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The Federal Farm Loan Act is a law passed by the United States Legislature and signed into law by President Woodrow Wilson in 1916. It was created in response to small farmers struggling to keep up with the production of larger farming businesses. It created the Farm Credit System — a network of banks with federally backed funds with the specific purpose of promoting investment in small farms. The law allowed these banks to lend to small farmers up to 50% of the value of their land as well as up to 20% of the improvements the farmers had made on their land.
The Federal Farm Loan Act sought to even the playing field between smaller and bigger farmers. In the early 1900s, the attitude of small farmers in the Midwestern United States was that of angst toward big business. This was just one faction of a larger movement to regulate the growing power of big business moguls who held monopolies over their respective industries. This growing angst gave rise to what is known as the Progressive Era in the United States, which lasted from the 1890s into the 1920s. The Progressive Era was a time of activism in which actions were taken to make government and large businesses accountable for their uses of power.
The Federal Farm Loan Act is one of the most famous pieces of legislation passed during the Progressive Era in the United States. During this period, the United States Legislature passed several laws geared toward regulating big businesses and exposing corruption. This piece of legislation is often credited along with the Sherman Anti Trust Act and the Clayton Anti Trust Act as being strong legislation that helped to fulfill the aim of breaking up big business control in the United States during this period.
The Federal Farm Loan Act attempted to accomplish its aims through the creation of the Farm Credit System, a system of banks designed to cater specifically to people operating smaller farms. Through these banks, small farmers were able to take on up to 50% of the value of their land plus 20% of the improvements made on the land, including soil improvement and structures. The United States government provided each bank with $500,000 (USD) for lending to small farms. Through this government backing, banks were able to provide competitive rates on loans to qualified small farms and encourage investment.
Frequently Asked Questions
What was the purpose of the Federal Farm Loan Act?
The Federal Farm Loan Act of 1916 was designed to provide American farmers with access to credit at reasonable interest rates. It established 12 regional Federal Land Banks which offered long-term loans to farmers. This act aimed to alleviate the financial struggles of farmers, enabling them to purchase land, equipment, and livestock, thereby promoting agricultural stability and growth.
How did the Federal Farm Loan Act change the agricultural finance system?
Before the Federal Farm Loan Act, farmers often faced exorbitant interest rates from private lenders. The act revolutionized agricultural finance by creating a federal banking system tailored to farmers' needs, offering lower interest rates and longer repayment terms. This made credit more accessible and affordable, helping to stabilize the agricultural economy and encouraging farm ownership.
Who was eligible for loans under the Federal Farm Loan Act, and what were the terms?
Under the Federal Farm Loan Act, any farmer or rancher who owned or was about to own agricultural land could apply for a loan. The loans had favorable terms, including low-interest rates and repayment periods of up to 40 years. The act aimed to support small to medium-sized farms, particularly those operated by the owner, rather than large-scale or absentee-owned enterprises.
What impact did the Federal Farm Loan Act have on rural communities?
The Federal Farm Loan Act had a significant positive impact on rural communities by providing the financial means for farmers to improve their operations and expand their properties. This led to increased productivity and stability in the agricultural sector, which in turn supported rural economies. The act also helped to stem the tide of urban migration by making farming a more viable livelihood.
Is the Federal Farm Loan Act still in effect today?
While the original Federal Farm Loan Act has undergone numerous changes and has been superseded by new legislation, its legacy continues. The Farm Credit System, established by the act, still exists today, providing a network of borrower-owned financial institutions that offer credit and financial services to the agricultural community. This system remains a crucial component of the agricultural finance landscape in the United States.