of administration. This is covered by profits made by the association in buying in below par their own bonds whenever opportunity offers and by discounting bills of exchange and drafts."

As to the charge for the administration expenses of the Nassau Mortgage and Savings Bank, Mr. Reusch, the Councilor (S. Doc. 214, 63rd Congress, page 341), says:

"The current rate of interest on mortgage bonds is 4 per cent., but the farmer pays 44 per cent., and that onefourth of 1 per cent. goes toward the running expenses.'

The administration charges of the Landschaft of Saxony are shown by a statement of one of the directors (S. Doc. 214, 63rd Congress, page 366) as follows:

Every man who gets money from the Landschaft pays 1 mark for every 1,000 for general expenses (entrance fee), and in addition, one-fourth of 1 per cent. for general expenditures.'

From the foregoing it will be seen that the charge of 1 per cent. per annum on the face of the mortgage, or upon the amount unpaid upon the mortgage, is wholly without precedent among European land-credit institutions. The charges for administration in these institutions range generally from nothing up to one-half of 1 per cent. per annum. Seldom is the administration charge over one-fourth of 1 per cent. per annum. It must be borne in mind that under the "three officially endorsed" bills, the borrowers must pay all preliminary charges, like perfecting title, securing abstract, and so on, in addition to the 1 per cent. per annum. The Crédit Foncier, which is a joint-stock, profitsharing company, is only allowed to charge an interest rate six-tenths of 1 per cent. above the rate of interest on its bonds. The Prussian Central Land Credit Company of Germany, which makes loans on both rural and urban property, and is one of the largest institutions of the kind in the world, has been conducting its business upon an administration charge of only 13/100 of 1 per cent. per annum

upon its total loans. The United States Commission, and those who support the Commission Bill and the Senate Committee Bill, zealously guard the national treasury from appropriations to aid our rural-credit system, but are most liberal in allowances to the private banks for services rendered to borrowing farmers. Why is the money in the treasury more sacred than that in the pockets of the American farmers? Economy in the administration of public affairs is right. But the just demand for greater economy in all our governments - national, State and local — only demonstrates the necessity of economy in the administration of our land-credit institutions. Be it remembered, that the farmers owe five or six times as much as the amount of the interest bearing debt of the United States, and more than the interest-bearing debt of the national government plus the total debt of all our State, county, city, town and local governments. This gives us a conception of the vastness of the business proposition to be handled by our farm-credit institutions, and how absolutely essential it is that these institutions shall be administered at the lowest cost possible.

CHAPTER VIII

COMPETITIVE LAND BANKS

THE United States Commission reached the conclusion that a "competitive" system of national land banks would be best. It so recommended in its report. This report, Senate Document 380, Parts I and II, 63rd Cong., page 28, says:

"As a result it (the Commission) became convinced that the system outlined in the bill which it had formulated possessed advantages which a central bank plan would not possess and encouraged competitive banking to an extent that would not be possible under a bill providing for a central institution."

"Under the provisions of this bill, any ten people can organize a separate and independent bank with a minimum capital, with a fixed ratio between that capital and the volume of land-bank bonds which the banks may issue, and with an area of operations as wide as the State in which they are organized. Competition is invited in the organization of such institutions. The right to organize such institutions is given to every one, and the greatest latitude in operation is afforded that is thought to be consistent with soundness and safety."

Further on page 30, the Commission says:

"A full consideration of these and many other phases of the problem convinced the Commission that the proper method of meeting these various conditions was to authorize competitive banking."

The Commission Bill seeks to establish such a system.

UNIV OF

It provides for the organization of any number of national land banks, all of which are authorized to issue and sell land mortgage bonds. The advocates of this measure argue that the proposed land banks will compete with each other in a way to keep interest rates down. One of the primary objects of a new land-credit system is to lower existing interest rates. But will these banks compete with each other in establishing lower interest rates? The proposition should be carefully considered. The farmers of the United States should understand it. The friends of the farmers should study the proposition with the utmost care. The question is, will there be any such competition among these proposed national land banks as will, to any appreciable degree, affect the rate of interest charged the farmers? This question must be answered in the negative.

it.

First. In reaching a conclusion as to whether or not competition between land banks would be a controlling force in the regulation or reduction of interest rates to farmers, common experience and observation must be taken into consideration. These banks will be purely private institutions — organized as profit-sharing corporations. In this respect they will be just like existing banks. The men who will invest their money in the capital stock of these institutions will not enter the enterprise with any altruistic purpose in view. They will go into the business for the money there is in We have now nearly 27,000 banks in the United States. Our large cities are crowded with them. The small cities are abundantly supplied. Every town and village of any consequence has its bank. On an average there are about nine banks in ever county in the United States. Our banks have been rapidly increasing. Men with money are constantly seeking a place that is available for the establishment of a new bank. Banking is a money-making business. Experience and observation teach us that our banks do not compete with each other in interest charges. They compete for depositors;

they do not compete for borrowers. On every hand, there is evidence of this fact. Banks select choice locations for business; they erect costly edifices thereon; they place therein expensive and elegant furniture; they employ the most efficient help; they advertise in the public press; and their capital, deposits, surpluses and undivided profits — if creditable in amount - are placed conspicuously before the public. The chief purpose of all this display, is to get deposits. Banks openly solicit deposits. With this end in view, bankers sometimes participate in national, State and local politics. They expend money to educate the public in the habit of depositing money in the banks. To secure deposits, banks pay interest thereon. Competition among banks does increase the rate of interest paid depositors. In the rate of interest charged borrowers, there is virtually no competition. Ordinarily banks can make all the loans their deposits will justify, without soliciting borrowers. To secure borrowers, they do not need to offer any inducements in the way of "cut" rates on interest. So it would be with the proposed "competitive" national land banks. They would compete to secure deposits, and along all those lines which would enlarge their business, or add to their profits. But like existing commercial banks, only in exceptional cases, and, as a last resort, would they adopt rate-cutting in interest charges as a means to increase profits, to enlarge dividends, or to add to the surplus and undivided profits.

Second. The number of banks that would be organized under the proposed law might not be sufficient to make any effective competition. Under the plan proposed by the Commission, any number of these banks may be organized. That is, the law in no way limits the number of banks. Unless these banks are as profitable to shareholders as ordinary commercial banks, it is almost certain that few of them would be organized. They can not be as profitable as commercial banks unless their charge for interest is high