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Farm Credit Newsroom

Jun
26
2012

95 Years: The Chain of Events Leading to July 1916 -- Part 2

Did you miss Part 1?

  • David Lubin, the U.S. delegate to the International Agricultural Institute in Rome, Italy, delivered the keynote address to the 1912 Annual Meeting of the Southern Commercial Congress.  He invited a delegation to visit Europe to study rural credit systems as a model for a U.S. system. Out of this meeting came an invitation to U.S. States and Canadian Provinces to appoint delegates to a commission to study the European systems in 1913. This became the American Commission consisting of delegates from 29 states, the District of Columbia and four provinces.

  • In early 1913, Congress established the United States Commission, consisting of seven members to study European rural credit institutions and report back recommendations. President Wilson appointed U.S. Senator Duncan Fletcher, of Florida, as chairman as well as six other members — all seven were also members of the American Commission. The United States and American Commissions traveled and worked together, although the United States Commission was federally funded while the American Commission delegates were funded by their state or province, by certain farm groups or by themselves.

  • Starting in late 1913, the Commissions published extensive joint reports about the rural credit systems and agricultural cooperatives in dozens of different countries. It is of interest that this was the year before World War I erupted, which by the conclusion of peace in 1919, had massively changed European boundary lines. There were reports on both “Land Credits” (long-term real estate loans) and “Personal or Short Term Credits.”

  • In December 1913, Congress passed and President Wilson signed the Federal Reserve Act establishing a central banking system for the United States with a Federal Reserve Board in Washington and 12 district Federal Reserve Banks. It is important to understand that, as originally established, much of the control of this system was with the national banks who joined the System to become owners of the district Federal Reserve Banks, and especially with the New York City banks that controlled the New York District Bank. To advocates of a rural credit system, the Federal Reserve Act was generally considered a further tilt toward the nation’s commercial interests and intensified the sentiment that rural America deserved its own version of the Federal Reserve System.

  • The “Great Financial Crisis of 1914” erupted in July and was largely over by December.  This was triggered by the outbreak of the Great War in Europe, which in turn threatened massive outflows of gold from the American banking system to Europe, a shortage of currency, and a potential run on banks similar to what had occurred in 1907.  While the Federal Reserve System had been passed the previous December, it was not yet operational.  Aggressive intervention by Secretary of the Treasury William McAdoo, including a four-month closure of the New York Stock Exchange, contained the crisis before it devolved further. This crisis may be one reason why not much happened on the rural credits front in 1914-15. And, it may also explain why President Wilson sensed that he needed to sign rural credits legislation prior to his re-election campaign in order to appease the rural vote.

  • During 1914 and 1915, several dozen rural credit proposals were introduced in Congress. Periodic subcommittee hearings were held, but no serious movement toward passage of a bill occurred. Among the proponents of a permanent rural credit system, there were three schools of thought:
    1. Federal charter of joint stock banks (investor-owned) that would sell bonds backed by farm mortgages in order to fund their operations.
    2. Federal charter of cooperative banks and associations that would ultimately be owned by their farmer-borrowers and would similarly obtain funding through issuance of bonds backed by conforming farm mortgage obligations.
    3. Direct lending of U.S. Treasury funds to farmers.

  • This legislative logjam was finally broken in 1916 when President Wilson signaled his Congressional allies that Congress needed to pass meaningful legislation to assist him in his reelection bid later that year.

Next: U.S. Senator Duncan U. Fletcher, D-Florida

 

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