Credit is simply a person's ability to borrow and depends upon the confidence that others place in him. This confidence depends on his reputation for honesty and his known ability to repay. A man, as a rule, has to HAVE something—land or property of other kind— that he can offer as security before he can borrow much. It is for this reason that thrift is essential to a man's credit—thrift and honesty.
There is no magic about credit. It is a powerful agency for good in the hands of those who know how to use it. So is a buzz saw. They are about equally dangerous in the hands of those who do not understand them. … Many a farmer would be better off to-day if he had never had a chance to borrow money at all, or go into debt for the things which he bought. However, there is no reason why those farmers who do know how to use credit should not have it.
Shortsighted people, however, who do not realize how inexorably the time of payment arrives, who do not know how rapidly tools wear out and have to be replaced, or do not keep accounts in order that they may tell exactly where they stand financially, will do well to avoid borrowing. Debts have to be paid with deadly certainty, and they who do not have the wherewithal when the day of reckoning arrives become bankrupt with equal certainty.
On the other hand there is nothing disgraceful in borrowing for productive purposes. The feeling that it is not quite respectable to go into debt has grown out of the old habit of borrowing to pay living expenses. That was regarded, perhaps rightly, as a sign of incompetency. … But to borrow for a genuinely productive purpose, for a purpose that will bring you in more than enough to pay off your debt, principal and interest, is a profitable enterprise. It shows business sagacity and courage, and is not a thing to be ashamed of. But it cannot be too much emphasized that the would-be borrower must calculate very carefully and be sure that it is a productive enterprise before he goes into debt. [Footnote: T. N. Carver, "How to Use Farm Credit," p. 2.]
COOPERATION FOR CREDIT
Even though a farmer be thrifty, industrious, and honest, the conditions of farm business are such that it has not always been easy for him to borrow capital. Here again cooperation helps. In some of our states the law permits the organization of CREDIT UNIONS. The members are farmers of a neighborhood or district and, therefore, are acquainted with one another. Each member must buy shares of stock, which provides a certain amount of funds. The union may also receive deposits of money, paying interest on them as a savings bank would do. This increases the funds and also encourages thrift on the part of the farmer. Idle money, or money that might otherwise be spent unwisely, is thus made productive. In some unions, as in Massachusetts, children are encouraged to deposit their small savings, and in some cases half the capital of the union is made up of such small savings deposits. From these funds loans are made to members of the union on reasonable terms, provided they are to be used for productive purposes. The union may also borrow money from the bank in town on the COLLECTIVE CREDIT of its members for the improvement of agricultural conditions in the neighborhood.
NATIONAL AID TO THE FARMERS' CREDIT
Similar aid to the farmers' credit has been given by the national government through the Federal Farm Loan Act of 1916. This Act created a Federal Farm Loan Board in the Treasury Department, and twelve Federal Land Banks, one in each of twelve districts into which the United States was divided for that purpose. Through the organization provided by the board and the banks, a farmer may now borrow money on more favorable terms, but only on condition that he agrees to use the money for the purchase and improvement of land or for equipment, and to engage in the actual cultivation of the farm for the development of which he desired the money.
The provisions of the Federal Farm Loan Act afford an excellent illustration of how government promotes citizen cooperation. The government does not lend the money to the farmers; it merely provides the machinery by which the farmers may cooperate among themselves, and also secure the cooperation of investors in all parts of the country, to obtain capital necessary for the proper development of the land. As a rule the farmer can borrow money from the land bank only by being a member of a local "national farm loan association." His dealings with the bank are through this association. His membership in the association gives him better standing and secures for him better terms than he could get if acting separately. Moreover, the money that the bank lends to the farmer comes from the farmers who belong to the association, and from investors in all parts of the country, who buy shares of stock in the bank and bonds issued by the bank on the security of the farmers' land and equipment. The whole scheme is one of cooperation which would be impossible but for the legislation, financial support, and supervision of the government at Washington.