Farmers and credit, 1920's.

Farmer's troubles after World War I arose in part because of another activity too, that of the War Finance Corporation (WFC).

The WFC was instituted in May of 1918 by the then Secretary of the Treasury, McAdoo, in wartime conditions. Indeed it was such conditions from where the perceived need arose: to help finance industries deemed by the government as essential to the war effort. The WFC was given two functions in providing this assistance: to support the market for US government bonds, and second, to subsidize, bail-out or otherwise support 'essential' US industries experiencing difficulties owing to the war. The initial focus was on utilities, railroads and banks; the banks were deemed in difficulty since in helping to finance the government deficit due to war spending, their assets had been put under strain.

After the war and despite changed conditions, the WFC was continued; with calls from big business for even more government assistance to maintain the high prices in the expectation of a post war recession and to provide credits to a war torn Europe so that the Europeans might continue to buy US made goods. As recession followed the war in 1920, Congress, acting on the advice of Eugene Meyer and others, duly revived the WFC, but this time as a simple agricultural relief agency. The new WFC came into operation under the Agricultural Credits Act of 1921, to lend directly to farmers, amongst others.

And lend it did, heavily, allowing farmers to buy and store crops, increasing farm prices. "By the summer of 1923", says Rothbard, "the WFC had loaned $172 million to farm co-ops and another $182 million to rural banks, which in turn loaned money to farmers. The WFC, working closely with farm block leaders, appointed a Corn Belt Advisory Committee of farm leaders to pressure Midwestern rural bankers into lending more heavily to farmers in that region." (Rothbard, A History of Money and Banking in the United States, page 285.) Further Acts followed in 1923, again focussed on farm lending.

It should be easy by now to see the potential after effects, should farm commodity prices ever turn down, which they began to do as the 1920's wore on. More and more farmers began to have difficulty paying back their bank loans with progressively lower incomes, which lowered farm land prices, which affected bankers loans outstanding. Slowly, trouble was brewing.

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