed. Too many powerful actors did not share this vision, and in fact harbored very different views about why and how to reform agricultural finance. Opposition forces gained traction when unforeseen events—war, depression, and a lengthy court challenge—battered the banks in their infancy. Underlying everything else were the usual difficulties faced by not-for-profit enterprises trying to stay afloat within the very different framework of the larger American economy.

Despite the eclipse of important features of the original conception, these institutions had long-range consequences. They pioneered the use of bond sales, as opposed to direct government spending, as a way to fund activities defined as being in the public benefit. They also initiated a methodology the federal government would employ to reorganize financial markets in other sectors that were deemed not to be operating effectively, most notably residential real estate. Perhaps most crucially, they represent a key moment in the evolution of public authority mechanisms because of the fact that they survived a constitutional challenge to their legitimacy (and by extension, the legitimacy of later versions of this type of agency), albeit on narrow, technical grounds that allowed them to exist, but without the Supreme Court’s explicit acknowledgment of the government’s right to intervene directly in the economy in support of public goals such as fairness or balanced growth.

Dissatisfaction with American Agriculture

Although poor access to credit had been a bane of rural existence since colonial times, it was not until the early twentieth century that the “rural credits” issue emerged on the front burner of the national political agenda.2 During the presidential campaign of 1912, the Republicans, Democrats, (p.43) and Progressives all pledged in their party platforms to improve the financial system for agriculture.3 The following spring, newly elected President Woodrow Wilson promised in his inaugural address that one of his chief priorities would be to help secure “facilities of credit best suited to [agriculture’s] practical needs.”4 Over the next three years, members of Congress introduced dozens of bills that aimed to solve the problem.5

Once it became clear that some kind of agricultural credit legislation was in the offing, farm organizations mobilized to affect the outcome. Contrary to what has most often been assumed, however, it was not agitation by these groups that forced the issue into the national spotlight. For example, in 1911, the National Grange’s list of national legislative priorities included such items as improved roads, a national income tax, a system of international arbitration to prevent war, and opposition to subsidies for shipping lines. In all, the Grange put forward eleven goals for Congress, not one of which touched on getting the government to make farm-mortgage loans more available or cheaper.6 Early in 1912, the Farmers’ Union, the other major farm organization in this period, urged members to contact their congressmen and senators about their feelings on four questions: speculation on agricultural futures, parcel post legislation, direct election of senators, and immigration restriction.7 Clearly, credit was not a high-profile issue for farmers at this time.

The indifference of farmers cannot be traced to satisfaction with a well-functioning financial system. Rural banking facilities continued to suffer from the same structural inadequacies that had plagued them for decades. With regard to short-term credit needs, the issue was the unfortunate interaction between the character of these small local institutions and the process of agricultural production. Banks in agricultural areas drew their deposits from the surrounding community, which meant that their funds ebbed at exactly the same time of year that farmers most needed to borrow for the coming planting season. Longer-term loans were an even more difficult proposition. These small institutions simply had very little money to lend at any time. As a result, they could rarely afford to tie up their limited capital by making mortgage loans on farm property for periods longer than three to five years. Since investments in agriculture took considerably longer than this to pay for themselves, farmers were caught in an endless cycle of renegotiating loans. In the best-case scenario, this meant constantly paying new fees for new loans. In the worst case, it meant foreclosure.8

The underlying problem was that farmers were not connected to national or even regional capital markets, because rural banks had no standardized and trusted security instruments to offer lenders who lacked first-hand (p.44) knowledge about a specific piece of property. To access funds from outside their locality, farmers had to work through brokers, which drove up costs. In general, credit from whatever source was more expensive the farther one went from the country’s financial center. In the early twentieth century, farmers in the South and the West paid as much as 10 percent interest for credit, once commissions were included, while farm owners in the Northeast were paying between 5.5 and 6 percent.9

As the foregoing makes clear, the lack of grassroots agitation for agricultural credit reform cannot be explained by a lack of grievances with the status quo. Instead, apathy on the credit question stemmed from the comfortable situation in which farmers found themselves in these years. Not only had the long years of worldwide deflation of the late nineteenth century finally abated, but price levels were actually increasing. Farm families were at last enjoying the inflationary conditions they had urged the government to consciously engineer during the Populist political uprising of the 1890s. Prices for food and land were climbing particularly quickly. Between 1900 and 1910, the overall consumer price level rose by 25 percent, while wholesale prices for agricultural commodities increased by 50 percent.10 During this same period, prices for agricultural land more than doubled for the country as a whole, with the increase much higher in many regions. In parts of North and South Dakota farms were selling for three times what it had cost to buy them.11 As a result, farmers were being treated to a pleasing combination of cheaper money (making it easier for them to pay back loans) and higher incomes. Meanwhile, they saw the value of their major asset, land, increasing sharply. Little wonder that in this period American farmers were paying more attention to threats to world peace than to the difficulties of borrowing money!

Rather than emanating from farmers, the campaign for rural credits was orchestrated by a disparate assemblage of business figures, academics, journalists, and politicians who were committed to reshaping American agriculture along industrial lines. This group blamed the high cost and poor terms of farm mortgages for everything from low crop yields, out-migration of population from the countryside, increasing rates of tenant farming, and even the “social disorganization” that they maintained was plaguing rural areas. Most crucially from the standpoint of business figures, the inability of farm owners to mobilize the capital they had invested in land through well-functioning mortgage markets kept them from being able to purchase the machines and chemical fertilizers that would raise crop output.12

What gave this critique broad resonance was the contemporary surge in food costs. As historian Meg Jacobs has shown, the price of consumer (p.45) goods became an increasingly politicized issue in this rapidly urbanizing era. Food was a particular flash point, as it constituted such a large share of the overall cost of living, particularly for people with modest incomes. In this period blue-collar and low-salary white-collar city families were spending approximately 40 percent of their income on groceries.13 The implication of the arguments being made by agricultural reformers was that it would be in the larger public interest for farmers to produce more, thereby bringing food prices down. But by the early twentieth century, expansion of agricultural production in the United States could no longer be achieved primarily by bringing new land into cultivation, as in the past. Increasing output would require new methods and more capitalization to be able to employ them.

The reformers had a point. The American agricultural sector was not particularly productive in this era. Few farmers outside of the eastern states used fertilizers or practiced crop rotation to increase soil fertility, and crop yields in many regions had actually been dropping since the beginning of the century.14 Nevertheless, American farmers found the case that they were at fault less than compelling. Mrs. Edith Elliott, president of the Pennsylvania Rural Progress Association and a farmer herself, explained the farmers’ position to urban readers in a special 1913 issue of the Annals of the American Academy of Political and Social Science devoted to the causes and cures of the high cost of living. According to Elliott, a bushel of beans, for which Florida farmers were paid only slightly more than two dollars, was routinely sold to consumers in distant markets for well over three times that much. Her point was that wholesalers and transportation costs were soaking up a much greater proportion of food costs than producers.15

A similar pro-farmer analysis was put forward by James Wilson, the long-serving secretary of agriculture, who had been in the job since the McKinley administration. Secretary Wilson told the press in 1910 that studies by his department comparing wholesale and retail prices demonstrated “that the retailer is the man who has been boosting the prices.” A good part of the problem, he said, stemmed from simple inefficiency, such as an overabundance of small grocery stores. The blunt-spoken secretary also made it clear that he believed that many food distributors were illegally colluding to keep prices up, although he disavowed responsibility for following up on such suspicions on the grounds that he had no specific grant of authority to prosecute violations of the Sherman Antitrust Act.

Despite his criticisms of the food distribution industry, Secretary Wilson hardly viewed consumers as innocent victims. Their lack of initiative and demands for locally out-of-season foods were significantly to blame for (p.46) driving up costs, according to the crusty secretary. A proponent of self-help, he looked back nostalgically to the days when he “was a boy living on a farm in Vermont [and] we went about among those living in the towns and villages taking orders for all the stuff we produced.” Given that Wilson was born in 1835, living patterns had changed considerably since the childhood he so fondly recalled, a fact he seemed to recognize, if regret. In a more practical vein for the era in which he now lived, he described efforts by employees in his department to establish a consumer cooperative in Washington, DC, for bulk purchasing of groceries.16

Whatever was causing food prices to rise, farmers were not inclined to make radical changes in their standard practices at a time when their incomes were increasing. Understandably enough, the prospect of producing more for less failed to galvanize the nation’s farmers. However, for practically everyone else in this period of rapid urbanization, overall inflation, and the high cost of food, the prospect had tremendous appeal.

European Models and Cooperation

President Theodore Roosevelt’s Country Life Commission demonstrates the way in which concerns about food costs came to be linked with a critique of the agricultural credit system. Roosevelt, who told Congress in his 1904 annual message that the health of American manufacturing depended “primarily on cheap food,” convened a panel to study conditions in rural America. Liberty Hyde Bailey, dean of the College of Agriculture at Cornell University, chaired the commission, which consisted almost entirely of academics, journalists, and government officials. The one exception was Charles S. Barrett, the president of the Farmers’ Union, who was added after the membership was first officially announced (presumably as a last-minute effort to include at least one person linked to actual farmers).17 The Country Life Commission turned in its report early in 1909, just before Roosevelt left office. Among the discouraging features of contemporary rural life reported by the commissioners was the “lack of any adequate system of agricultural credit.” They pointed to European cooperative credit organizations as possible models for emulation, describing approvingly how “in other countries credit associations loan money to their members on easy terms.”18

Over the next several years, the success of European cooperative credit facilities in channeling low-cost capital into agriculture was publicized by influential mainstream organizations, including the National Monetary Commission, chaired by old-guard Republican Nelson Aldrich; the American (p.47) Bankers’ Association; the U.S. State Department; and the Southern Commercial Congress.

All gave particular attention to the German Landschaften, described by one analyst as “public corporations under state supervision.” These not-for-profit organizations were comprised of farmers who wanted to obtain long-term loans collateralized by their property. Funds to make the loans were obtained by issuing bonds secured by pools of farm mortgages. The Landschaften had been in existence for over a century, and during that time their bonds acquired a high reputation for safety based on three distinctive aspects of their operations: the members of each association assumed unlimited liability for every bond issued; each association’s business practices were scrutinized by government officials; and loans were amortized. The last feature meant that borrowers paid off principal along with interest during the life of the loan. Amortization made it easier for borrowers to discharge their debt, which benefited investors, because such loans were less risky. Landschaften bonds were considered so safe that they attracted capital at interest rates in the range of 3.5 to 4 percent, comparable to what German cities paid on municipal bonds. In one telling example of the prestige these organizations were acquiring in the United States, President William Howard Taft, on the eve of the election in 1912, distributed a report to the governors of all the states specifically recommending “the formation of cooperative mortgage-bond societies along the line of the Landschaften societies of Germany.”19

Of all the efforts to build support for the idea that the federal government should organize a national agricultural credit program in the United States, the most extensive and effective was the campaign undertaken by the Southern Commercial Congress led by Florida senator Duncan U. Fletcher. In the spring of 1912, Senator Fletcher led an overseas study tour of seventy official delegates (joined by dozens of staff and family members), representing twenty-nine states, the District of Columbia, and four Canadian provinces, to learn about European agricultural practices. Once abroad, tour members fanned out for three months, interviewing leaders of agricultural cooperatives, bankers, and government officials all over Europe, with some of the more energetic venturing as far as Russia and Egypt. 20 On their return, participants waxed enthusiastic about all they had learned, particularly with respect to better methods of capitalizing farmers. An executive summary of their nine-hundred-page official report noted that only thirty years earlier European agriculture had been in a “bad way.” The opening of vast new tracts of land in the American Great Plains and South America had all but decimated the European farm sector. Yet in the space of a single (p.48) generation, European farmers had become prosperous. According to the American observers, the transformation had come about because of “education and cooperation.” Farmers had “formed a habit of doing collectively what [they] had been doing singly and alone.”21

The fervor of American business leaders for cooperative enterprise can seem perplexing until we recall the amorphous quality of the cooperative idea. Popular throughout Europe, the United States, and Canada by the late nineteenth century, the concept had no settled meaning. Cooperation, in the words of Daniel Rodgers, was “unstable at both its socialist and capitalist edges.”22 American business leaders grasped the capitalist edge. According to the Southern Commercial Congress, cooperatives were basically “groups of individual units,” that represented “a more profitable way of doing business than the old way of every man for himself.”23

The capitalist appropriation of cooperation can be seen in the thinking of Benjamin Franklin Harris, a leader in the movement to get farmers to “apply business principles.”24 A past president of the Illinois Bankers Association, who would go on to edit the agricultural finance newsletter of the American Bankers Association, Harris spoke to the Chicago Bankers Club in 1912 about “Problems of Rural Life from the Banker’s Standpoint.” A major stumbling block to progress, he informed his audience, was that farmers did not think in collective terms. In the same breath that he bemoaned the lack of “co-operation” among farmers, he complained about the dearth of “money saving combinations” in the American countryside. For Harris the concept of cooperation had to do with melding atomistic family-owned farms into larger economic units capable of holding their own in an environment increasingly dominated by large corporations. His message was that bankers needed to take the lead in this effort, as farmers seemed content to continue with their long-standing methods. Rhetorically he asked his banker audience, “Who is a better, abler, friendlier aid” to the farmer? Answering his own question, he told them it was “the banker—the farmer’s big brother.”25 Clearly, the kind of cooperation envisioned by Harris was something different from the noncommercial, democratically run enterprises so often associated with the idea of cooperation.

Rural Credit as Part of National Financial Reform

To appreciate why rural credit reform acquired so much momentum in this period, the campaign needs to be viewed as part of the larger movement then under way to upgrade the country’s overall financial architecture. The subject of national financial reform had been under discussion ever since (p.49) 1893, when the banking system seized up and pitched an already weakened economy into full-fledged depression. But it took the panic of 1907, an even more frightening liquidity crisis that threatened to bring down the country’s entire financial structure, to truly concentrate the minds of the business and political elite on the need for change. The consensus that emerged about the necessity of integrating the reserves of the nation’s banks and creating a more flexible money supply did not, however, translate into agreement as to how to achieve these goals. Three contentious questions stood in the way: what degree of control would be given to the government; whether there would be a single central bank (presumably in New York) or several regional reserve institutions; and to what extent the new system would be structured to respond to the credit needs of agriculture, in addition to those of commerce and industry. Neither the Democrats nor the Republicans coalesced around a single constellation of answers to these questions. Both parties were splintered internally—and feelings ran high.26

Wilson came into office determined to break the deadlock. Such an achievement, having eluded Republicans even when they had held the presidency and enjoyed majorities in both houses, would dramatically demonstrate the Democrats’ ability to govern. No longer would their party be denigrated as “the organized incompetence of the country.”27 Despite the fact that the new president’s party controlled both the House and the Senate, his task was far from easy. Wilson still had to marshal the “centrifugal forces that constituted the Democratic party” behind a workable bill with wide political appeal.28

To secure the support of William Jennings Bryan and the Democrats’ critically important agrarian base that he headed, the administration’s bill for what would become the Federal Reserve System called for decentralizing the system and instituting, at least in theory, substantial government control. These features appalled northeastern business leaders. The New York Sun charged that the measure was covered in “the slime of Bryanism.” Even so, Democrats with rural constituencies demanded more. They insisted that if the federal government was going to get involved in upgrading the financial infrastructure for industry and commerce, then agriculture deserved attention, as well. Responding to this pressure, the administration agreed to allow member banks to make personal loans to farmers that ran up to six months, twice the length of time permitted for other businesspeople, and even went so far as to allow for loans collateralized by agricultural land for up to five years. With respect to pressure for longer lasting farm-mortgage loans, however, Wilson simply would not capitulate. If banks were to tie up their money in long-term mortgages it would defeat a basic goal of the (p.50) whole package, which was to inject greater liquidity into the financial system. In the end, the president promised to bring forward a separate bill aimed at improving credit opportunities for agriculture. With this promise, Wilson was able to garner the votes he needed for passage of what is widely regarded as his single most impressive legislative achievement: the Federal Reserve Act of 1913.29

The Administration and Farmers Clash

True to his word, as soon as negotiations for the Federal Reserve were essentially over, the president began pushing for legislation to improve access to credit for the agricultural sector. As it turned out, however, Wilson’s conception of a good program was at odds with that of most farmers. In December 1913, the president devoted approximately a quarter of his first annual message to Congress to the “urgent necessity” for rural credits legislation. Insisting that farmers “ask and should be given no special privilege,” he assured his listeners that no one was contemplating anything as extreme as “extending to them the credit of the Government itself.” In line with the consensus in the business community that cooperation, in the sense of pooling risk, was the key to solving the agricultural credit problem, the president explained that what farmers needed was “legislation which will make their own abundant and substantial credit resources available as a foundation for joint, concerted local action.”30 This position was in accord with his New Freedom conviction that the purpose of economic reform was to level the playing field for all parties, rather than to offer help to any specific group based on its particular situation. On this point, Wilson was particularly adamant with respect to farmers. Since his overarching goal was to transform the Democrats into the majority party, he wanted to avoid any suggestion of favoritism toward the sectional interests with which his party had long been identified. Secretary of Agriculture David F. Houston bluntly broke the news to farmers at the annual meeting of the National Grange, telling the delegates that any government program for agriculture that would loan money “at a rate of interest lower than the economic conditions would normally require” would be “special legislation of a particularly odious type.”31

Senator Fletcher, whose leadership of the Southern Commercial Congress had done so much to make rural credits a national issue, introduced the administration-endorsed bill in the Senate in January 1914. The same bill was introduced into the House by Representative Ralph W. Moss of Indiana, another leader in the movement to improve agricultural credit. (p.51) Popularly known as the Moss-Fletcher bill, the measure called for federal incorporation and supervision of federally chartered, voluntarily organized, freestanding, investor-owned credit institutions for agriculture called “national farm-land banks.” These would offer self-amortizing mortgage loans on farm property, lasting as long as thirty-five years. To raise capital, the banks would issue bonds backed by pools of mortgages they held. A profit stream would be generated by the difference between the rate of interest paid to buyers of the bonds and the slightly higher rate charged to farmer borrowers. The safety of the bonds offered by the banks would be assured by federal inspectors, who would oversee the business methods of the banks and the value of the mortgages they securitized.

Besides federal oversight, the plan provided investors with a number of other inducements. For example, farm bank bonds were designated as legal holdings for trust funds, estates, insurance companies, and postal savings banks. Another major advantage was the decision to make the bonds “exempt from Federal, State, and local taxation.” With the first federal income tax having gone into effect only three months before, this provision meant that the government would be subsidizing the banks’ access to private capital through the federal tax code, as well as extending to them the immunity of federal agencies from state and local taxation that has been in effect since the Supreme Court’s decision in McCulloch v. Maryland in the early nineteenth century.32

The Moss-Fletcher bill focused primarily on developing investor-owned, for-profit banks that could be defined as “cooperative” in the sense that business leaders and the president defined the concept, that is, that they would combine the land wealth of a number of different farmers to create an asset that provided more security than a mortgage on a single farm. As the Wall Street Journal expressed it, the aim was to replace the credit of individual farmers with “the credit of the agricultural unit, which in this case is a land-bank association under Federal supervision.” To satisfy those who understood cooperation in a different way, there was a provision for banks in which all investors would have a roughly equal voice in management and profits would be used to reduce the debts of the borrowers, rather than being divided among shareholders proportional to their investment. Such noncommercial institutions were not the main objective of the bill, however.33

Clearly, the legislation drew, albeit selectively, from European examples, but the general approach was not a foreign import. In the nineteenth century, American private entrepreneurs had tried to establish a market for bonds secured by farm mortgages. Such efforts never succeeded, however. (p.52) Too many investors guessed in advance or learned from bitter experience that no checks existed on tendencies for overly optimistic, even fraudulent, appraisals of the property backing the bonds. Thus, the Moss-Fletcher bill can be seen as an attempt by the Wilson administration to resurrect a flawed business model and overcome its defects through federal oversight. However, as some observers pointed out at the time, even more important than investor confidence in the underlying soundness of the mortgages on which the bonds were based was investor faith in the government’s implicit guarantee against default, given its level of involvement. In the words of one contemporary analyst who advocated a more private market approach: “Investors in the securities of institutions created or assisted by the State look to it, and not to the land or its owner, for the return of their money.”34

Advocating the bill in hearings before a special joint Senate and House committee established to investigate rural credits, Senator Fletcher described himself as “a great believer in the principle of self-help and self-reliance.” It was for this reason that the farm-land banks were to be organized on a voluntary basis, not set up by the government. Fletcher expressed confidence that private entrepreneurs would step forward to capitalize these institutions. He emphasized that the right kind of program was one that did not involve “Government aid.” In his eyes the bill met this test, despite both the tax exemptions and federal supervision that were built into the legislation.35 Fletcher (and Wilson) believed that there was a critical difference between direct disbursement of government funds and the kind of indirect support through the tax code that later policy analysts would term “tax subsidies.”

The beauty of the administration’s plan for dispensing government aid indirectly through profit-making business firms was lost on the leaders of farm organizations. They vehemently opposed what one National Grange officer referred to as the “Mossbacked Fletcherized monstrosity.”36 The day after the bill was introduced, the Grange announced a national publicity campaign against it, sending out a mass mailing to sixty thousand farmers around the country.37 One reason for hostility was that farmers turned out to be considerably less concerned about self-reliance than Senator Fletcher and the president were on their behalf. The prospect of a government program aimed specifically at their needs did not strike them as unfair, let alone “particularly odious,” as the secretary of agriculture had characterized it. On the contrary, farmers saw a program focused on agriculture as only fitting, given that they perceived their own well-being to be synonymous with the wider public interest. In the words of T. J. Brooks, a (p.53) professor at the Agricultural and Mechanical College of Mississippi and a member of the National Farmers’ Union, “When you allow agriculture to go down it takes all others with it, and everybody’s welfare is at stake, the welfare of the Republic is at stake, and the perpetuity of free institutions is at stake, and civilization is at stake.”38

The farmers’ main objection to the Moss-Fletcher bill had to do with its delivery mechanism. According to T. C. Atkeson, head of the West Virginia State Grange, it was “folly to trust a private corporation to carry out a great Government policy.” He predicted that “the creation of a private banking scheme” would not succeed, because for-profit enterprises would “never handle their business for an altruistic purpose.”39 The president of the Arkansas Farmers’ Union, H. S. Mobley, concurred, warning the subcommittee that if the aid to farmers “has to come from a commercial bank, you are going to discredit the system in the South.”40

For farmers, the alternative was clear. As Mobley informed the committee, “We would like to have aid direct from the Government.”41 The farmers’ position was most closely embodied by bills introduced by Representative Elsworth R. Bathrick, a Democrat from Ohio. Bathrick’s bills provided for a farm-mortgage program run by a bureau in the United States Treasury, which would both make and service loans for farmers throughout the country. As with the administration bill, the loans would be amortized, and funds to make the loans would come from sales of bonds backed by pools of mortgages, although in this case the Treasury itself would do the securitizing. Also in common with the administration, Bathrick relied on tax expenditures as a financing mechanism. While he drafted the first version of his bill before the federal income tax went into effect, later variants called for the mortgage-backed bonds to be exempted from federal taxation. Major agricultural organizations, including the Grange, the Farmers’ Union, and the American Society of Equity, enthusiastically endorsed the Bathrick bills.42

Since Wilson’s response to the farmers’ plan was essentially the same as theirs to his, the result was stalemate. Even with the president’s demonstrated ability to get his balky Democratic congressional majority to do his will, he realized there was no way he could get his preferred legislative solution enacted over the unwavering opposition of farm organizations. Not only were farmers the single best organized group in the country at this time, but their strength in Congress was way out of proportion to their numbers in the rapidly urbanizing and industrializing nation because of the way the Constitution apportioned legislative seats on the basis of territory. As political scientist Elizabeth Sanders has pointed out, the rules of (p.54) the political game gave farmers, as a cohesive group based in the nation’s periphery, “exaggerated influence.” Although legislators with rural constituencies may not have been able to override Wilson’s firm resistance to their preferred solution, they could definitely stymie his.43

New Actors Enter the Picture

Despite what seemed to be an unbridgeable impasse, it was only slightly over two years later that Congress passed and Wilson signed a rural credits bill into law. The successful legislation was crafted by Senator Henry F. Hollis of New Hampshire and Representative Robert J. Bulkley of Ohio, both newcomers to Capitol Hill. As members of the banking committees of their respective chambers, the two had impressed party leaders with their contribution to crafting the Federal Reserve legislation. In recognition of their efforts they were put in charge of a joint subcommittee on rural credits.

To break the deadlock between farm groups and the president, Bulkley and Hollis came up with what one contemporary policy analyst described as a “revolutionary” approach that “boldly set aside American traditions in the farm mortgage business.” The proposal provided no role for the for-profit bankers and brokers already working in rural areas, and it aimed to have much of the new system be managed by the farmers who would benefit, rather than by government bureaucrats.44 While it would be easy to assume that the individuals who came up with such an unconventional approach had emerged from backgrounds far from the mainstream, this was not the case. Both hailed from prominent families, graduated from Harvard College and, before entering politics, had established themselves as successful lawyers.

Robert J. Bulkley grew up on Euclid Avenue, Cleveland’s “Millionaires’ Row.” His father, who built the family’s wealth through real estate investment, co-owned the Plain Dealer newspaper and served as the first head of the city’s Park Commission. Despite Bulkley’s privileged background, as a young man he gravitated to the circle of talented idealists around Tom Johnson, the famous urban Populist mayor. Johnson was a Democratic politician who promoted both the single tax and public ownership of basic services, such as mass transit, electricity, and gas.45

Bulkley never became the enthusiast for public ownership or the single tax that his mentor had been, but decades-long service as president of the Morris Plan Bank of Cleveland suggests a strong interest in economic innovations that, while in no way socialistic, pushed the envelope of conventional economic principles in order to benefit low- and moderate-income people. Morris Plan banks originated in 1910 as the brainchild of Norfolk, (p.55) Virginia, attorney Arthur J. Morris, who sought to fulfill his vision of the “democratization of credit” by creating a profitable method of making small unsecured loans to low-income people so as to give them an alternative to loan sharks and pawn shops. Morris based his plan on character and earning power, rather than collateral. To obtain a loan borrowers were required to provide evidence of a steady job and produce two cosigners who in the case of default would be responsible for repayment. According to Morris, his banks were a purely business proposition, and indeed his financial ventures made him personally wealthy. In truth, however, the banks were hybrid institutions, given that, although they did make money, they were not structured to maximize investor profit. In addition, they were subsidized. In 1914, at a critical early point in the life of his business, Morris secured an infusion of $5 million from a group of wealthy philanthropists, including Julius Rosenwald and Andrew Carnegie. Created in an era when standard banks were not interested in providing consumer credit to anyone, let alone to blue-collar workers, and credit unions were just getting started, Morris Plan banks spread rapidly. Morris set up his first bank in 1910, and by 1931 there were 142 Morris Plan banks in cities around the country providing loans of over $200 million annually. Conventional bankers took notice of the new market, and in the mid-1920s began offering small consumer loans themselves.46

Bulkley entered Congress as part of the Democratic sweep of 1910, when the party picked up fifty-six seats in the House to take control of that body for the first time since the depression of the 1890s. (In the Senate, Democrats gained ten seats, and in 1912 won another nine, achieving a majority in that body as well.)47 Bulkley interpreted his own victory and the rising fortunes of the Democrats generally to a political backlash against the rising prices of the era. He and other Democrats had successfully convinced many traditional GOP supporters that Republican-backed tariffs were fueling the inflation that was eroding urban living standards.48 In addition, Bulkley’s campaign benefited from divisions among Republicans emerging at this time.

Turmoil within the Republican Party also helps explain Henry Hollis’s election as senator in New Hampshire two years later. In the spring of 1913 when the newly elected Senator Hollis arrived in Washington to take up his duties, he was already something of a star. Not only was he the first Democrat the Granite State had sent to the Senate since before the Civil War, but his two-month-long, cliff-hanger battle for election in New Hampshire’s deadlocked legislature early in the year captured the country’s attention as people waited to find out the extent of the new Democratic majority in (p.56) Congress’s upper chamber after twenty years of Republican rule. Already a political maverick by choosing to align himself with the Democratic Party—his Republican paternal great-grandfather had been chief justice of the New Hampshire Supreme Court and his maternal grandfather had served as assistant secretary of the treasury in the Grant administration— Hollis took positions that were unconventional for a person of his class even within his adopted political home. Proclaiming himself an “ardent admirer and disciple” of William Jennings Bryan,49 Hollis championed women’s suffrage, labor rights, and aid to farmers. In addition, he took a public stand against colonization of the Philippines by becoming a national vice president of the Anti-Imperialist League.50 A militant foe of corporations, he worked to dislodge business control over his state’s Democratic Party, and his anticorporate animus even informed his professional life. He bragged that he had never accepted a corporate retainer, and his successful legal practice was based in good part on personal damage claims against corporations. His specialty was undermining the credibility of expert witnesses during low-key cross-examinations, and the $24,000 that he won for his clients from the Boston and Maine Railroad set a state record.51 Given his background it is no wonder that, even after the Progressive Party delegation in the state legislature threw its weight behind his candidacy, it took President Wilson’s pressure on a handful of conservative New Hampshire Democrats for Hollis to finally squeeze out his senatorial victory.

While other restive political activists in New Hampshire (including his own brother) attempted to use the Progressive Party as a beachhead for challenging business interests that dominated the state, Hollis threw in his lot with the Democratic Party. He was convinced that the Democrats could succeed in becoming the majority party nationally if they distanced themselves from their Wall Street–friendly wing (associated with Grover Cleveland). Shortly after arriving in the capital, the new senator told the Young Men’s Democratic Club of Washington that the party should make its appeal “to the men who work hard, obey the laws, pay their bills, protect their wives, educate their children, and sit in their homes after supper and read in the newspapers what their representatives have done in the State legislature and in Congress.” As Hollis sized up the political situation, the Democrats and the “Bull Moose” Progressives were in a contest to see which would become “the great progressive party of the nation.” To win, the Democrats needed to align themselves with the “forgotten millions.”52

Hollis’s economic views placed him on the left edge of the Democratic party. He was markedly less economically orthodox than his counterpart in the House, Representative Bulkley, who was solidly in the party’s progressive (p.57) wing. For example, even though it was Bulkley who had started his political career with Mayor Tom Johnson, the great proponent of municipal ownership, it was Hollis who talked about social control of production. While a senator, Hollis went on record that he expected that the time would come “when the federal government will take over everything and distribute it at cost among the people.” In addition, he urged Democrats to endorse minimum wage legislation.53

Like Bulkley, Hollis was involved in an alternative banking endeavor, in this case making no profits instead of limited ones. Since 1895 he had served as a trustee for the New Hampshire Savings Bank, a mutual savings bank. Mutuals were entities peculiar to the Northeast. They had been created in the early nineteenth century to provide people of modest incomes the opportunity to save and borrow small sums. These institutions were not profit-making concerns, but neither were they cooperatives in the sense of being participant controlled. Depositors were the formal owners, and all profits went to benefit them, but they had no role in management. Instead, self-perpetuating groups of directors (called trustees) operated these institutions on behalf of the people who used them.54

Overall, Hollis’s politics were an example of what historian Arthur Link described as “advanced progressivism,” in that Hollis was not only dedicated to developing methods of regulating the new nationally integrated economy dominated by giant corporations, but also committed to reaching out to groups that were disadvantaged in this environment.55 Shortly after taking office in the spring of 1913, the new senator was excoriated by the Christian Science Monitor for advocating that farmers and labor unions be exempted from the antimonopoly provisions of the Sherman Antitrust Act. In shocked tones, the paper reported that Hollis openly acknowledged his support of “class legislation,” a position he justified on the grounds that “capital, having admittedly controlled courts and Legislatures to protect its interests, the situation now ‘should be evened up’ by making concessions to ‘labor.’”56 Hollis’s conviction that the government had the right, indeed the duty, to aid groups that had been marginalized during the corporate reorganization of the economy was reflected in the rural credits legislation that he and Bulkley drafted, and which became the basis of the final legislation.

The Hollis-Bulkley Plan

Hollis and Bulkley’s basic strategy, in common with the other major proposals, was to encourage private capital to flow into agricultural credit markets (p.58) by giving investors special inducements: immunity from taxation, a known and standardized investment vehicle, and implicit federal guarantees. In terms of structure, the two lawmakers rejected both the farmers’ desire that the program be run directly by the government and the administration’s preference for waiting for private parties to come forward (or not) to set up freestanding, profit-making banks, each of which would independently make farm mortgages and issue bonds. Their alternative, not surprisingly given their earlier work, was based on the format of the Federal Reserve. The difference was that instead of tying together preexisting, investor-owned banking institutions, as the Federal Reserve had done, their national agricultural credit system would integrate a set of farmer-controlled, not-for-profit borrowing cooperatives that did not yet exist.57

The system had three layers. At the helm was an agency called the Federal Farm Loan Board, based in the Treasury Department. As the two initially conceived it, the board was to be very much a part of the executive branch, similar to how Secretary McAdoo had envisioned the United States Shipping Board. It would have three members. Two would be cabinet members (the secretaries of treasury and agriculture), and the third, the director, would be appointed by the president with the advice and consent of the Senate. No term or provision for removal was specified for the director, implying that this person would serve at the pleasure of the president.

The job of the board was to charter and oversee the second layer of the system, a set of twelve regional Federal Land Banks. Eventually, the farmers who participated in the program were to own and manage the banks, but in the beginning these institutions would be administrative agencies of the federal government. Unlike conventional bureaucratic units, however, they were to be incorporated, making them legally distinct from the standard bureaucratic structure of the executive branch and homologous to private-sector entities. For example, they were to have the ability to make contracts on their own and to sue or be sued independent of the government. If at the outset, sufficient private investment did not materialize to subscribe the required capital stock, the federal government was charged with buying the remainder. The banks would not make loans. Rather, their responsibility was to pull resources into the system by selling bonds secured by bundles of farm mortgages they purchased. The goal, in Bulkley’s words, was to create “a national security … without the risks attendant on the possible mismanagement or failure of individual farmers.” As noted earlier, the interest income on these bonds would be exempted from taxation, which meant that like the other major proposals the Hollis-Bulkley plan called for indirect subsidies through the tax code. It was assumed that these features (p.59) would propel the bonds of land banks into popularity in national capital markets, resulting in streams of low-cost, long-term credit flowing into rural America. However, in the period before the bonds caught on with investors, the secretary of the treasury was instructed to purchase any that failed to find private buyers.58

The base of the program consisted of farmer-borrower cooperatives, termed National Farm Loan Associations. The associations were to be noncommercial, incorporated institutions, voluntarily formed by farmers who wanted to borrow money against the collateral of their farm. To join, the farmers would buy shares of stock proportionate to the size of their loan. Governance of the associations was based on cooperative principles (with elections organized on a modified one-vote-per-person basis, as opposed to the one-vote-per-share format of a commercial joint-stock company). The associations were to be responsible for considering loan applications and approving those that seemed sound. The idea was that firsthand knowledge of local conditions would be superior to the judgment of outside assessors when it came to making accurate evaluations, although the regional land banks were empowered to make their own independent appraisals before purchasing loans from the associations. With each sale of a mortgage loan to the regional land bank, an association was required to buy shares in the bank proportionate to the size of the mortgage. As these stock purchases increased the capital stock of the banks to over the legal minimum, the government was to be refunded its initial investment. In this way the banks would eventually be completely owned by the associations and would cease to be government agencies. As this shift of ownership took place, the associations would take on a greater role in managing the banks, although the government would always exercise oversight, as with the Federal Reserve system in relation to privately owned member banks. In the words of one contemporary policy analyst, the borrower co-ops “were intended to be the active part upon which the ultimate success of the system would depend.”59

The noncommercial dimension of the proposal, while anathema to businessmen, reflected sentiments that enjoyed strong representation in Congress, especially among legislators from rural districts. These included hostility toward bankers and the belief, dating back to the Populist campaigns of late nineteenth century, that many economic functions—especially interstitial ones, such as transportation, communication, and banking— should be run by government. Such pro-public ownership ideas were still strong among congressional Democrats, as one can see from the insistence, previously described, that the government have a major role in the Federal (p.60) Reserve system established in 1913; passage of the Alaska Railroad Act in 1914, through which the federal government took direct responsibility for building a line deep into the interior of the territory; and Congress’s appropriation of funds in 1916 to establish a government-run steel plant to manufacture armor for naval vessels.60

At the same time, public opinion throughout the country was widely, if diffusely, supportive of cooperative enterprise. Cooperation was commonly viewed as an appealing and viable method of coping with deficiencies in a market economy, although not necessarily as an alternative to it. It helped that the concept was vague enough that different groups were able to project their own quite different (even conflicting) hopes and values onto it. As we have seen, leading figures in business and politics touted producer cooperation as a panacea for American agriculture. Meanwhile, the pressure of inflation on white-collar salaries had given the idea of consumer cooperatives traction among the urban middle classes, as demonstrated by the effort on the part of Agriculture Department employees to establish a grocery co-op.61

While the local borrowing associations Hollis and Bulkley designed were obviously intended as a way to minimize costs and risks, thereby making agricultural credit as inexpensive as possible, the two lawmakers had more in mind when they conceptualized these organizations. By setting up a framework for people to come together on a basis of equality to make decisions that affected their lives in important ways, the legislators were trying to strengthen what later political theorists would call “civil society.” Defending the plan against criticism that American farmers were too individualistic to want to participate, Bulkley insisted that “the actual operation of the system will provide such an object-lesson in the benefits of farmers’ co-operation” that in time objections would “fade into insignificance.”62

It could easily be argued that the borrower co-ops, which gave participants real responsibility for managing the federal program, constituted the truly radical aspect of the proposed legislation. Yet this aspect of the plan provoked no serious opposition, only skepticism as to whether farmers would actually participate. Nor did the provision for indirect aid through the tax code attract any real hostility (which was not surprising, since this feature had been taken for granted from the beginning and included in the most conservative proposals). The provisions that proved controversial were those for direct government financial involvement in the form of guarantees that the Treasury would make up any failure in the required initial capitalization of the banks and would purchase any bonds that failed to find private buyers. Not only was the American Bankers Association up in (p.61) arms, but the president was also antagonistic. By spring 1914, it was clear the bill would easily move through both houses of Congress if put up for a vote, but even though Wilson found the measure less objectionable than the Bathrick proposal, he did not like it. Writing to Carter Glass, chairman of the House Banking Committee, the president expressed his “very deep conviction that it is unwise and unjustifiable to extend the credit of the Government to a single class of the community.” Reporting the president’s communication to Glass, the New York Times correctly predicted that rural credits legislation would be “shelved.”63

Wilson’s veto threat kept the Hollis-Bulkley plan languishing for over two years, even though it had overwhelming support in Congress. Farm organizations still preferred a system of direct loans handled by the Treasury, along the lines of the Bathrick bills, but having concluded this would be politically impossible, they threw their support behind the Hollis-Bulkley bill. The standoff lasted until the spring of 1916, when Wilson had a dramatic change of heart. Looking ahead to the presidential election in the fall, he saw the need to expand the national Democratic coalition, given that the Republican party was knitting itself back together. He became convinced that in order to win the Midwest farm vote, he needed to secure rural credits legislation. Once he made his decision known, the bill moved quickly through both the House and the Senate, and he signed it into law on July 17, 1916.64

The final bill did have some changes from the original proposal. In keeping with Congress’s usual disinclination to strengthen the executive branch, the Federal Farm Loan Board was made more distant from presidential control than Hollis and Bulkley had envisioned. The redesigned board consisted of the secretary of the treasury and four other individuals. The president could chose these four, with the advice and consent of the Senate, but no more than two could be from any one party; they were to serve fixed terms; and the president was not allowed to remove them on the basis of policy differences, only for malfeasance in office. Another change applied to the associations at the base of the system: to encourage prudence in evaluating each other’s loan requests, association members were held liable for losses up to double the value of their shares.

The Land Banks in Operation

Once established, the Federal Land Banks turned out to be successful at improving credit opportunities for farm owners, especially in the South, Great Plains, and Mountain West where the financial infrastructure was sketchy. (p.62) Even more consequential than the low-cost capital channeled into these outlying regions was the way the program created a more stable architecture for agricultural credit markets generally. The key innovation was the introduction of the long-term, self-amortizing farm mortgage, which became standard practice for all institutional lenders.65 Amortization made a real difference for farm families who borrowed money for capital improvements. Now they could step off the treadmill of anxiety and expenses associated with continually having to renegotiate the three-to-ten-year, interest-only mortgage loans that previously had been the only form of long-term financing available.66 Given that principal was not paid off through the term of the loan, the process could go on interminably. And even though renewal was more or less automatic in good times, it could not be counted on, given that small local banks lacked the resources to extend credit during periods of economic contraction. By comparison, the land banks offered farmers the security of loans that ran five to forty years, with the program’s directors encouraging farmers to go for the longer timeline.67

The appeal of this new type of mortgage was demonstrated by how quickly farmers began forming the cooperative loan associations that served as their gateway to the program. In the first two years after the Federal Farm Loan Board started offering charters, farmers organized 3,529 of the local borrowing co-ops (see Figure 2.1 for a map of their locations).68 By 1929, farmers had borrowed $1.6 billion through the program, and with the stock purchases required to get their loans, had repaid almost the entire $9 million the Treasury had originally invested to capitalize the system.69

The Creation of the Federal Land Banks

Figure 2.1. This map shows the location of the 3,529 National Farm Loan Associations in existence in early 1919. The popularity of these local borrowing cooperatives among farmers is indicated by the fact that the Federal Farm Loan Board had been chartering these organizations for only two years when this map was made. Just twelve for-profit Joint Stock Land Banks had been formed, reflecting the way the legislation favored noncommercial lending institutions over for-profit ones.

Despite these positive indicators, the program fell short of fulfilling one of the drafters’ key hopes: that the land banks would evolve into “nongovernmental credit institutions owned and controlled by their farmer-borrowers.”70 Instead, management of the system stayed firmly in the hands of the government. Observers differed as to the reasons, although pretty much everyone ignored structural problems with the program and blamed the ideological predilections of various actors. Some pointed to what they saw as the innate individualism of American farmers, which made them disinclined to get more involved than the minimum required to secure their loans. According to one critic who from the start had opposed making borrowers’ co-ops the basic building blocks of the program: “Farmers as a class are not possessed of a coöperative spirit.”71 On the other side, partisans of cooperative economics also focused on individual motivation, in this case, that of the top-level federal appointees who were assumed to have lacked sympathy for “the democratic control idea.”72 From this perspective, the fact that rank-and-file farmers did not take over management (p.63) of the banks flowed from the lack of commitment on the part of the program’s national administrators, whose attachment to conventional notions of hierarchical organizations kept them from undertaking the “missionary and educational work” required to convince American farmers of “the advantages of teamwork.”73

What was lost in this debate was both the actual record of the program and its institutional realities. With respect to what actually happened, it should be noted that at the outset, the Federal Farm Loan Board promoted the program vigorously and encouraged farmers to get involved. Indeed, starting early in 1917, it staged a veritable media blitz, placing accessibly written pieces in general interest and more specialized periodicals. Board member Herbert Quick’s “Borrowing from Your Uncle,” published in the Saturday Review, and “Farm Loan Questions Answered,” written by board secretary W. W. Flannagan and appearing in Ohio Farmer, are cases in point. In addition, the board produced and distributed hundreds of thousands of instructional pamphlets, with titles such as Farm Loan Primer, How Farmers May Form a National Farm Loan Association, and Killing off Mortgages (by which was meant refinancing burdensome loans through the federal (p.64) land bank system). Meanwhile, the board inaugurated its own publication called The Borrowers’ Bulletin, sending out two million copies in the first year alone. The Bulletin, which shortly began appearing on a bimonthly basis, carried inspirational accounts of successful local cooperative associations and testimonials from satisfied farmer borrowers.74

J. D. Darlow, the secretary of the farm loan association of Grenada County, Mississippi, provided one such testimonial. His letter, originally sent to the Federal Land Bank of New Orleans, appeared in the January 1918 issue of the Bulletin. On behalf of his members, Darlow wrote to thank the bank “for the treatment we have received at your hands.” He explained that the bank had agreed to buy all but two of the thirty-six mortgages his group had forwarded, with the result that the interest payments paid by his members had been cut from 8 to 5 percent. While the sentiments expressed were not unique, the letter did include one unusual piece of information. Darlow noted: “This association is a colored association. Every member is a colored person. I do not know if you knew that or not.”75

The mailing of the August/September 1919 issue of the Borrowers’ Bulletin marked the end of the board’s ambitious outreach efforts. A lawsuit filed that summer on behalf of private farm-mortgage bankers contesting the constitutionality of the land banks put the program in limbo as the case worked its way through the federal court system. The Supreme Court first heard the case in early 1920 but did not render a verdict for over a year. As investors waited for a decision before buying more bonds, the land banks ran out of money and loan operations halted.76 The legal cloud finally lifted in February 1921 with the court’s declaration that the program was constitutional, but by this time the economy was in depression. With Warren Harding’s election in 1920, the Republicans took control of the executive branch, and for the next decade capable administrators appointed by Republican presidents managed the program effectively along business lines, but this leadership, in the words of historian David Hamilton, did nothing “to build a more genuinely cooperative system.”77

To be fair to the program’s cautious administrators in Washington, the basic design of the land bank system made it extremely fragile. According to the rules set down in the original legislation, all operating costs were to come from the small spread between the 6 percent maximum that could be charged to farmers for their loans and the 5 percent maximum interest that could be paid to investors who bought the land bank bonds.78 In other words, the banks were designed to be run on a shoestring, with rigid guidelines that gave managers little leeway to respond to changing market conditions. Moreover, the effort to create uniform interest rates did not take (p.65) into account the regional differences in risk. Hollis and Bulkley had set out to make the banks self-supporting within a capitalist framework and at the same time able to supply low-cost capital on an equal basis to farmers everywhere in the country, regardless of very different conditions—goals that were not necessarily compatible.

Given the banks’ structure, consistently maintaining solvency would probably have proved challenging whatever the larger economic environment, but the period in which they were launched was particularly volatile. On April 4, 1917, only a few days after the first local borrowing cooperative received its official charter, the Senate voted to enter the war in Europe.79 Treasury Secretary McAdoo’s Liberty Loan campaigns, started shortly afterward, crowded out other securities from private capital markets.80 With the end of the war came a brief inflationary boom, followed by a short but nasty depression in which industrial production plunged by 35 percent. Most sectors bounced back by late 1921, but not agriculture, which continued to struggle throughout the “prosperity decade.”81 Especially given the disgruntled attitude of rural constituents during this era, represented in Congress by the bipartisan “farm bloc,” it is little wonder that no one in Washington was enthusiastic about handing over control of this politically crucial, but not terribly sturdy, program to amateur management, as had been envisioned in the original legislation. In 1923 Congress amended the Federal Farm Loan Act to tip the scales in favor of government control by specifying that the farm loan board in Washington, rather than the local cooperatives (as the legislation had originally specified), had the power to fill the majority of seats on the boards of directors of the regional land banks.82 Thus, contrary to the original plan for the program, the banks were never spun off by the government and run by private citizens as not-for-profit institutions. Rather, they evolved into government-owned and managed noncommercial business enterprises that functioned to fulfill a purpose that Congress had designated as being in the public interest.

The Land Banks Are Ruled Constitutional

Not everyone agreed that the land banks served a valid public purpose, however, and some felt that this novel form of intervention into the economy by the national government was not legitimate under the Constitution. Private bankers in the farm-mortgage business, naturally enough, were particularly skeptical, and they initiated the court challenge referred to earlier that went all the way to the Supreme Court.83 The suit turned on the complaint of Charles E. Smith, a mortgage banker from Fort Worth, (p.66) Texas, against the Kansas City Title and Trust Company, of which he was a shareholder. Smith objected to the Kansas company’s plan to invest funds in farm loan bonds. He maintained that the bonds were not a valid investment instrument, because the Federal Land Bank System was unconstitutional. Congress had no right to capitalize and subsidize, through tax exemptions, institutions that would “lend private capital on farm mortgages.” Such an activity could not be considered one of the “express national purposes” of the federal government as defined by the Constitution.84

While it was true that the original legislation stated that in addition to providing capital for agricultural development, the purpose of the banks was “to create Government depositories and financial agents for the United States,” Smith’s suit charged that these responsibilities had been added as a kind of fig leaf to provide Constitutional cover.85 Ever since Chief Justice Marshall’s ruling in McCulloch v. Maryland over a century before, activities undertaken to carry out tasks that the Constitution had expressly assigned to Congress, such as regulating the money supply and collecting taxes, had generally been accepted as legitimate for the national government.86 Smith’s lawyers argued, however, that the true intent of the statute was not to carry out such constitutionally sanctioned activities, but rather to set up credit facilities for owners of farm property. Such an activity, particularly when subvented with public funds, set up in competition to businesses organized by private investors, and aimed at aiding one particular group, was most definitely not constitutional, according to Smith’s legal team. The supposed duty of the banks to aid in the fiscal operations of the government was a pretext that was being used to legitimate an unwarranted and dangerous expansion of federal power.

The case was clearly regarded as consequential at the time, as evidenced by the high-powered legal talent that participated. Arguing for Smith was William Marshall Bullitt, a wealthy corporate lawyer and important figure in the national Republican Party, who had served as solicitor general under President Taft.87 Representing the land banks was Charles Evans Hughes, formerly governor of New York State, associate justice of the Supreme Court, and Republican presidential candidate in 1916. (Hughes would go on to serve as Chief Justice of the Supreme Court from 1930 to 1941.)88 Others who filed briefs in support of the land banks included Westel Woodbury Willoughby, a founder of the American Political Science Association, and William Gibbs McAdoo, former secretary of the treasury, current presidential hopeful, and progenitor of the fleet corporation.89

In defending the banks, Hughes made two arguments. First, that aiding “agricultural development” was a public purpose; and second, that Congress (p.67) had the final say on what agencies were needed to carry out its fiscal responsibilities.90 Frustratingly, for those (at the time and afterward) who sought a definitive legal ruling on the question of whether Congress had the right to create quasi-autonomous agencies by which to intervene in the economy, the Supreme Court declined to respond to Hughes’s first point and decided the case on the formalistic second point.

Justice William Rufus Day wrote the majority opinion. Appointed to the court by President Theodore Roosevelt, Day is best known for his opinion striking down the Keating-Owen Child Labor Act of 1916, Congress’s attempt to regulate the labor of children on the basis of the Constitution’s commerce clause.91 Keating-Owen made it illegal to ship goods manufactured by children under the age of fourteen across state lines. Writing for the court, Day stated that even though the Constitution’s commerce clause gave Congress the authority to regulate commercial relations between the states, this was not the act’s purpose. In reality, the act “aim[ed] to standardize the ages at which children may be employed … within the states.”92 While Day was not opposed in principle to placing restrictions on child labor, he believed that the structure of federalism set out by the Constitution gave the authority to regulate production to the states, not the national government. While insisting that the court had “neither authority nor disposition to question the motives of Congress in enacting this legislation,”93 he maintained that statutes had to be evaluated on the basis of their “natural and reasonable effect.”94 In this instance, even though regulating commerce was the ostensible goal, regulating child labor was its “effect.”

Day’s decision in Smith v. Kansas City Title and Trust was announced in February 1921. Somewhat surprisingly, given the views the justice had expressed when he struck down Keating-Owen, his opinion in the Smith case resolutely avoided the Farm Loan Act’s “natural and reasonable effect.” This was not because the parties to the suit skirted the issue. The appellant’s counsel specifically urged the court to look past the pretexts Congress had used to justify its actions and to focus on what the banks actually did. In addition, as previously noted, Hughes, in defending the land banks, did not deny that the legislation’s true purpose was to improve farmers’ access to credit. Rather, he asserted that establishing agricultural credit facilities was a constitutionally sanctioned activity for Congress to undertake, because a strong agricultural sector was in the national interest.

Despite the encouragement, Day ducked the key question of whether it was legitimate for the national government to form a business enterprise in which it owned all or part of the capital stock and to support the operation directly or indirectly with public funds. He ruled that the banks were (p.68) constitutional because they had been designated as facilities that Congress could use for carrying out its constitutionally mandated duties. Establishing them was therefore “within the creative power of Congress.”95 In response to the appellant’s argument that the true meaning of the act should be gauged by looking at how the banks actually operated, Day acknowledged that they indeed had never been used as federal depositories and had only briefly and marginally functioned as fiscal agents (when three of the banks had disbursed federal loans for seeds during a drought in 1918). Nevertheless, he insisted that Congress’s power to do something for which it had authority under the Constitution was “not determined by the extent of the exercise of the authority conferred under it.” In this case, rather than dealing forthrightly with the way the legislation impacted the real world, Day insisted that it was “not the province of the judicial branch of the government to question [Congress’s] motives.”96

Why the court was willing to sanction, even if it did not endorse, the considerable expansion of the federal government’s reach into the economy represented by the land bank system will probably never be known with certainty. Perhaps the banks seemed the only practical solution to an otherwise intractable problem within the existing economic structure, but the justices shrank from describing the situation as one of market failure, for fear such a characterization in this instance would raise a host of questions as to whether other markets might need government intervention to function optimally. Whatever the motivations, the effect of the Supreme Court’s decision in Smith was to give a green light to the expansion of federal power into the economy. Although the basis for this expansion was not legitimated very clearly, the decision provided constitutional and legal shelter for the operations of quasi-public agencies from that time forward to today.

Conclusion

While the world of the early twentieth century, when a third of Americans lived and worked on farms, seems remote today, the agricultural credit program designed by Hollis and Bulkley remains significant for several reasons.97 The ability of government-created agencies to secure funding from private capital markets by issuing bonds, instead of from legislative appropriations, plays a major role in contemporary public finance. Although Hollis and Bulkley’s ingenious concept for a program that would ultimately be managed by the beneficiaries themselves—who might as a result be mobilized to participate actively in the public realm more generally—failed to (p.69) take hold as a paradigm for later government programs, it is noteworthy as a demonstration of the democratic aspirations (contradicting stereotypes) of many early U.S. statebuilders.

Another aspect of the land banks that has important implications for the larger story of American political development is the particular way they survived the challenge to their constitutionality: by being designated as tools for controlling the money supply. From here on, federally launched authority-type agencies could intervene in capital markets without fear of challenge.98 This would not be true with respect to corporate agencies that did not intervene in the financial sector. Such a distinction was already manifest in the fact that the Emergency Fleet Corporation had to be justified as a short-term response to an emergency, while the Federal Land Banks were conceptualized and approved as permanent institutions, to deal with what was perceived to be an endemic shortcoming in the nation’s financial structure. This difference in ease of legitimation is an important reason that federal intervention into the American economy came to be focused predominantly on providing financial incentives for desired activities, rather than on undertaking them directly. (p.70)

Notes:

(1) . Federal Farm Loan Act, 39 Stat. 360.

(2) . Clara Eliot, The Farmer’s Campaign for Credit (New York: D. Appleton, 1927), 1–29.

(3) . (p.183) Party platforms for Democrats, Republicans, Progressives, and Socialists in History of American Presidential Elections, 1789–1968, vol. 3, ed. Arthur M. Schlesinger, Jr., and Fred L. Israel (New York: Chelsea House, 1971), 2167–203. The Socialists’ 1912 platform deplored the high prices farmers had to pay for machinery, transportation, and crop storage, and placed the blame on “capitalist concentration.” The cost of borrowing money was not included in this list of grievances, perhaps reflecting the fact that better access to credit was not at this time a grassroots issue in the countryside. Schlesinger and Israel, History of American Presidential Elections, 2198.

(4) . “An Inaugural Address,” The Papers of Woodrow Wilson, vol. 27, ed. Arthur S. Link (Princeton, NJ: Princeton University Press, 1978), 150.

(5) . Congressional Record, 64th Cong., 1st sess., 3543.

(6) . Murray R. Benedict, Farm Policies of the United States, 1790–1950 (New York: Twentieth Century Fund, 1953), 139.

(7) . Stuart William Shulman, “The Origin of the Federal Farm Loan Act: Agenda Setting in the Progressive Era Print Press” (PhD diss., University of Oregon, 1999), 53.

(8) . W. Gifford Hoag, The Farm Credit System: A History of Financial Self-Help (Danville, IL: Interstate Printers and Publishers, 1976), 34; and Eliot, Farmer’s Campaign, 56.

(9) . Figures from a Department of Agriculture study cited in S. Rep. No. 144, 64th Cong., 1st sess. (1916) at 7–8.

(10) . W. Elliot Brownlee, Dynamics of Ascent: A History of the American Economy (New York: Alfred A. Knopf, 1974, 230.

(11) . Theodore Saloutos and John D. Hicks, Agricultural Discontent in the Middle West (Madison: University of Wisconsin Press, 1951), 22–23; and E. W. Kemmerer, “Agricultural Credit in the United States,” American Economic Review 2 (December 1912): 859n6.

(12) . David B. Danbom, The Resisted Revolution: Urban America and the Industrialization of Agriculture, 1900–1930 (Ames: Iowa State University Press, 1979), chap. 2; and Shulman, “The Origin of the Federal Farm Loan Act,” 110–11, 138–39.

(13) . Meg Jacobs, Pocketbook Politics: Economic Citizenship in Twentieth-Century America (Princeton, NJ: Princeton University Press, 2005), 42, and chap. 1 passim.

(14) . Alan L. Olmstead and Paul W. Rhode, “The Transformation of Northern Agriculture, 1910–1990,” in The Cambridge Economic History of the United States, ed. Stanley L. Engerman and Robert E. Gallman (Cambridge: Cambridge University Press, 2000), 2:697, 701.

(15) . Mrs. Edith Ellicott Smith, “The Farmer’s Share in the High Cost of Living,” Annals of the American Academy of Political and Social Science 48 (July 1913): 255.

(16) . “The Soaring Cost of Life in America: Secretary Wilson and Eminent Economists Discuss the Problem of the Day and Some Ways to Solve It,” New York Times, January 2, 1910.

(17) . Danbom, The Resisted Revolution, 42, 43.

(18) . Report of the Commission on Country Life ([1911] New York: Arno Press, 1975), 20, 135. Originally published as Senate Doc. 705, 60th Cong., 2nd sess.

(19) . J. Hermes, “The Land Mortgage Associations (Landschaften),” in Articles on German Banking, Publications of the National Monetary Commission, vol. 11 (Washington, DC: GPO, 1911), 287–324, quote at 291 (previously published as Senate Doc. 508, 61st Cong., 2nd sess. [1910]); Myron T. Herrick and R. Ingalls, “How to Finance the Farmer,” Senate Doc. 396, 64th Cong., 1st sess. (1916), 8–9, 32–43; and “Letter from President William H. Taft to the Governors of the States,” in U.S. Department (p.184) of State, Preliminary Report on Land and Agricultural Credit in Europe (Washington, DC: GPO, 1912), 3.

(20) . Wayne Flynt, Duncan Upshaw Fletcher: Dixie’s Reluctant Progressive (Tallahassee: Florida State University Press, 1971), 4–5, 77–84; “Southerners to Hear Taft,” New York Times, February 13, 1911; “Agricultural Cooperation and Rural Credit in Europe,” Senate Doc. 261, 63rd Cong., 2nd sess. (1914), 7 and 8; George E. Putnam, “The Land Credit Problem,” Bulletin of the University of Kansas Humanistic Studies 2 (December 1916): 40–41; and “Agricultural Investigation,” Los Angeles Times, June 1, 1913.

(21) . “Agricultural Cooperation and Rural Credit in Europe,” 9–10.

(22) . Ellen Furlough and Carl Strikwerda, “Economics, Consumer Culture, and Gender: An Introduction to the Politics of Consumer Cooperation,” in Consumers against Capitalism? Consumer Cooperation in Europe, North America and Japan, ed. Furlough and Strikwerda (Lanham, MD: Rowan and Littlefield, 1999), 1–65; Daniel T. Rodgers, Atlantic Crossings: Social Politics in a Progressive Age (Cambridge, MA: Harvard University Press, 1998), 330; and James Livingston, Origins of the Federal Reserve System: Money Class, and Corporate Capitalism, 1890–1913 (Ithaca, NY: Cornell University Press, 1986), 218n4.

(23) . “Agricultural Cooperation and Rural Credit in Europe,” 21, 22.

(24) . B. F. Harris, “What I Am Trying to Do,” World’s Work 26, no. 4 (August 1913): 436.

(25) . B. F. Harris, The Problems of Rural Life from the Banker’s Standpoint (Chicago: Union Stock Yard and Transit, 1912), 4, 5.

(26) . Douglas Steeples and David O. Whitten, Democracy in Desperation: The Depression of 1893 (Westport, CT: Greenwood Press, 1998), chap. 3; Arthur S. Link, Wilson: The New Freedom (Princeton, NJ: Princeton University Press, 1956), 203–23; James Livingston, Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890–1913 (Ithaca, NY: Cornell University Press, 1986), chap. 8; and Elizabeth Sanders, Roots of Reform: Farmers, Workers, and the American State, 1877–1917 (Chicago: University of Chicago Press, 1999), 236–59.

(27) . John Milton Cooper, Jr., Pivotal Decades: The United States, 1900–1920 (New York: W. W. Norton, 1990), 196.

(28) . Livingston, Origins of the Federal Reserve System, 217.

(29) . Sun quoted in Link, Wilson: The New Freedom, 216; Federal Reserve Act, 38 Stat. 251 (1913), sec. 13, sec. 24; Henry Parker Willis, The Federal Reserve System: Legislation, Organization and Operation (New York: Ronald Press, 1923), 223, 247–57; and Richard Abrams, “Woodrow Wilson and the Southern Congressmen, 1913–1916,” Journal of Southern History 22 (November 1956): 421.

(30) . “An Annual Message to Congress” (December 2, 1913), The Papers of Woodrow Wilson, ed. Arthur S. Link et al. (Princeton, NJ: Princeton University Press, 1979), 29:5.

(31) . Quoted in Link, Wilson: The New Freedom, 262.

(32) . S. 4246, 63rd Cong., 2nd sess. (January 29, 1914), quote from sec. 18, in Bills Introduced in the United States Senate and the House of Representatives during the Sixty-Third Congress Relative to Rural Credits (Washington, DC: GPO, 1915). The first income tax law, made possible by the ratification of the Sixteenth Amendment in February 1913, was technically the second section of the Underwood-Simmons Tariff Act, passed in October 1913. Sidney Ratner, American Taxation: Its History as a Social Force in Democracy (New York: W. W. Norton, 1942), 333–34.

(33) . “Farm-Land Banks,” Wall Street Journal, February 25, 1914.

(34) . Robert J. Bulkley, “Extension of Remarks,” Congressional Record, 63rd Cong. 3rd sess., (p.185) v. 52, pt. 6 (appendix) and Herrick and Ingalls, How to Finance the Farmer, 19–23, quote at 14.

(35) . Subcommittees of the Committees on Banking and Currency of the Senate and the House, “Joint Hearings on Rural Credits,” 63rd Cong., 2nd sess., 1914, 42 (hereafter, “Joint Hearings”).

(36) . Grange officer quoted in Ibid. at 263.

(37) . “Fight over Rural Credits,” New York Times, January 31, 1914.

(38) . “Joint Hearings,” 257.

(39) . Ibid., 264.

(40) . Ibid., 693.

(41) . Ibid., 694.

(42) . H.R. 4811, 63rd Cong., 1st sess. (May 6, 1913), H.R. 11897, 63rd Cong., 2nd sess., (January 19, 1914), H.R. 21590, 63rd Cong., 3rd sess. (March 2, 1915), Bills Introduced; Ruth Velma Corbin, “Federal Rural Credits, 1916–1936” (MA thesis, University of Wisconsin, 1936), 23; and Benedict, Farm Policies, 146–47.

(43) . Elizabeth Sanders, “Farmers and the State in the Progressive Era,” in Changes in the State: Causes and Consequences, ed. Edward S. Greenberg and Thomas F. Mayer (New-bury Park, CA: Sage Publications, 1990), 203.

(44) . Robert E. Putnam, “The Federal Farm Loan System,” American Economic Review 9 (March 1919): 57.

(45) . Johnson’s dream of establishing a municipally owned electrical power system for Cleveland was ultimately brought to fruition in 1914 by another of his protégées, Newton D. Baker, who like Bulkley, would go on to a national political career. William Donald Jenkins, “Robert Bulkley, Progressive Profile” (PhD diss., Case Western Reserve University, 1969), 16–17; and Hoyt Landon Warner, Progressivism in Ohio, 1897–1917 (Columbus: Ohio State University Press, 1964), 61–62. After serving two terms as mayor of Cleveland, Baker became secretary of war in the second Wilson administration. Encyclopedia of Cleveland History, s.v. “Baker, Newton Diehl,” http://ech.cwru.edu/ech-cgi/article.pl?id=BDN (accessed August 7, 2005).

(46) . Bulkley to Newton D. Baker (January 13, 1913), Robert Johns Bulkley Papers, Western Reserve History Society, container 4, folder 3 (hereafter Bulkley Papers); Ronnie J. Phillips and David Mushinski, “The Role Of Morris Plan Lending Institutions in Expanding Consumer Micro-Credit in the United States,” Colorado State University Department of Economics Working Paper, March 8, 2001, http://ssrn.com/abstract=287569 (accessed July 14, 2005), 4–10; James Grant, Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken (New York: Farrar, Straus and Giroux, 1992), 94, quote from 95; and Louis N. Robinson, “The Morris Plan,” American Economic Review 21 (June 1931): 222.

(47) . “Election Results, Congress and the Presidency, 1860–1992,” Congressional Quarterly’s Guide to U.S. Elections, 3rd ed. (Washington, DC: Congressional Quarterly, 1994), 1344.

(48) . Bulkley to Newton D. Baker (May 28, 1910), Bulkley Papers, container 1, folder 2; and Jenkins, “Robert Bulkley,” 78–79.

(49) . “Two New England Solons and Their Wives Who Can Boast Distinguished Ancestry,” Washington Post, May 4, 1913; “Hollis, Henry French,” The National Cyclopaedia of American Biography, vol. 15 (New York: James T. White, 1916), 272–73; and “Would Limit Harvard Men’s Pocket Money,” Boston Advertiser, March 24, 1914, in Henry French Hollis bibliographical folder, Harvard University Archives (hereafter cited as Hollis Papers).

(50) . (p.186) “Senator Hollis’ Forecast on Suffrage Is Attacked,” Christian Science Monitor, April 15, 1913; “New Hampshire Still Trying to Elect Senator,” Christian Science Monitor, January 16, 1913; “Manager for Bass Gives His Ballot to a Democrat,” Christian Science Monitor, January 24, 1913; “Elect H. F. Hollis to Senate,” New York Times, March 14, 1913; and “New Hampshire Democrats Elect Hollis on 40th Ballot,” Christian Science Monitor, March 13, 1913.

(51) . Fred C. Kelly, “Statesmen, Real and Near,” Boston Morning Herald, April 2, 1913, Hollis Papers.

(52) . “Parties Put to Test: Senator Hollis Sees Disappearance of at Least One,” Washington Post, April 30, 1913.

(53) . “H. F. Hollis Predicts Federal Control,” Christian Science Monitor, April 16, 1915.

(54) . “Career of New Senator,” Concord (New Hampshire) Monitor, March 13, 1913, Hollis Papers; and “Joint Hearings,” 455.

(55) . Arthur S. Link, Woodrow Wilson and the Progressive Era, 1910–1917 (New York: Harper and Brothers, 1954), 18–20, 54–55, 80.

(56) . “Reject Class Legislation,” Christian Science Monitor, May 8, 1913.

(57) . S. 5542 & H.R. 16478, 63rd Cong., 3rd sess. (May 12, 1914), Bills Introduced.

(58) . Robert J. Bulkley, “The Federal Farm-Loan Act,” Journal of Political Economy 25 (February 1917): 139.

(59) . W. Stull Holt, The Federal Farm Loan Bureau (Baltimore: Johns Hopkins Press, 1924), 14.

(60) . Alaska Rail Road Act, 38 Stat. 305 (1914); Edwin M. Fitch, The Alaska Railroad (New York: Frederick A. Praeger, 1967), chap. 2; and Melvin I. Urofsky, “Josephus Daniels and the Armor Trust,” North Carolina Historical Review 45 (July 1968): 237–63.

(61) . Florence E. Parker, Consumers Cooperative Societies in the United States in 1920 (Washington, DC: U.S. Bureau of Labor Statistics, Bulletin No. 313, 1923), esp. 2, 6, 15– 21; and Joseph G. Knapp, The Rise of American Cooperative Enterprise: 1620–1920 (Danville, IL: Interstate Printers and Publishers, 1969), chap. 21.

(62) . Robert J. Bulkley, “The Federal Farm-Loan Act,” Journal of Political Economy 25 (February 1917): 141.

(63) . Wilson quote from David Sarashon, The Party of Reform: Democrats in the Progressive Era (Jackson: University Press of Mississippi, 1989), 186; Link, Wilson: The New Freedom, 261–64; and “Rural Credit Plan Shelved,” New York Times, May 13, 1914.

(64) . Federal Farm Loan Act, 39 Stat. 360 (July 17, 1916); Arthur S. Link, Wilson: Confusions and Crises, 1915–1916 (Princeton, NJ: Princeton University Press, 1964), 345– 50; and Lewis L. Gould, Reform and Regulation: American Politics from Roosevelt to Wilson, 3rd ed. (Prospect Heights, IL: Waveland Press, 1996), 187.

(65) . Murray A. Benedict, Can We Solve the Farm Problem? An Analysis of Federal Aid to Agriculture (New York: Twentieth Century Fund, 1955), 134.

(66) . Earl Sylvester Sparks, History and Theory of Agricultural Credit in the United States (New York: Thomas Y. Crowell, 1932), 158.

(67) . Ibid., 131–32.

(68) . W. Stull Holt, The Federal Farm Loan Bureau, 32.

(69) . Sparks, History and Theory of Agricultural Credit, 133, 126–28.

(70) . David E. Hamilton, From New Day to New Deal: American Farm Policy from Hoover to Roosevelt, 1928–1933 (Chapel Hill: University of North Carolina Press, 1991), 18.

(71) . George E. Putnam, “The Federal Farm Loan Act,” American Economic Review 6, no. 4 (December 1916): 784.

(72) . Hoag, The Farm Credit System, 84.

(73) . (p.187) C. W. Thompson, “The Federal Farm Loan Act,” American Economic Review 7, no. 1, Supplement (March 1917): 130. Thompson was an economist with the Department of Agriculture.

(74) . Holt, The Federal Farm Loan Bureau, 28–29nn26–27.

(75) . “Colored Farmers Tell How They Got Relief,” Borrower’s Bulletin (Washington, DC: Federal Farm Loan Bureau, U.S. Treasury Department) 1, no. 3 (January 1918): 6.

(76) . Harold Archer Van Dorn, Government Owned Corporations (New York: Knopf, 1926), 38.

(77) . Benedict, Farm Policies of the United States, 147; George E. Putnam, “Recent Developments in the Federal Farm Loan System,” American Economic Review 11, no. 3 (September 1921): 432–33; and Hamilton, From New Day to New Deal, 152.

(78) . Federal Farm Loan Act, 39 Stat. 360 (1916), sec. 12, sec. 20.

(79) . Holt, The Federal Farm Loan Bureau, 32.

(80) . Ratner, American Taxation, 370–72.

(81) . Peter Fearon, War, Prosperity and Depression: The U.S. Economy, 1917–45 (Lawrence: University Press of Kansas, 1987), 15–18, chap. 2.

(82) . Sparks, History and Theory of Agricultural Credit, 123–24; and Holt, The Federal Farm Loan Bureau, 45–46.

(83) . Putnam, “Recent Developments in the Federal Farm Loan System,” 432.

(84) . Smith v. Kansas City Title and Trust Company, 255 U.S. 180 (1921), at 181 and 184 and Farm Mortgage Bankers Association of America, Directory of Officers and Members, January 1922, 50, http://books.google.com/books/download/Reports_and_publications.pdf?id=yZvPAAAAMAAJ&hl=en&capid=AFLRE73ygI6p9wFPlXHyaI0xlgmVcx04TTjggEC2pLWUWfHytVAFF6LG07mjs6kG3u4wlLpPH318KEp8efgjzcn-KDa9qBapKQ&continue=http://books.google.com/books/download/Reports_and_publications.pdf%3Fid%3DyZvPAAAAMAAJ%260utput%3Dpdf%26hl%3Den (accessed July 21, 2011).

(85) . Federal Farm Loan Act, 39 Stat. 360, sec. 1.

(86) . McCulloch v. Maryland, 17 U.S. 316 (1819).

(87) . Following his efforts on behalf of the private banking interests that wanted to invalidate the land banks, Bullitt spent the next year as special counsel to the Emergency Fleet Corporation, the other early template for authority-like federal agencies. “William Bullitt, Ex-U.S. Aide, Dead,” New York Times, October 4, 1957.

(90) . Smith v. Kansas City, 255 U.S. at 192–93 (1921).

(91) . Hammer v. Dagenhart, 247 U.S. 251 (1918).

(92) . Ibid. at 272.

(93) . Ibid. at 276.

(94) . Ibid. at 275.

(95) . Smith v. Kansas City Title and Trust Company, 255 U.S.180 (1921), at 211.

(96) . Ibid. at 210.

(97) . U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970, Part 1 (Washington, DC: GPO, 1975), table K-1, p. 457. By 1990 the share of the American population living on farms had dropped below 2 percent. Susan B. Carter et al. (p.188) , eds., Historical Statistics of the United States, Millennial Edition (New York: Cambridge University Press, 2006), 4:40, table Da 1–13. No later figures are available, because after this the Department of Agriculture, which had taken over this aspect of data collection from the Census Bureau, stopped determining farm residence, given that living on farms was no longer a reliable indication that individuals were engaged in farming as a livelihood.